Leading Investment & Securities said on the 26th that Shinsegae is poised to benefit from both foreign and luxury spending and improved duty-free profitability. It initiated coverage with a "buy" rating and a target price of 700,000 won. The previous session's closing price was 535,000 won.
Leading Investment & Securities said Shinsegae Department Store is showing stronger growth than rivals as robust domestic consumption, the asset effect, large-store renovations, and rising inflows of foreign tourists align at the same time. It said first-quarter operating profit on a consolidation basis was 197.8 billion won, beating market expectations.
Yoo Seong-man, an analyst at Leading Investment & Securities, said, "Department stores saw profitability improve, driven by growth in high-margin categories centered on luxury and fashion and a surge in foreign sales," and added, "The duty-free business turned to profit in the first quarter thanks to normalized downtown store discount rates, growth in free independent traveler (FIT) customers, and recovering demand for K-beauty and luxury brands."
Yoo said department stores' top-line growth, the duty-free unit's margin recovery, and better results at subsidiaries are appearing simultaneously. Shinsegae International saw a sharp improvement in profit on the back of strong imported fashion and cosmetics and expense efficiency, and Central City is also benefiting from higher hotel occupancy and average daily rate (ADR).
Yoo said, "Shinsegae Department Store's performance momentum will be supported through the second half by renovation effects at key locations such as the main store, Gangnam, and Centum City and inbound shopping demand," adding, "In duty-free, dependence on low-margin sales centered on bulk buyers is declining, and as the sales mix shifts toward individual tourists, the pace of margin recovery is likely to accelerate."
Yoo added that "an increase in department store spending driven by the activation of the domestic financial market, a higher proportion of luxury sales compared with competitors, and stronger foreign sales due to a weaker won are also favorable for the company's earnings growth."