Meritz Securities on the 24th said Shinsegae's expanding share of sales from visiting foreigners has become a structural growth driver. It maintained a "buy" (BUY) rating and raised the target price to 850,000 won from 770,000 won. The previous session's closing price was 672,000 won.
Shinsegae's total sales in the first quarter of this year were 321.44 billion won, up 11.7% on-year, and operating profit rose 49.5% to 197.8 billion won. Meritz Securities said the department store business led overall results as department store sales jumped on the back of the main store renovation completed in the fourth quarter of last year and a surge in foreign customer sales.
In the department store institutional sector, total sales in April this year rose 14% from the previous month, and continued high growth with more than 20% growth in May. Shinsegae noted that with the completion of renovations at large stores such as the main store and the Gangnam store, it has a structure that most directly absorbs inbound demand from foreigners. In particular, it projected that starting in the third quarter of this year, as the pace of increase in depreciation eases, the company will enter a phase where leverage is maximized.
However, it projected that in the duty-free institutional sector, sales will inevitably decline due to the end of DF2 (Incheon Airport) operations at the end of April this year. It observed that with expenses such as already recognized penalties and reduced fixed-cost burdens, profitability will begin improving in earnest from May this year centered on DF4. It also analyzed that Shinsegae International's profitability will improve if fixed costs continue to shrink and brand efficiency efforts persist.
Kim Jeong-uk, an analyst at Meritz Securities, said, "With a higher share of luxury at department stores and the effects of visiting foreigners and exchange rates, steady sales growth is expected to continue," adding, "Annual depreciation increased by about 35 billion–40 billion won from a year earlier, but it is concentrated in the first half, so it will ease in the second half."
Kim said, "In duty-free, profitability structure improvement is expected to begin in earnest through an airport strategy focused on luxury goods and a downtown/online strategy focused on FIT," adding, "Duty-free (DF) is expected to swing from a loss to a profit, reducing earnings volatility."