NH Investment & Securities said on the 3rd that for Hyundai Department Store, while the core department store business is holding up better than expected, growth in the duty-free institutional sector's top line is entering full swing. It kept its investment opinion at "Buy" and raised the target price 71.4% to 240,000 won from 140,000 won. The previous session's closing price was 186,300 won.
Researcher Ju Young-hun of NH Investment & Securities said, "We are raising Hyundai Department Store's target price to 240,000 won by applying a 12-month forward controlling shareholders' net income PER of 16 times," adding, "This is a 20% discount compared with the valuation of competitor Shinsegae's department store business institutional sector (PER 20 times)."
Ju analyzed that this was the result of applying a valuation discount in light of subsidiary ZINUS's large operating loss. Ju said that if a turnaround in ZINUS's results is confirmed, a further target price increase would be possible.
Ju said, "It is unfortunate that the improvement in first-half consolidation results looks lagging behind competitors due to ZINUS's weak performance," but noted, "Considering the base effect, a rebound should be fully possible in the second half."
Ju added, "Even though the share price has climbed steeply recently, it is still only at 12.6 times next year's estimate on a PER basis, making it an attractive investment as a representative undervalued department store company."
NH Investment & Securities projected Hyundai Department Store's second-quarter net sales on a consolidation basis at 1.0767 trillion won, down 0.3% from a year earlier, with operating profit at 88.7 billion won, up 2.1%. The analysis is that, despite ZINUS's continued large operating losses, stronger-than-expected department store results will offset them.
Ju said, "In the department store institutional sector, apparel sales with high margins are strong, while depreciation expenses for some key stores such as The Hyundai Seoul have decreased," adding, "The improvement in department stores' operating profit will significantly outpace the sales growth rate."
Ju also assessed that the duty-free institutional sector has begun full-fledged top-line expansion with the start of operations in the Incheon Airport DF2 zone.
Ju predicted, "As the new zone operations expand the top line, unlike previous operators, the rent burden is designed not to be heavy, so there will be no damage on the operating profit side."
Ju judged, "The core strength of the department store business is stronger than expected, and the rent risk for duty-free has eased," adding, "Hyundai Department Store is an undervalued blue chip likely to extend the recent share price uptrend, as its valuation appeal remains high."