Korea Investment & Securities Co. on the 3rd recommended using the recent share price correction as a buying opportunity for Hotel Shilla, expecting solid second-quarter results that beat market expectations this year. It maintained its "Buy" investment opinion but cut the target price by 15% to 85,000 won from 100,000 won. The previous session's closing price was 50,300 won.
Korea Investment & Securities Co. projected that Hotel Shilla's operating profit in the second quarter this year will come in at 31.2 billion won, 12.5% above market expectations. For the travel retail (TR) division, it said the effects of improving fundamentals are becoming visible amid a favorable industry environment.
Kim Myeong-joo of Korea Investment & Securities Co. said, "Second-quarter sales in the duty-free industry will rise 5% from the first quarter, and fees for Chinese resellers (daigou) will stay at a similar level to the first quarter," adding, "In particular, the reduction in losses following the withdrawal from Incheon Airport DF1 will add to the effect, leading to results better than the market expected."
Kim said the hotel and leisure division is also benefiting from a shortage of hotel supply in downtown Seoul. Operating profit for the hotel and leisure division in the second quarter this year was estimated at 25.3 billion won, up 26.5% from a year earlier.
Kim said, "With domestic hotel supply unable to increase in the short term, the inbound trend in the second quarter was very strong," adding, "As the average daily rate (ADR) of hotels in Seoul rose more than in the first quarter, it likely contributed to strong companywide results."
Korea Investment & Securities Co. noted that despite Hotel Shilla posting solid results in the first quarter this year, the recent share price correction was due to an unfavorable supply-demand backdrop and the earnings volatility seen over the past five years. Since the outbreak of COVID-19, Hotel Shilla's results have been overly swayed by China's economy and daigou demand, prompting investors to take profits, it said.
However, Kim emphasized that unlike in the past, Hotel Shilla's earnings stability is now very high and the outlook for the second half is even brighter. In particular, as Japan's overtourism problem has emerged as a social issue and the Japanese government is implementing regulatory policies, this is expected to act as a boon for Korea's tourism industry.
Kim said, "In the second half, some tourists who would have gone to Japan are likely to visit Korea instead," forecasting, "The inbound tourist trend in the second half will be more favorable than the market expects."
Kim added, "After the first-quarter results were released, the share price correction has actually increased Hotel Shilla's valuation appeal," and said, "Given second-quarter results that are stronger than the first quarter and a favorable industry environment, we recommend actively using the recent share price correction as a buying opportunity."