DB Securities said on the 7th that Shinsegae is expected to post an earnings surprise in the second quarter this year, beating market expectations on the back of overwhelming department store growth and expense savings in the duty-free division. It maintained a "Buy" rating and raised the target price to 900,000 won from 600,000 won. The previous session's closing price was 690,000 won.
DB Securities forecast Shinsegae's second-quarter operating profit on a consolidation basis at 161.8 billion won, up 114.7% from a year earlier. That is above the market consensus of 148.4 billion won.
DB Securities pointed to the department store division's unrivaled growth as the driver of strong results. Combined managed sales at department stores in the second quarter are expected to grow 27% from a year earlier. In particular, luxury sales climbed more than 40%, leading companywide growth, and a wide range of categories grew evenly, including fashion (9%), cosmetics and accessories (19%), home appliances (13%), and food.
By store, the main branch, which benefited significantly from the luxury hall renewal, posted a high growth rate of 77%. The Gangnam and Centum City branches also grew 20% and 27%, respectively, with major large stores strong in luxury merchandising driving results.
Heo Jena, an analyst at DB Securities, said, "Sales are likely to decline somewhat from the previous quarter due to reduced operating area at Incheon Airport," but noted, "As fixed rent expense is sharply reduced, second-quarter operating profit this year will increase by more than 10 billion won, turning to the black."
Heo said Shinsegae, based on its competitiveness in luxury, is maintaining an overwhelming edge in Korea's department store market while establishing itself as a must-visit destination for foreign tourists, and that it will continue to benefit from expanded inbound consumption. He also projected that duty-free stores can achieve a large improvement in annual profit due to the effect of reduced airport space.
However, the recent share price has quickly reflected expectations of strong results, with the 12-month forward price-earnings ratio (PER) rising steeply to 18 times, which was cited as a burden.
Heo advised, "Given the recent steep rally, rather than chasing the rise, we recommend a strategy of buying in tranches whenever there is a correction."