20170111-三星证券-Retail__NEUTRAL__4Q_preview_29页_2mb

Retail Sector Summary (4Q16 Preview)

Core Content

This document provides an analysis of the retail sector in South Korea for the fourth quarter of 2016, focusing on the performance of key retailers, including E-mart, Shinsegae, and Lotte Shopping. It outlines the challenges faced by the sector due to political turmoil, a correcting real-estate market, and rising lending rates, which have impacted consumer sentiment and overall retail performance.

Main Points

• Overall Retail Performance: Domestic retailers missed consensus estimates for 4Q16 after beating expectations in 3Q16. The sector has been negatively affected by economic conditions.
• Defensive Stocks: Convenience stores, home shopping companies, and discount stores performed better than department stores and home electronics firms, which are more sensitive to economic downturns.
• E-mart:
  • Expected to beat consensus estimates for 4Q16, with a 12% increase in gross sales and 23% in operating profit.
  • Discount store sales grew by 1% y-y, while operating profit increased by 6.5%.
  • Traders and E-mart mall showed strong growth, with Traders expected to grow by 34% and E-mart Mall by 32%.
  • The company is rated as a BUY with a target price of KRW235,000.
• Shinsegae:
  • Expected to beat other department stores but miss overall consensus estimates.
  • Offline department store sales grew by 13% y-y due to new store openings and floor-space expansions.
  • Online sales continued to grow at a strong pace, and DFS sales in Sogong reached KRW200b.
  • The company is also rated as a BUY with a target price of KRW235,000.
• Lotte Shopping:
  • Missed consensus estimates for operating profit in 4Q16.
  • Despite some positives, including reduced losses and improved performance in some segments, the overall earnings were sluggish.
  • The company is rated as a BUY with a target price of KRW270,000.
• Consumer Sentiment:
  • The consumer sentiment index (CSI) dropped from 101.9 in October to 94.2 in December, indicating a significant slowdown in consumption.
• Valuation and Strategy:
  • Retail stocks are trading at attractive valuations but lack clear catalysts for growth in 1Q17.
  • The investment strategy suggests a NEUTRAL rating for the sector until consumption improves.
  • E-mart is highlighted as the top pick among large caps due to its defensive nature, rising market share, and growth potential.
  • Home shopping companies are noted for their undemanding valuations and potential for M&A-driven growth.

Key Information

• Economic Factors: Political instability, real estate market correction, and rising lending rates have weighed on consumer sentiment.
• Sector Performance:
  • Department stores and home electronics firms are more vulnerable to economic conditions.
  • Convenience and discount stores have shown resilience.
• Earnings Trends:
  • E-mart is expected to outperform due to its strong performance in discount stores and growth in Traders and E-mart Mall.
  • Shinsegae's DFS operations are a key area of focus, with the expectation of improved performance.
  • Lotte Shopping's performance was mixed, with some segments showing growth and others declining.

Tables Summary

Table 1: Retailers Valuations

• Large Caps: E-mart, Shinsegae, Lotte Shopping, HDS
• Home Shopping Players: CJ O Shopping, HHS, NS Shopping
• Small and Mid Caps: GS Retail, BGF Retail, Lotte Himart

Table 2: CSI and Sales Growth

• Monthly data for 2H15 and 2016 shows a decline in sales growth for department stores and discount stores in November and December.
• CSI dropped from 101.9 to 94.2, reflecting weak consumer sentiment.

Table 3: E-mart Financial Data

• E-mart's financial metrics for 2016 and 2017 show positive trends in gross sales and operating profit.
• Valuation metrics suggest the stock is above the sector average but offers growth potential.

Table 4: Shinsegae Financial Data

• Shinsegae's financial metrics show growth in gross sales and online sales, but operating profit growth is expected to be modest.
• Valuation metrics indicate a BUY rating with a target price of KRW235,000.

Table 5: Lotte Shopping Financial Data

• Lotte Shopping's performance was mixed, with some segments showing growth and others declining.
• The company is rated as a BUY with a target price of KRW270,000.

Conclusion

The retail sector in South Korea faced challenges in 4Q16 due to external economic factors. Defensive stocks such as E-mart, Shinsegae, and Lotte Shopping showed resilience, with E-mart and Shinsegae standing out as top picks. The overall sector is advised to be approached conservatively until consumption trends improve.