20171212-三星证券-A_well-rounded_beauty_12页_734kb

Shinsegae (004170) Summary

Core Content

This document provides a comprehensive update on Shinsegae's financial performance, growth potential, and valuation. It highlights the company's strengths in the Duty-Free Sales (DFS) sector, its position in the department store industry, and the value of its investment holdings. The report is authored by OJ Nam and Giselle Lee from Samsung Securities, dated 2017.12.12.

Main Points

1. Investment Outlook

• Recommendation: BUY
• Target Price: KRW360,000 (up from KRW300,000)
• Current Price: KRW278,000
• Market Cap: KRW2.8t/USD2.6b
• Shares (float): 9,845,181

2. Performance Overview

• 1-Year Performance: Shinsegae outperformed the Kospi index with a return of 63.5% vs. 31.5%
• 1-Month Return: 26.2%
• 6-Month Return: 16.9%

3. DFS Growth Potential

• Shinsegae is expanding its DFS business, which has high potential for growth.
• 2018 DFS Sales Forecast: KRW1.7t
• 2020 DFS Sales Forecast: Exceed KRW3t
• Key Drivers: Acquisition of Chosun Hotel's DFS operation, opening of a new DFS store in Gangnam, and increasing Chinese tourist numbers.
• Operating Margin: Expected to rise to 3–5% in the long term.
• Performance in 4Q: DFS sales rose to KRW4.5b/day in November, indicating improved performance.

4. Department Store Business

• Growth Projection for 2018: 3.5% increase in sales
• Market Share: Shinsegae is gaining share due to its premier locations and high-quality facilities in Gangnam, Daegu, and Busan (Centum City)
• Incheon Store: Operations may continue in an annex due to the extended rental contract until 2031, though a new store is unlikely.
• Operating Margin: Expected to increase slightly from 4.2% in 2017 to 4.4% in 2018.

5. Investment Securities and Subsidiaries

• Shinsegae International: Earnings are improving, and its solid private brand and luxury goods imports are contributing to growth.
• Samsung Life: Shinsegae owns over 4 million shares, with the stake valued at KRW600b, representing 22% of its market cap.
• Expected Impact: As interest rates rise, the value of the Samsung Life stake is likely to increase, potentially leading to a sale and positive earnings impact.

6. Valuation and Financial Metrics

• P/E Ratio: Currently at 13.4x (2018), significantly below the fair value of 15.0x.
• P/B Ratio: At 0.7x, suggesting undervaluation.
• EV/EBITDA: At 7.7x (2018), indicating potential for re-rating.
• Sum-of-the-Parts Valuation:
  • Department Stores: KRW1.444t
  • DFS: KRW1.519t
  • Shinsegae International: KRW247b
  • Samsung Life: KRW417b
  • Total Fair Value per Share: KRW360,320

Key Information

• Shinsegae is considered undervalued due to its DFS growth potential, strong department store operations, and valuable stakes in Samsung Life and Shinsegae International.
• The company's DFS business is a key driver of future earnings, with sales expected to surpass KRW3t by 2020.
• The normalization of Chinese visitor numbers and reduced commission costs are expected to further boost DFS performance.
• The Incheon store's operations are likely to continue in the annex, with limited potential for new store development.
• Shinsegae's financial performance has shown improvement, with operating profit expected to grow by 11.8% in 2018.

Financial Highlights

Conclusion

Shinsegae is positioned for growth in the DFS sector and has a strong foundation in its department store business. The company is undervalued, with a fair value per share of KRW360,320, and is expected to see its shares rise as its DFS operations normalize and its investment stakes increase in value. The BUY rating is maintained, reflecting the company's strong fundamentals and growth potential.