20171018-三星证券-Duty_free_starting_to_kick_in_7页_384kb

Shinsegae (004170) - Company Update Summary

Core Content

This report provides an analysis of Shinsegae's financial performance and outlook, focusing on its operating performance, financial metrics, and valuation. The analysts maintain a BUY rating with a KRW245,000 target price, indicating a positive outlook on the company's future growth and value.

Key Points

• Current Price: KRW210,500
• Target Price: KRW245,000 (16.4% upside)
• Market Cap: KRW2.1t / USD1.9b
• Shares (float): 9,845,181 (71.8%)
• 52-week High/Low: KRW251,500 / KRW166,000
• Average Daily Trading Value: KRW12.1b
• 2017E EPS: KRW16,215
• 2018E EPS: KRW17,030
• EPS Growth (2017E vs 2016): -2.4%
• EPS Growth (2018E vs 2017E): -2.0%
• Duty Free Business: Shows strong growth with 3Q17 sales reaching KRW306b (+210% y-y), expected to break even and generate profits in the future.
• Expected Annual Sales for Shinsegae DF: Exceed KRW3t in 3–5 years.
• Operating Margins: Expected to reach 3–5% in the long term.
• Acquisition of Chosun Hotel's DFS Business: Projected to add KRW500b in annual sales.
• Gangnam DFS Store: Expected to open next year and add another KRW500b in sales.
• Valuation: The stock is considered undervalued with a market cap of KRW2t despite strong operating cash flows and value from stakes in Shinsegae International and Samsung Life.

Financial Highlights

Growth and Performance

• 3Q17 Performance: Shinsegae's consolidated operating profit rose 32% y-y to KRW54.4b, in line with the consensus.
• Department Stores: Still performing sluggishly with operating profit down 7.8% y-y.
• Shinsegae DF: Surged 210% y-y in sales to KRW306b, expected to break even.
• Shinsegae DF Sales Forecast: KRW1.13t in 2017, KRW1.7t in 2018, and projected to exceed KRW3t in 3–5 years.
• Shinsegae DF Operating Profit: Expected to reach KRW28.3b in 2017, with a 1.7% margin, and eventually 3–5%.
• Shinsegae Mall: Expected to turn positive in 2017, with sales increasing to KRW1,029b.
• Shinsegae International: Sales expected to grow steadily, with KRW1,073b in 2017 and KRW1,214b in 2018.

Sum-of-the-Parts Valuation

• Department Stores (A): Fair value per share is estimated at KRW144,537.
• DFS (B): Fair value per share is estimated at KRW50,786.
• Shinsegae International (C): Market value of stake is KRW183b.
• Samsung Life (D): Fair value per share is estimated at KRW37,382.
• Total Fair Value per Share: KRW245,719 (based on A + B + C + D).

Investment Rating

• BUY: Expected to increase in value by 10% or more within 12 months and is highly attractive within the sector.
• HOLD: Expected to increase/decrease in value by less than 10% within 12 months.
• SELL: Expected to decrease in value by 10% or more within 12 months.
• Ratings (as of 2017): 82.2% BUY, 17.8% HOLD, 0% SELL.

Summary Financial Data

• Gross Sales: Projected to grow from KRW5,054b in 2015 to KRW7,917b in 2019.
• Net Sales: Expected to increase from KRW2,564b in 2015 to KRW4,882b in 2019.
• Operating Profit: Projected to rise from KRW262b in 2015 to KRW351b in 2019.
• Pre-Tax Profit: Expected to grow from KRW583b in 2015 to KRW303b in 2019.
• Net Profit: Projected to increase from KRW433b in 2015 to KRW232b in 2019.
• Net Margin: Expected to rise from 8.6% in 2015 to 2.9% in 2019.
• EBITDA: Projected to increase from KRW438b in 2015 to KRW616b in 2019.
• EBITDA Margin: Expected to decrease slightly from 8.7% in 2015 to 7.8% in 2019.

Conclusion

Shinsegae is viewed as a top large cap retailing pick due to its undervalued stock and strong growth potential in the duty free segment. The company's financial performance, particularly in the DFS business, is expected to significantly improve in the coming years, making it a compelling investment opportunity.