Avg Daily Trading Value (60-day): KRW6.6b / USD6.0m
Key Changes
Metric
New
Old
Diff
Recommendation
BUY
BUY
-
Target Price
n/a
105,000
-
2017E EPS
4,341
4,299
1.0%
2018E EPS
4,590
4,387
3.3%
Market Position and Valuation
BGF Retail was spun off into a holding company (BGF) and an operating entity (BGF Retail) on November 1, with both starting trading on December 8.
Fair Value Estimate: BGF Retail is valued at KRW4.1t, which is unchanged from pre-spinoff estimates. BGF is estimated at KRW500b, which is a 40% discount from its projected NAV.
Split Ratio: BGF Retail receives 34.88% of the shares, while BGF receives 65.12%.
Slowing Industry Growth: Domestic convenience store (CVS) sector growth is expected to slow.
Increased Competition: E-mart 24 and CJ Group's Olive Young are expanding rapidly.
Minimum Wage Hike: Expected to increase costs and reduce operating profit momentum.
Subsidiary Income Loss: Subsidiaries like BGF Networks and South Springs Country Club will no longer contribute income.
Royalty Payments: BGF Retail will pay KRW12b annually to BGF, which is 0.2% of full-year sales.
Financial Highlights (2016-2019E)
Metric
2016 (KRWb)
2017E (KRWb)
2018E (KRWb)
2019E (KRWb)
Revenue
5,053
5,610
6,115
6,614
Net Profit (adj)
185
215
227
241
EPS (adj)
3,726
4,341
4,590
4,860
EBITDA Margin (%)
6.5
7.1
6.9
6.7
ROE (%)
21.8
22.0
20.4
18.7
P/E (adj)
22.0
18.2
17.2
16.3
P/B
4.4
3.8
3.3
2.9
EV/EBITDA
12.9
10.0
9.1
8.4
Dividend Yield (%)
1.0
1.3
1.5
1.8
Post-Spinoff SOTP Valuation
Entity
Value (KRWb)
Shares (KRW)
Fair Value per Share (KRW)
BGF (Holding)
515
32,263,719
15,970
BGF Retail (Op)
4,144
17,283,906
225,643
CVS Industry Outlook
Earnings Momentum: Expected to slow, with full-year operating profit growth contracting from 19% to 6% in 2018.
Same-Store Sales (SSS): Cigarettes account for 40% of total sales and may contract, lowering overall SSS growth to near 3-year average.
P/E Ratio: BGF Retail's average P/E is 17x, lower than the retail sector average of 10.8x, indicating potential undervaluation.
Investor Considerations
Short-Term Opportunity: BGF Retail may present a Trading-BUY opportunity post-spinoff, with potential for significant upside from its Dec 7 opening price.
Dividend Potential: If majority shareholders make in-kind investments in BGF, the firm may increase dividend payouts.
Long-Term Caution: Investors should be cautious about accumulating CVS plays over the medium to long term due to slowing growth, increased competition, and minimum wage impact.
Rating and Investment Outlook
Rating: BUY
Reasoning: Despite the challenges, BGF Retail's fair value is KRW4.1t, and its post-spinoff share price could offer short-term upside.
Recommendation: Avoid long-term accumulation, but consider short-term trading opportunities.
Compliance Notice
Analysts did not hold any shares or convertible debt instruments as of Dec 4, 2017.
Samsung Securities' holdings would not exceed 1% of each company's shares if converted.
The report is not tailored for individual investors and is not an offer to buy/sell securities.
No warranties are given regarding the accuracy or completeness of the information.
Investment Ratings
BUY: Expected to increase in value by 10% or more within 12 months and is highly attractive within the sector.
HOLD: Expected to increase or decrease by less than 10%.
SELL: Expected to decrease by 10% or more.
Industry & Global Disclosures
Industry Ratings: OVERWEIGHT, NEUTRAL, UNDERWEIGHT.
Global Restrictions:
US: Report is for major institutional investors only.
UK: Directed only at relevant persons as defined under FSMA.
Korea: For private circulation only.
Singapore: Provided under financial advisory licensing exemption.
