20170711-三星证券-2Q_preview_and_2H_forecasts_31页_866kb

Sector Update Summary

Core Content

This document provides a detailed analysis of the Korean retail sector, focusing on the performance of major retailers and investment recommendations for the second half of 2017. The analysis is based on current market conditions, consumer sentiment, and financial forecasts. The report highlights that the retail sector is expected to perform well in 2Q and 2H, with certain companies outperforming others due to their strong online presence, restructuring efforts, and competitive advantages.

Main Points

2Q Preview and 2H Forecasts

• The Korean retail sector's 2Q results are expected to align with consensus estimates, marking a third quarter of strong performance.
• Home electronics retailers, large discounters, and home shopping players are anticipated to see rapid growth in earnings, while convenience stores and department stores will experience slower growth.
• Lotte Himart is expected to exceed 2Q consensus forecasts, while Hyundai Department Store and GS Retail are likely to miss.
• Retail stocks are expected to rally in 2H due to attractive valuations and earnings momentum.

Investment Strategy

• The sector is rated OVERWEIGHT due to its attractive valuations and expected earnings growth.
• Cyclical retail value plays are expected to outperform defensive stocks.
• Focus should be on retailers with strong online operations and those undergoing corporate governance changes.

Consumer Trends

• Consumer sentiment has rebounded strongly, reaching a five-year high of 111.1 in June 2017.
• Monthly retail sales have also been recovering, although more slowly than sentiment.
• The real estate and stock market rallies, low interest rates, and policy expectations have contributed to the improved consumer outlook.

Key Information

Retailer Performance

• Shinsegae:

  • Target price: KRW270,000 (+16.1%)
  • 2Q17 Gross sales: KRW1.65t (+25.4% y-y)
  • 2Q17 Operating profit: KRW63b (+46.6% y-y)
  • Valuations: P/E 11.8x, P/B 0.6x, EV/EBITDA 8.0x
  • Online sales growth: 18% y-y
  • DFS performance: Strong, with average daily sales surpassing KRW3b in April and approaching KRW4b in June

• Lotte Shopping:

  • Target price: KRW370,000 (+22.1%)
  • 2Q17 Gross sales: KRW7.45t (-0.7% y-y)
  • 2Q17 Operating profit: KRW184.8b (+8.1% y-y)
  • Valuations: P/E 23.6x, P/B 0.5x, EV/EBITDA 12.0x
  • Core business: Lotte Department Store and Lotte Mart are showing signs of recovery
  • Lotte Himart: Expected to see significant growth in online sales and home electronics

• E-mart:

  • Target price: KRW265,000 (+16.5%)
  • 2Q17 Gross sales: KRW4.318t (+29.3% y-y)
  • 2Q17 Operating profit: KRW62.6b (+29.3% y-y)
  • Valuations: P/E 15.3x, P/B 0.8x, EV/EBITDA 8.8x

• Hyundai Department Store:

  • Target price: KRW140,000 (+26.1%)
  • 2Q17 Gross sales: KRW1.361t (+3.6% y-y)
  • 2Q17 Operating profit: KRW78.7b (+2.8% y-y)
  • Valuations: P/E 8.2x, P/B 0.6x, EV/EBITDA 5.3x

Home Shopping Players

• CJ O Shopping:

  • Target price: KRW250,000
  • 2Q17 Gross sales: KRW898.0b (+18.2% y-y)
  • 2Q17 Operating profit: KRW36.4b (+6.7% y-y)
  • Valuations: P/E 10.6x, P/B 0.7x, EV/EBITDA 3.1x

• Hyundai Home Shopping:

  • Target price: KRW160,000
  • 2Q17 Gross sales: KRW886.8b (+5.7% y-y)
  • 2Q17 Operating profit: KRW35.8b (+4.8% y-y)
  • Valuations: P/E 11.9x, P/B 1.0x, EV/EBITDA 4.2x

• NS Shopping:

  • Target price: KRW20,000
  • 2Q17 Gross sales: KRW343.7b (+5.3% y-y)
  • 2Q17 Operating profit: KRW22.9b (+5.5% y-y)
  • Valuations: P/E 10.2x, P/B 1.3x, EV/EBITDA 2.6x

Small and Mid-Caps

• Lotte Himart:

  • Target price: KRW82,000
  • 2Q17 Gross sales: KRW1.02t (+28.1% y-y)
  • 2Q17 Operating profit: KRW50.0b (+29.3% y-y)
  • Valuations: P/E 13.2x, P/B 0.8x, EV/EBITDA 7.9x

• BGF Retail:

  • Target price: KRW138,000
  • 2Q17 Gross sales: KRW1.435t (+12.8% y-y)
  • 2Q17 Operating profit: KRW77.5b (+23.6% y-y)
  • Valuations: P/E 22.6x, P/B 4.8x, EV/EBITDA 12.6x

• GS Retail:

  • Target price: KRW62,000
  • 2Q17 Gross sales: KRW2.095t (+13.2% y-y)
  • 2Q17 Operating profit: KRW70.5b (+3.8% y-y)
  • Valuations: P/E 18.7x, P/B 1.8x, EV/EBITDA 7.8x

Summary of Valuation Metrics

Summary of Financial Metrics (2017E)

Summary of Valuation Highlights

• Shinsegae is considered undervalued despite its competitive edge in department stores and DFS.
• Lotte Shopping is expected to benefit from its transition to a holding company structure, which should enhance its valuation.
• Lotte Himart is highlighted for its strong online sales, normalizing handset sales, and robust home electronics sales.
• Home shopping players are expected to see growth in gross sales, though operating profit may be affected by seasonality.

Summary of Key Risks

• Shinsegae faces a risk with the expiration of its Incheon airport store lease in late 2017.
• Lotte Shopping may face overseas losses due to the suspension of its China discount stores.

This summary highlights the key insights and recommendations from the document, focusing on the expected performance, valuation, and investment opportunities in the Korean retail sector.