20170602-三星证券-Growth_opportunities_to_spur_rerating_11页_583kb

Lotte Himart (071840) Summary

Core Content

Lotte Himart is a South Korean retail company that has shown promising performance and growth potential in its financials and market position. The report highlights the company's strong earnings momentum, rising online sales, and benefits from domestic consumption trends and environmental factors.

Main Points

1. Investment Recommendation

• Current Rating: BUY
• Target Price: KRW82,000 (up from KRW72,000)
• Current Price: KRW65,000
• Market Cap: KRW1.5t / USD1.3b
• Shares (float): 23,607,712

2. Performance Overview

• One-Year Performance: Lotte Himart has outperformed the Kospi index in the last 12 months.
• Quarterly Earnings: Expected to remain strong, with a projected 7% year-over-year (YoY) increase in sales and 28.1% YoY growth in operating profit for 3Q.
• Online Sales Growth: Online sales have grown significantly, jumping from KRW90b in 2015 to KRW300b in 2016, and are expected to reach KRW600b this year before surpassing KRW1t in 2018 or 2019.
• Online Market Share: Expected to rise from 7% in 2016 to 15% this year and over 20% in 2018.
• Valuation: The stock trades at 10-11x 2017 P/E, but the analyst believes it could rise to 15x due to strong online performance.

3. Key Growth Drivers

• Domestic Consumption Recovery: Handset and home electronics sales are expected to grow due to the recovery of domestic consumption.
• Handset Subsidy Regulations: The potential scrapping of the subsidy cap could boost the handset market, increasing commission income for Lotte Himart.
• Environmental Factors: Korea's worsening air quality is driving demand for home appliances such as air purifiers, AC units, and clothes dryers.

4. Financial Highlights

Summary Financial Data (KRWb)

Forecasted Growth

• Sales Growth: Expected to increase by 5.8% in 2017, 6.9% in 2018, and 6.2% in 2019.
• Operating Profit Growth: Projected to rise by 7.4% in 2017, 13.1% in 2018, and 13.8% in 2019.
• Net Profit Growth: Expected to increase by 10.1% in 2017, 15.8% in 2018, and 14.9% in 2019.
• EPS Growth: 10.1% in 2017, 15.1% in 2018, and 14.9% in 2019.

5. Key Changes

6. Analyst Insights

• Online Sales: Expected to be a key factor in driving rerating.
• Handset Sales: The removal of the subsidy cap could lead to a rebound in handset sales and commission income.
• Valuation: The company is currently undervalued relative to the sector average, with a 20% premium on the 13.2x P/E multiple.

7. Market Outlook

• Sector Boom: Shares are expected to rally further due to sector-wide performance and strong earnings.
• Rerating Potential: The company's strong online performance and improving margins could lead to a rerating to 15x P/E.
• Earnings Stability: Online and handset sales are expected to maintain structural growth beyond 2017.

Key Information

• The analyst believes that the company's online sales growth and the potential removal of the subsidy cap will lead to a re-rating and increased value.
• Lotte Himart's operating profit is expected to grow by at least 20% in 3Q and 4Q, and the company's net profit is projected to increase by 10.1% in 2017, 15.8% in 2018, and 14.9% in 2019.
• The firm's online operating margin is nearly on par with its offline margin, making it a significant contributor to overall performance.
• The company's online sales are expected to reach KRW600b this year, surpassing KRW1t in 2018 or 2019.
• The analyst reiterates the stock at BUY and raises the target price to KRW82,000, based on a 13.2x P/E multiple, which is a 20% premium to the sector average.

Conclusion

Lotte Himart is positioned for continued growth due to its strong earnings momentum, expanding online sales, and favorable environmental conditions. The analyst maintains a BUY rating, with a raised target price, indicating confidence in the company's long-term potential and current valuation.