“Department Stores and Duty-Free Shops Are Doing Well, but Zinus Is Holding Hyundai Department Store Back”: Target Price Cut

[Financial News] Heungkuk Securities lowered Hyundai Department Store’s target price from 170,000 won to 150,000 won, saying that Zinus’s earnings recovery has been delayed despite strong performance by its department stores and duty-free shops. However, it maintained its “Buy” rating, citing solid earnings, expanded shareholder returns and the improved valuation appeal following the recent share-price decline.
Park Jong-ryeol, an analyst at Heungkuk Securities, explained on the 16th, “Since mid-June, the share price has fallen to the level before its sharp rise due to profit-taking by institutional and foreign investors. As the positive wealth effects of stocks and real estate remain in place, sales trends at department stores and duty-free shops from July through September have also continued to be relatively solid.”
Hyundai Department Store’s gross sales for the third quarter are projected to reach 2.45 trillion won, while operating profit is expected to total 95.8 billion won. These figures represent year-on-year increases of 7.5% and 31.4%, respectively. The analysis indicates that department stores and duty-free shops will lead an earnings recovery after the weak first half.
The department-store business is expected to post an operating margin of 6.2%, up 0.9 percentage points from a year earlier, supported by strong sales across all product categories, including fashion, cost efficiencies and growth in high-margin product lines. The duty-free business is also projected to see its operating margin rise from 0.3% to 1.4%, driven by improved profitability at downtown stores and steady growth at airport stores.
By contrast, the furniture and mattress affiliate Zinus is expected to remain weak. It is projected to record an operating loss of 15 billion won in the third quarter as well, due to sluggish sales resulting from U.S. tariff policies. Accordingly, Heungkuk Securities lowered its forecast for Hyundai Department Store’s full-year operating profit to 421.2 billion won. That would represent an 11.5% increase from the previous year.
Park said, “Although the department-store and duty-free businesses are performing well, consolidated operating profit is expected to come in somewhat below the initial forecast because Zinus’s earnings recovery has been delayed. Given the favorable operating environment, the department-store business should continue to generate solid operating profit, while the duty-free business is expected to maintain a stable profit-making structure.”
He added, “Following the recent sharp decline in the share price, the 12-month forward price-to-earnings ratio (PER) and price-to-book ratio (PBR) have fallen to 5.7 times and 0.4 times, respectively, significantly increasing the stock’s valuation appeal. The company is also expected to secure medium- to long-term growth drivers by opening stores in key commercial areas, including The Hyundai Busan, Gyeongsan Premium Outlet and The Hyundai Gwangju.”   

[email protected] Bae Han-geul Reporter