Hyundai Department Store Lowers Earnings Expectations but Anticipates a Stock Rebound; Target Price Set at 170,000 Won

[Financial News] Korea Investment & Securities projected that Hyundai Department Store's operating profit for the third quarter would fall short of market expectations, but assessed that unfavorable operating conditions had already been sufficiently reflected in the stock price. It maintained its "Buy" rating while lowering the target price by 8.1%, from 185,000 won to 170,000 won.
In a report on the 28th, Myung-joo Kim, an analyst at Korea Investment & Securities, forecast Hyundai Department Store's third-quarter consolidated revenue at 1.0817 trillion won, up 7.1% from a year earlier. Operating profit was estimated at 89.8 billion won, a 23.5% increase but 6.4% below market expectations.
Operating profit from the department-store business was projected to rise 26.8% to 113.2 billion won. Growth in sales to foreign customers slowed as the won strengthened, while the recovery in overseas travel demand meant that same-store sales growth in August and September failed to exceed the level recorded in June.
"Although the downward revision to earnings estimates for the department-store business is disappointing, it was an adjustment that had already been anticipated since July, when the won began strengthening and the stock started to correct," Kim said. "These factors have already been sufficiently reflected in the stock price." The duty-free business was not expected to be significantly affected by higher commissions at downtown duty-free stores, given the company's profitability-focused operating strategy. Third-quarter operating profit for the DF business was forecast at 6.9 billion won, similar to the previous quarter.
Zinus is seeing a recovery in sales and pursuing efforts to improve its business fundamentals, including ending its lease agreement for a logistics warehouse in the United States. However, it was expected to post an operating loss of 20.3 billion won in the third quarter as the stronger won and rising container freight rates weighed on results.
For the fourth quarter, the analyst forecast that concerns over declining domestic visitors to department stores would ease after the summer vacation season and the Chuseok holiday ended. Market expectations for earnings were also not high, considering the high-base effect following substantial sales growth since the fourth quarter of last year and performance bonus payments by major companies.
"Unless the won enters a sustained strengthening trend, now is the time to focus on the possibility of a rebound in Hyundai Department Store's stock price," Kim said. "If the unfavorable macroeconomic environment does not persist, the company's valuation appeal will come to the fore, and the stock price is likely to perform well."

[email protected] Jung-hwa Lee Reporter