Hyundai Department Store’s Q3 operating profit up 30%; target price cut to KRW 135,000

[Financial News] NH Investment & Securities maintained its Buy rating, saying Hyundai Department Store posted results above market expectations in the third quarter of this year and that profitability at its subsidiary Zinus was also recovering. However, reflecting lower sector valuations, it cut its target price by 20.6%, from KRW 170,000 to KRW 135,000.
Young-Hoon Joo, an analyst at NH Investment & Securities, said in a report on the 5th, “At just six times its estimated 2027 price-to-earnings ratio (P/E), the current share price has fallen too far,” adding that “the likelihood of further declines is low.”
Hyundai Department Store’s consolidated revenue in the third quarter of this year rose 16.0% year over year to KRW 1.1723 trillion, while operating profit increased 30.1% to KRW 94.6 billion. Operating profit was 10.9% above the market forecast of KRW 85.3 billion.
Department store transaction value rose 8% year over year despite concerns that earnings had passed their peak. Operating profit in the department store division increased 27.8% to KRW 114.1 billion. Although growth at existing stores slowed from the first half amid a high base, the improvement in profitability continued.
NH Investment & Securities expected operating profit growth to continue even as the base-effect headwind for fourth-quarter revenue intensified. It forecast consolidated fourth-quarter operating profit of KRW 145.3 billion, up 37.2% year over year.
The duty-free business also contributed to the improved results. The cost ratio rose temporarily as the won-dollar exchange rate fell, but both revenue and operating profit increased as new airport stores contributed more to results. Third-quarter duty-free revenue rose 44% year over year, while operating profit increased 146% to KRW 3.2 billion.
The recovery in Zinus’s profitability was cited as a key factor in the improvement in consolidated results. Zinus posted an operating loss in the third quarter as well, but cut the size of its loss by nearly half from the previous quarter. The company was expected to see its earnings structure improve through fixed-cost efficiencies and a normalization of customer orders.
Joo said, “With Zinus reducing its third-quarter loss by at least half, we believe it has passed the bottom in earnings,” adding, “If the current trend continues, the likelihood of returning to operating profit in the fourth quarter is also high.”
Hyundai Department Store’s decision to retire treasury shares was also cited as a factor that could improve investor sentiment. The company plans to retire 232,460 treasury shares on the 20th. The shares represent 1.1% of those issued, and the planned retirement is worth about KRW 21 billion.
NH Investment & Securities forecast Hyundai Department Store’s revenue this year at KRW 4.467 trillion and operating profit at KRW 418 billion, increases of 5.6% and 10.6%, respectively, from the previous year. Revenue and operating profit next year are forecast at KRW 4.765 trillion and KRW 488 billion, respectively.
Joo said, “We lowered our target price to reflect the decline in sector multiples amid concerns over the stronger won and a weakening wealth effect,” but added, “Given Zinus’s improving results and the retirement of treasury shares, investors can approach the stock without undue concern at its current valuation.”
[email protected] Lee Jeong-hwa Reporter