BGF Retail, third-quarter operating profit up 3.2%; target price held at 180,000 won

[Financial News] NH Investment & Securities maintained its “Buy” rating and target price of 180,000 won for BGF Retail, saying the company had continued to post steady profit growth despite the base effect headwind from the distribution of consumption coupons.
In a report on the 6th, NH Investment & Securities analyst Young-Hoon Joo said, “We view positively the fact that it maintained a steady trend in operating profit growth despite slower sales growth in the third quarter,” and forecast that “sales growth and profit improvement will pick up again as the base effect headwind disappears starting in the fourth quarter.”
BGF Retail’s third-quarter consolidated revenue came to 2.5152 trillion won, up 2.1% from the same period a year earlier. Operating profit rose 3.2% to 100.8 billion won, in line with NH Investment & Securities’ previous estimate of 101.5 billion won.
Same-store sales grew 0.9%. General merchandise sales increased 1.0%, while tobacco sales rose 0.6%. The high base from last year’s distribution of Livelihood Recovery Consumption Coupons, along with unfavorable weather, constrained sales growth.
Analyst Joo forecast, “Same-store sales growth temporarily slowed, but this was due to factors unrelated to the fundamentals,” adding, “It will recover in the fourth quarter.”
Cost efficiencies also contributed to operating profit growth. Although the increase in depreciation expenses resulting from the completion of the Busan logistics center was reflected, cost savings more than offset it. High-margin general merchandise sales grew faster than low-margin tobacco sales, improving the average merchandise margin by 0.4 percentage points from the same period a year earlier.
NH Investment & Securities expects BGF Retail’s revenue this year to reach 9.463 trillion won, up 4.4% from the previous year. It forecast that operating profit would rise 15.9% to 294.5 billion won, ending the stagnation of the past four years.
The brokerage expected a recovery in same-store sales and easing depreciation expenses to drive a rebound in annual results. It estimated that operating profit growth would have been greater without the consumption coupon-related base effect headwind and one-off costs from the Cargo Truckers Solidarity strike in the second quarter.
Fourth-quarter revenue and operating profit were forecast at 2.401 trillion won and 70.7 billion won, respectively. These figures represent increases of about 5% in revenue and 10% in operating profit from the same period a year earlier.
Analyst Joo said, “The key point is that operating profit has started growing again,” adding, “Now that a recovery in growth has been confirmed, downward pressure on valuation will gradually ease.”

[email protected] Lee Jeong-hwa Reporter