Hotel Shilla
The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
Despite a reduction in daigou-related sales, profitability at Hotel Shilla improved beyond expectations in 2Q23 on an increase in general (high-margin) retail customers amid a recovery in travel demand.
Dependence on daigous on the decline
We maintain a Buy rating and TP of W110,000 on Hotel Shilla. Of late, brokerage commissions paid to daigous have been narrowing amid efforts to reduce the firm’s reliance on daigous, which has climbed strongly since Covid-19 and resulted in a continued slide in its consolidated sales. In 2Q23, however, OP exceeded expectations on a significant jump in the number of general retail customers, who make a strong contribution to profitability, driven by a rebound in travel demand.
Over the past few years, Hotel Shilla has seen high share price volatility relating to daigou sales trends and changes in Korea-China relations. However, as its portion of sales from general retail customers is on the rise and profitability indicators are improving, we see little need for further intense concern over such factors. Moving ahead, a share price rebound is anticipated.
2Q23 review: OP growth tops expectations
Hotel Shilla posted consolidated 2Q23 sales of W866.9bn (-26% y-y) and OP of W67.2bn (+56% y-y), with OP exceeding the market projection.
The DFS division logged sales of W708.1bn (-30% y-y) and OP of W43.2bn (+192% y-y). Daigou-related sales fell significantly, but sales to high-margin individual customers increased, and OPM improved strongly to 6.1% (+4.6%p y-y). At overseas DFS locations, OP jumped by W15bn q-q on a recovery in travel demand. As the DFS shop at Incheon International Airport (IIA) began operations in July, we expect further earnings improvement driven by individual customers in 2H23. Hotels & Leisure posted 2Q23 OP of W24bn (-15% y-y), but considering the effects of one-off profits recorded in 2Q22, we see no need for concern.