The author is an analyst of NH Investment & Securities. He can be reached at email@example.com. -- Ed.
With its clothing sales being sapped by warmer-than-usual winter weather and a higher transmission fee burden, GS Home Shopping's 4Q19 results missed both our estimates and consensus. But, we still view its shares as offering a stable investment vehicle, noting steady cash flow, high venture investment returns, and attractive DY.
Lower TP by 15% to W170,000
Reflecting weakened growth potential for the home shopping industry, we lower our target P/E for GS Home Shopping (GSHS)’s home shopping domain from 8x to 5x, the bottom end of its historical valuation band. However, favorably viewing tangible valuation gains for GSHS’s ongoing venture investment activity (including direct investments), we boost our estimate of the value of such from W180bn to W320bn. Reflecting these changes, we lower our SOTP-based TP by 15% from W200,000 to W170,000.
Market interest in the home shopping sector is waning on: 1) an ongoing decline in the influence of TV, the flagship platform for home shopping firms; and 2) higher transmission fees (paid to IPTV operators) amid sustained competition among home shopping companies (including T-commerce players) to secure prime channel numbers. That said, we still view GSHS’s shares as offering a stable investment vehicle, noting steady cash flow, high venture investment returns, and attractive DY of 4.37% with 2019 DPS of W6,500 (based on end-2019 closing price of W148,600).
4Q19 review: Books over W50bn in venture investment related gains
On a consolidated basis, GSHS announced 4Q19 sales of W340.4bn (+11% y-y) and OP of W30bn (-29% y-y), with OP missing consensus by 10%.
GMS at the TV division contracted by 4% y-y. Clothing sales were sapped by warmer-than-usual winter weather. Weighed upon by both a decrease in promotions and the effects of changes to the firm’s customer reward points program, the mobile division’s GMS growth clocked at only 3% y-y. Meanwhile, OPM at the home shopping division narrowed 1% p y-y on both high-base effects (stemming from W4.1bn worth of one-off gains in 4Q18) and a hefty transmission fee burden of W8bn. Of note, SO transmission fees upped by an annual average of 6% y-y last year, but surged more than 10% y-y in 4Q19. Reflecting venture investment-related gains for two quarters (3Q19 + 4Q19), GSHS’s 4Q19 results show venture fund valuation gains of W39.8bn and venture fund equity-method gains of W11.4bn. Chinese business impairment losses of W34.2bn were recorded on the non-operating side.