Shares of Offline Retailers Rebound Slightly
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Share-price momentum to return after merger uncertainties fade
We maintain BUY on GS Retail and our TP of KRW50,000. Despite an increase in WACC (5.58%→6.59%) due to a higher market risk premium (Table 5), we leave our TP unchanged given an upward revision to 2020E-2026E OP CAGR (8.0%→9.3%). Recently, shares of offline retailers have rebounded slightly on growing hopes for COVID-19 vaccine and treatment rollouts. However, GS Retail has performed relatively poorly due to uncertainties over its merger with GS Home Shopping (i.e., potential change in corporate identity, post-merger synergies). We believe positive share-price momentum will be likely once detailed plans for post-merger strategies and synergies alleviate uncertainties.
2021E consolidated revenue to grow 6% YoY and OP 27% YoY
We expect 2021E consolidated revenue and OP to grow 6% and 27% YoY, respectively. In particular, improvements at convenience stores and Parnas Hotel should catalyze earnings. (1) Coupled with an overall recovery in the convenience store market backed by normalizing school attendance, GS Retail’s CVS OPM should firm to 3.8% on product-mix improvements as well as reduction in purchasing rates and SG&A expenses. (2) 2021E OP at Parnas Hotel is forecast to reach 58% of 2019 levels.
4Q20 preview: Supermarkets to turn to profit; CVS and hotel to remain sluggish
We estimate 4Q20 consolidated revenue at KRW2.21tn (-1% YoY) and OP at KRW30.9bn (-38% YoY). While revenue should be in line with consensus, OP should fall short by 22%.
(1) CVS: Revenue should edge up 3% YoY, but OP should fall 20% YoY. Same-store sales (SSS) growth is estimated at -4% YoY as strict social distancing measures should undermine foot traffic. Furthermore, OPM should erode 0.7pp YoY due to government COVID-19 relief payments, lower SSS, as well as a weaker GPM due to the higher sales contribution from cigarette and alcoholic beverage products.
(2) Supermarkets: Revenue should contract 10% YoY, but OP should turn positive to KRW2bn (OPM 0.7%) as the launch of the “chain operation” system appears to have lowered costs.
(3) Parnas Hotel: Revenue is expected to plunge 46% YoY. Operating losses should amount to KRW2.4bn (KRW25.1bn decline YoY) due to sluggish sales and higher costs (i.e., depreciation and amortization for Grand Hotel).