Online-offline Synergy Expected
The author is an analyst of Shinhan Investment Corp. She can be reached at hpark@shinhan.com. -- Ed.
NAVER and Shinsegae Group join hands via share swap deal
On March 16, NAVER (035420 KS) and Shinsegae Group conducted share swaps through off-hours block trading. NAVER exchanged its 259,404 treasury shares (worth KRW100bn, KRW385,500 per share) with 488,998 shares in Shinsegae International (031430 KS) held by Shinsegae (004170 KS) and 389,106 treasury shares (worth KRW150bn) with 824,176 treasury shares of E-Mart. The exchange prices were based on the previous day’s close and each party was granted the right of first offer and call option for the exchanged shares.
Details yet to be released; online-offline synergy expected
The share swaps were conducted as reported by the media last week. We believe E-Mart and Shinsegae, which hold 50.1% and 26.9% stakes in SSG.com, respectively, joined the deal to strengthen the online business. With its treasury stock holding of only 8,774 shares, Shinsegae likely chose to exchange its shares in key subsidiary Shinsegae International without hurting its position as the largest shareholder.
The share swap deal seems to be aimed at creating synergy between SSG.com and NAVER’s online shopping platform. With details of the new partnership yet to be released, we will need to see what NAVER says about the deal during today’s meeting. Expected collaborations include: 1) adding E-Mart onto NAVER’s grocery shopping platform; and 2) bringing products on NAVER’s Smart Store to the offline channels of E-Mart and its affiliates. The partnership will likely help E-Mart to strengthen its competitiveness in online open market operations and expand manufactured goods offerings. It should also benefit NAVER in bolstering its online food offerings.
Retain BUY for a target of KRW240,000; check on actual synergy
The outlook remains upbeat for: 1) further growth in online grocery shopping service through SSG.com; and 2) strengthening of open market operations. There are no worries over earnings considering the solid earnings trend in February and March. We recommend accumulating E-Mart shares from a mid/long-term perspective while checking up on actual synergy benefits for the SSG.com platform. Expecting improvement in short-term earnings and online competitiveness, we retain our BUY rating on E-Mart for a target price of KRW240,000.