Cash Flow Deteriorating
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
On a consolidated basis, NS Shopping’s 1Q21 results missed expectations on a market shift towards offline-centered revenge consumption, rising transmission fees, and widening losses at its consolidated subsidiary. We note both market concerns towards deteriorating cash flow this year due to cost increase and the absence of any specific plans for real estate development.
Share price bottom secured, but cash flow worsening on sluggish operations
Although we downwardly adjust our earnings estimates for NS Shopping in consideration of rising SO transmission and paid commission fees at the home shopping business, we note that the market value of the company’s land holdings in Yangjae-dong currently exceeds its market cap. As the majority of NS Shopping’s EV is accounted for by real estate, we maintain our TP of W13,500. Considering delayed real estate development, we apply a 20% discount to the official land price. We maintain a Hold rating.
At the home shopping business, transmission and commission fees are likely to continue climbing. In the case of TV home shopping, competition for channels is rising in the T-commerce arena. And, at the mobile business, costs are increasing in relation to new platform entry. In addition, operating losses are forecast to increase at subsidiary Harim Industry on the operation of an HMR plant from this year.
In terms of real estate development, NS Shopping has yet to unveil any specific plans, and even if development commences, it will still be necessary to confirm the return of related profits to shareholders. We note that, thus far, the firm has mainly used home shopping-related profits to diversify into unrelated businesses rather than for improving shareholder return.
1Q21 review: Significantly misses expectations due to cost increase
NS Shopping recorded consolidated 1Q21 sales of W140.1bn (-2% y-y) and OP of W5.2bn (-66% y-y), significantly missing the OP consensus of W17.6bn.
In 1Q21, GMV growth by division came to 0% y-y for TV home shopping, -7% y-y for online (PC) shopping, +27% y-y for mobile shopping, and +4% y-y for catalogue-based shopping. Overall GMV growth remained relatively flat amid a rising trend towards retaliatory consumption centering on offline distribution. At the home shopping division, OPM fell by 1.6%p, as transmission fees rose by 12% y-y (or W5bn), and other SG&A expenses expanded overall.
Consolidated subsidiary Harim Industry recorded 1Q21 sales of W4.8bn (+69% y-y) and an operating loss of W8.9bn (RR y-y), with losses being incurred on the initial operation of its new HMR plant.