SSG.com’s Losses Deepen
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Raise target price 8% to KRW260,000; maintain BUY with mid-/long-term investment horizon
We maintain BUY on E-mart and raise our TP by 8% to KRW260,000. We recommend adopting a mid- to long-term investment horizon. The stock is currently undervalued, trading at 12m fwd P/E of 11.0x (excl. one-off gains).
Revise up earnings forecast significantly to reflect one-off gain and additional stake in Starbucks Korea
We revised our earnings forecast significantly:
(1) 2021E NP (attributable to controlling interests) was raised 142% because proceeds from the disposal of the Gayang-dong site (KRW636.6bn pretax) were recorded as non-operating profit in 2Q21.
(2) The additional stake in Starbucks Korea was reflected (50% previously→67.5% in September; to become consolidated subsidiary).
Accordingly, we raised 2022E-23E revenue/OP/NP (attributable to controlling interests) by 10%/40-50%/15%.
For SSG.com, time to focus on top-line growth and market share expansion
SSG.com’s losses deepened in 2Q21, which may be of concern. However, we recommend focusing on the online business’ expanding top line and market share instead of profitability. For 2H21, SSG.com is expected to achieve GMV growth of over 30% given its (1) continual improvements in both food- and non-food sales, (2) sophisticated marketing strategies and (3) capacity expansion. Furthermore, the strategic alliance with Naver should serve as another catalyst for top-line growth.
2Q21 review: OP misses consensus by 62%, dragged down by SSG.com and Shinsegae Chosun Hotel
E-mart reported 2Q21 consolidated net revenue of KRW5.86tn (+13% YoY) and OP of KRW7.6bn (turn to profit YoY; 0.1% OPM). While revenue was in line with the market consensus, OP missed by 62%:
(1) Hypermarket revenue improved 9% YoY. However, an operating loss of KRW19.6bn due to large-scale comprehensive real estate holding tax payments was recorded. SSSG reached 8.3% YoY, driven by growth in at-home-dining demand.
(2) E-mart Traders revenue/OP jumped 21% YoY/61% YoY (SSSG 11% YoY).
(3) Specialty Store revenue remained flat YoY, but the operating loss narrowed KRW4.6bn YoY.
(4) SSG.com gross revenue climbed 19% YoY with an operating loss of KRW26.5bn, which expanded KRW12.8bn YoY on higher marketing expenses incurred to acquire new customers.
(5) E-mart 24 revenue rose 19% YoY while OP turned positive at KRW0.8bn (+KRW6.0bn YoY).
(6) Shinsegae Chosun Hotel revenue surge 72% YoY on the opening of five new hotels. However, an operating loss of KRW19.2bn due to low occupancy rates and costs related to the openings was recorded.