Earnings Lackluster
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.
NS Shopping’s EV is influenced more by its Yangjae development project than by its home shopping business. While the home shopping business stabilized, the company recorded lackluster earnings in 2Q21, as subsidiary Harim suffered initial losses from the operation of a HMR plant.
Initiate with Hold rating and TP of W17,000
We initiate our coverage on NS Shopping with a Hold rating and a SOTP-derived TP of W17,000. We value its home shopping business at W242.8bn by applying EV/EBITDA of 3.0x (home shopping sector average) to 12M FWD EBITDA. And we value the firm’s invested assets (ie, estimated appraised value of land holdings in Yangjae-dong) at W752.3bn.
We take a conservative stance towards the company, given that its EV is influenced more by its Yangjae development project than by its home shopping business. Once development for the land in Yangjae-dong begins in earnest, the land should re-valued. But, no decision has been made as to the timing and structure of development. Given that the land’s appraised value is higher than NS Shopping’s market cap, we cannot properly value the company as a retailer.
Earnings lackluster
In 2Q21, NS Shopping recorded lackster earnings, with consolidated sales of W142.4bn (+4% y-y) and operating losses of W10.5bn (RR y-y). While the firm’s home shopping business showed a profit increase on higher GMS and a reduced SO commission fee burden, subsidiary Harim displayed initial losses from the operation of a HMR plant (roughly W5.0bn per quarter), and its faced higher property holding taxes, factors which dragged down NS Shopping’s consolidated earnings. It will likely take some time before the subsidiary’s profits stabilize and NS Shopping’s consolidated earnings normalize.