Boasts Valuation Merit
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Maintain BUY; Lower target price by 8% to KRW240,000
We maintain BUY on E-mart but lower our TP by 8% to KRW240,000 as we reflect revisions to 2021E/2022E OP (-10%/-3%). We believe shares are undervalued at only 10.8x 12m fwd P/E (excluding one-off gains). We recommend accumulating shares over a medium to long-term horizon.
Boasts valuation merit (i.e., Korea’s no. 1 hypermarket, no. 1 coffee chain, and no. 3 e-commerce platform)
We believe shares in E-mart are excessively undervalued, given the value of its core businesses (including Korea’s no. 1 hypermarket, no. 1 coffee chain, and no. 3 e-commerce platform) as well as other subsidiaries, and expect such valuation merit to be highlighted ahead of the listing of SSG.com. The online subsidiary is likely to focus on top-line growth and market-share expansion, with GMV surging over 30% backed by balanced growth between food and non-food segments, sophisticated marketing, and capacity expansion. Moreover, a strategic alliance with Naver, which should become increasingly visible in October, should help accelerate SSG.com’s top-line growth.
3Q21 preview: OP to fall 16% short of consensus as stimulus money could no longer be spent at E-mart from September
We estimate 3Q21 consolidated net revenue at KRW6.32tn (+7% YoY) and OP at KRW143.5bn (-5% YoY; OPM 2.3%), with revenue in line with consensus and OP falling short by 16%.
(1) Hypermarket revenue should increase 2% YoY, but OP should decline by 5% YoY (16% YoY when stripping out KRW16.0bn in one-off expenses for 3Q20). We estimate same-store sales growth (SSSG) at just 1.6%, as sales struggled as stimulus money could no longer be spent at E-mart from September.
(2) E-mart Traders revenue should rise 15%YoY, and OP 4% YoY (SSSG +4.6%).
(3) SSG.com gross revenue should jump 28% YoY, but operating losses should widen KRW28.2bn YoY to KRW31.3bn. Revenue growth should ramp up compared to 1H21 (+17%), but losses should widen due to increased promotional and ad expenses.
(4) E-mart 24 revenue should rise 19% YoY, and OP 149% YoY to KRW4.2bn.
(5) Chosun Hotel has added five new hotels. This should drive revenue higher by 79%, but widen operating losses by KRW1.1bn YoY to KRW15.7bn. (6) PK Retail Holdings revenue should fall 2% YoY, but OP should grow by KRW5.8bn YoY.