Market Leadership to Strengthen Further
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Raise target price 5% to KRW220,000; market leadership to strengthen further
We maintain BUY and raise our TP by 5% to KRW220,000 on BGF Retail (reflects increases in WACC and terminal growth rate based on 30y KTB yield; revisions to earnings forecast are negligible). The CVS business should see transactions improve, as customer traffic is set to be bolstered by full-scale normalization of school classes and the removal of restrictions on social gatherings (i.e., group size, length of time). Amid the market recovery, BGF Retail is expected to further solidify its market leadership. Currently, the stock is trading at 15.0x 2022E P/E.
2022 outlook: Revenue to grow 6% and OP 26%; switch to “Living With COVID-19” plan to lead market recovery
We forecast 2022 consolidated revenue at KRW7.13tn (+6% YoY) and OP at KRW245.1bn (+26% YoY). BGF Retail is expected to benefit from Korea’s transition to “Living With COVID-19”—a policy that involves lifting curfews for restaurants and cafes—which should boost night-time foot traffic, and in-person work and school classes should bolster sales at nearby branches. Meanwhile, demand for additional CVS stores remains solid given their stable sales. In fact, the company’s store count is forecast to increase 7% in 2021 (+1,020 stores) and 4% in 2022 (+680 stores). Meanwhile, OPM should improve 0.5pp YoY in 2022 on better food sales mix, lower rent payments and higher earnings at subsidiaries.
3Q21 review: Revenue/OP up 9% YoY/9% YoY, in line with our estimates
BGF Retail posted 3Q21 consolidated revenue of KRW1.84tn (+9% YoY) and OP of KRW69.5bn (+9% YoY), in line with our estimates.
(1) SSSG came in at 1.5% (3.3% for general items; -1.1% for tobacco). Stripping out the impact of changes in accounting standards for lottery ticket sales, SSSG would be 3.9%. Although strict social distancing restrictions were enforced (Level 4), the company achieved solid SSSG thanks to favorable weather and disaster relief funds paid out in September.
(2) CVS OPM remained flat YoY at 3.6%. GPM rose 0.4pp YoY on strong sales growth for alcohol accompaniments and non-refrigerated instant foods. In addition, rent payment contracted by KRW1.5bn.
(3) Management has yet to disclose the net increase in store count for 3Q21, but the increase is expected to be 250 QoQ (+7% YoY).
(4) Other earnings (subsidiaries + consolidated adjustments) expanded KRW1.2bn YoY, contributing to company-wide earnings growth.