Lacks Short-term Momentum
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Lower target price 14% to KRW95,000; expectations for market normalization intact; lacks short-term momentum
We maintain BUY on Hotel Shilla but lower our TP by 14% to KRW95,000 as we revise down 2022E/2023E OP by 19%/6%. We anticipate global quarantine measures and other travel restrictions to ease and the company’s revenue factors to eventually revert to pre-pandemic levels (e.g., tourist shopping demand, hotel occupancy rates). While we see no significant short-term stock momentum, our longer-term view remains intact.
Daigou activity to weaken in Jan-Feb on stricter COVID-19 restrictions in China
Omicron has undermined expectations for the resumption of overseas travel, further delaying earnings recovery. Hotel Shilla DFS revenue is dependent on Chinese daigou; we expect a dip in daigou demand in Jan-Feb, as the Chinese government has tightened COVID-19 restrictions (reduced consumer spending) and toughened customs clearance (weaker daigou activity) ahead of the Beijing 2022 Olympics. That said, the soft short-term earnings momentum is unlikely to persist. A more important consideration is management’s normalizing of sales prices that were sharply lowered amid the pandemic to promote daigou spending.
4Q21 review: Without meaningful recovery, earnings largely in line with market consensus
Hotel Shilla reported 4Q21 consolidated revenue of KRW1.13tn (+34% YoY) and OP of KRW25.0bn (turn to profit YoY; 2.2% OPM). While revenue topped the market consensus by 12%, OP fell short by 13%:
(1) Downtown DFS revenue came in at KRW923.9bn (+35% YoY, +18% QoQ) and OP at KRW13.9bn (+304% YoY). OPM appears to have been flat QoQ at just 1.5% because of intensifying discount competition in the market.
(2) Airport DFS revenue/OP appear to have remained flat QoQ (OP estimate at KRW2.7bn).
(3) Overseas DFS revenue is estimated at KRW78.0bn (+66% YoY, +15% QoQ) and OP at KRW6.5bn (OPM 8%).
(4) Hotel/Leisure revenue grew 23% YoY and OP reached KRW1.9bn (turn to profit; +KRW20.4bn YoY). Occupancy rates are improving steadily QoQ.