2022 Revenue and OP Expected to Jump 17% and 59% YoY
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Lower TP by 17% to KRW200,000; Stock still undervalued
We maintain BUY but lower TP by 17% to KRW200,000 for E-mart as we reflect 22%/23% downward revisions to 2022E/2023E OP. We believe the stock, trading at 10.3x 12m fwd P/E, is undervalued given the value of the company’s businesses (i.e., Korea’s no. 1 hypermarket, no. 1 coffee chain, no. 3 e-commerce platform, and other subsidiaries).
2022 outlook: (1) Hypermarket to be weighed down by unfavorable comparison base; (2) SSG.com to focus on GMV growth; (3) Chosun Hotel earnings to improve
For 2022, we estimate consolidated revenue and OP to jump 17% and 59% YoY, respectively. Disregarding the effect of incorporating Starbucks as a consolidated subsidiary (OP increase of KRW222.8bn YoY), however, consolidated OP should decline 15% YoY.
(1) Hypermarket should see OP fall 0.2%, hindered by an unfavorable comparison base for same-store sales.
(2) SSG.com should see GMV jump 22%, but operating loss widen by KRW26.8bn YoY.
(3) PPA (purchase price allocation) amortization should increase KRW72.0bn YoY (from KRW24.0bn in 2021 to KRW96.0bn in 2022).
(4) Chosun Hotel, E-mart Traders, and Specialty Store should see OP improve YoY.
4Q21 review: OP 47% below market consensus on weaker-than-expected Hypermarket OP and PPA amortization
E-mart posted 4Q21 consolidated net revenue of KRW6.86tn (+20% YoY) and OP of KRW76.1bn (-10% YoY), with revenue in line with market consensus and OP falling short by 47%. PPA amortization of KRW24.0bn (to occur every quarter thereafter) and one-off expenses of KRW17.4bn with regard to the Starbucks/Gmarket acquisitions were booked under SG&A expenses.
(1) Hypermarket revenue increased 3%, but OP tumbled 54%. Despite same-store sales growth (SSSG) of 2.3%, OPM fell 1.3pp due to a 0.4pp fall in GPM, increases in labor costs (i.e., employee vaccination programs), and higher fees at picking and packing centers.
(2) E-mart Traders revenue edged up just 1% due to an unfavorable comparison base, while OP decreased 19%. SSSG amounted to -2.2%.
(3) SSG.com saw gross revenue advance 22% but operating loss widen by KRW29.8bn YoY to KRW40.2bn due to aggressive promotional/advertisement activity.
(4) Starbucks revenue climbed 30% and OP reached KRW57.5bn (8.7% OPM).
(5) Chosun Hotel saw revenue surge 103%, with operating loss narrowing by KRW19.6bn YoY to KRW3.7bn on improvements in occupancy rates and additions of five new hotels.
(6) Gmarket Global was incorporated as a consolidated subsidiary as of Dec 2021.