Lack of Near-term Earnings Momentum
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Maintain BUY, cut target price 20% to KRW160,000; Lack of near-term earnings momentum
We cut our TP by 20% to KRW160,000 for E-mart, as we revise down 2022E/2023E/2024E OP by 58%/32%/27% based on lack of near-term earnings momentum. However, given mid-/long-term earnings potential for the company’s flagship businesses, which are Korea’s No. 1 hypermarket, No. 1 coffee chain and No. 3 e-commerce platform, we believe the stock is undervalued. Thus, we maintain BUY. Our 2022E/2023E consolidated OP is below the market consensus by 37%/16%.
2022 OP forecast: Hypermarket, Starbucks Korea, Gmarket to come in lower than our estimates
We revise down 2022 consolidated OP by 57% to KRW209.1bn, as we lower our OP estimates for E-mart’s flagship businesses, resulting in a drop in 2021E-24E OP CAGR (28%→15%). For the year, we expect:
(1) Hypermarket OP to plunge 18% YoY on a high SSSG base and higher fees at picking/packing centers;
(2) Starbucks Korea OP to fall 5% YoY on increases in raw material/labor costs; and
(3) E-commerce businesses SSG.com and Gmarket to suffer operating losses of KRW130.7bn and KRW73.8bn, respectively.
1Q22 review: OP falls short of consensus by 72% on worse-than-expected OP at Starbucks Korea, Gmarket Global
E-mart reported 1Q22 consolidated net revenue of KRW7.0tn (+19% YoY) and OP of KRW34.4bn (-72% YoY), with the former in line but the latter falling short by 72%.
(1) Hypermarket (offline) gross revenue rose 3% YoY but OP slid 18% YoY. While SSSG climbed 2.4% and GPM held steady YoY, OPM fell 0.6pp on higher fees at P&P centers.
(2) E-mart Traders revenue edged up 0.3% YoY on an unfavorable base and a 33% YoY decline in OP (-0.2% in SSSG).
(3) SSG.com gross revenue climbed 24% YoY accompanied by operating loss of KRW25.7bn, which narrowed QoQ by KRW14.5bn; the loss is likely to widen QoQ from 2Q22 on growing marketing costs.
(4) Starbucks Korea revenue rose 15% but OP tumbled 36%, missing expectations. SSSG slowed to 5% YoY on the spread of Omicron and an increase in FX rate and higher raw bean and labor costs.
(5) Gmarket Global gross revenue came in at KRW3.8tn (-14% YoY) with operating loss of KRW19.4bn, missing expectations.