[NH투자증권 영문버전 -이지영][Shinsegae] Businesses sailing smoothly in 4Q18

Analyst JY Lee  / jy.lee@nhqv.com

[Shinsegae] Businesses sailing smoothly in 4Q18

	In 4Q18, Shinsegae is enjoying sound sales growth at its department stores, DFSs, and consolidated subsidiaries. In 2019, department store earnings should continue expanding, while DFSs are likely to benefit from recovering inbound Chinese tourist numbers and normalized earnings at new stores. We view the firm’s online integration efforts as being a positive in terms of customer expansion. ▶ Businesses sailing smoothly in 4Q18 In 4Q18, y-y same store sales growth (SSSG) at Shinsegae’s department stores stood at 8% in October and 0% in November. While it is still early to forecast sales for December, the early numbers appear sound—overseas luxury brands, high-end home appliances, and contemporary fashion products are all enjoying double-digit y-y sales growth. The DFS division enjoyed strong sales in both October and November. Compared with 3Q18, commission rates (paid to travel agencies) have stabilized down, while sales at new DFSs have widened. We note that at the Gangnam DFS, sales are rising despite the opening of a Hyundai DFS nearby. Turning to its consolidated subsidiaries, sales at Casamia have completely normalized, recovering from a one-off incident involving radon-contaminated mattresses. Meanwhile, sales and profitability at the Dongdaegu store (department store) have been climbing faster than expected. ▶ 2019 outlook positive Led by rising sales of overseas luxury brands and contemporary fashion items, the department store division is anticipated to post 2019 SSSG of 3~4%. The DFS division should record 2019 gross sales of W4.3tn (W2.2tn at the Myeongdong branch, W1.3tn at airport DFSs, W500bn at the Gangnam location, and W300bn at the Busan location) and OP of W80bn (W100bn at the Myeongdong branch, -W20bn at airport DFSs, and BEP at the Gangnam and Busan locations). Additional earnings momentum is anticipated from the planned launch of a new online corporation in 2019 (via consolidation of Emart and Shinsegae’s online businesses), from which the firm hopes to absorb a sizeable portion of Emart Mall customers through integrated marketing. We note that while prior to the integration of Emart into SSG.COM, the percentage of Shinsegae’s overlapping customers with Emart’s stood at just 4%, the figure has now risen to 18%. For reference, the number of downloads (cumulative basis) of the Emart Mall and Shinsegae Mall Android apps totals 2,105,199 and 788,148, respectively. On Dec 6, Shinsegae’s share price fell 6% on concerns towards the DFS business stemming from China’s upcoming implementation of new e-commerce laws (set to take effect in Jan 2019). However, believing that: 1) inbound Chinese tourist figures will climb by more than 40% y-y in 2019; 2) sales at new DFSs will normalize quickly; and 3) the DFS division’s profitability will stabilize thanks to the oligopolization of the domestic DFS market, we recommend Shinsegae as the most attractive domestic retail player from a long-term perspective. NH Investment & Securities makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. NH Investment & Securities accepts no responsibility or liability whatsoever for any loss, arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for information purposes only. It is not and should not be construed as an offer, or a solicitation of an offer, for the purpose or sale of any securities or other financial instruments. This document may not be quoted, reproduced, exhibited, redistributed, transmitted, edited, translated, or published, in whole or in part, for any purpose without notice. Any failure to comply with this restriction may constitute a violation of civil or criminal laws. This document has been approved by the NH I&S Research Center`s compliance officer.