20170413-三星证券-1Q_preview_and_forecasts_30页_830kb

Sector Update Summary

Core Content

This document provides an analysis of the Korean retail sector, focusing on the performance and outlook for key players such as E-mart, Shinsegae, Lotte Shopping, and Hyundai Department Store, as well as home shopping firms and discount stores. It highlights the sector's performance in the first quarter of 2017, expected earnings, and investment strategy, emphasizing the potential for consumption recovery and attractive valuations.

Main Points

• Sector Outlook: The Korean retail sector is expected to slightly miss consensus estimates in 1Q17 after a strong 4Q16. However, the sector is rated as OVERWEIGHT due to attractive valuations, rebounding ROE levels, and anticipation of consumption recovery.

• Key Performers:

  • Home shopping firms and Lotte Himart are expected to meet or beat expectations.
  • Convenience stores and home appliance retailers likely performed well due to aggressive store openings and strong sales of mobile devices and electronics.
  • China-related plays (e.g., Lotte Shopping) are expected to miss badly due to challenges from the China market.

• Weaknesses:

  • Department stores and discount stores performed sluggishly in 1Q17.
  • Lotte Shopping recognized a one-off tax refund in 4Q16, which may have lifted earnings.

Investment Strategy

• The analyst recommends OVERWEIGHT on the sector due to:

  • Attractive valuations.
  • Rebounding ROE levels.
  • Anticipation of consumption recovery.

• Preference is given to small caps such as home shopping players and Lotte Himart over large caps.

Key Players Overview

Large Caps

Home Shopping Players

Small and Mid-Caps

Consumption Trends

• Consumer Sentiment Index (CSI) bottomed at 93.3 in January and gradually improved in February and March.
• Retail Sales are likely past their bottom, with expectations of continued recovery in 2Q17 due to reduced uncertainties, rising asset prices, and the presidential election.
• Department Stores and Discounters had a contraction in same-store sales (SSS) in 1Q17, but growth is anticipated in the coming months.

E-mart Analysis

• Performance: E-mart's 1Q17 results are expected to fall slightly short of consensus estimates, but the company's Traders and E-Mart Mall operations are expected to drive earnings.
• Consolidated Sales and Operating Profit: E-mart's consolidated sales and operating profit are projected to increase by 8.5% and 12.3% respectively for the year.
• Valuation: E-mart is currently trading at a 14x P/E, and the fair value per share is estimated at 232,762 KRW.
• Strategic Moves: E-mart plans to close its Ulsan discount store and restructure 10 loss-making stores, which should improve SSS growth and operating profits.

Shinsegae Analysis

• Performance: Shinsegae's 1Q17 gross sales are expected to jump 38% y-y to KRW1.76t, driven by strong offline department store sales and online growth.
• Consolidated Earnings: Shinsegae's consolidated operating profit is expected to grow 6% y-y to KRW65.6b, slightly missing the consensus forecast.
• Valuation: Shinsegae is undervalued, with a fair value per share estimated at 250,623 KRW.
• Catalysts: Shinsegae International is restructuring unprofitable brands, and DFS operations are expected to improve with the base effect of previous year's sluggish results.

Summary of Key Financial Metrics

Key Insights

• Earnings Growth: The sector is expected to see improving earnings, particularly from home shopping firms and convenience stores.
• Valuation Opportunities: The sector is considered attractive for investment due to its low valuations and potential for growth.
• Market Risks: China-related retailers face challenges, while the overall market is expected to recover in the second half of the year.