April 26, 2024

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[THE INVESTOR] Lotte Shopping will rebound and post 1 trillion won (US$891.66 million) annual operating profit in 2020, said Hana Financial Investment on Sept. 13, upgrading the recommendation to a “buy” from a “hold” and raising the target price to 230,000 won from 200,000 won.

As it unplugs the hypermarket business in China, which were the major reason for its slow earnings over the last four years, its whole discount store business will turn to black from next year. Absolute undervaluation at 0.4 times its price-to-book ratio since 2016 will also be over. The retailer is currently operating 12 hypermarkets in China. While four have completed signing sale contracts, the remaining eight will close by the year-end. Appropriation funds for closure have been reflected and the chances of capital raise to finance operations have been lowered, said analyst Park Jong-dae.

Department stores in China are picking up as retaliatory actions over THAAD issue are easing, and although likely to be sold, it is unlikely that they will require additional funds or capital raise. Revenue in the third quarter will rise 0.5 percent to 4.58 trillion won and operating profit will surge 161 percent to 165 billion won, as existing department stores and hypermarkets in Korea will grow over 2 percent on-year while sales and administration costs will be cut significantly, forecast the analyst. 

By Hwang You-mee (glamazon@heraldcorp.com)