NH Investment & Securities announced on November 9 that it has lowered its target price for Lotte Shopping from 170,000 won to 140,000 won, reflecting a decline in the valuation of the department store sector. However, the firm maintained its 'buy' rating, citing that the changes in earnings forecasts are minimal and the fundamentals remain strong.
Joo Young-hoon, a researcher at NH Investment & Securities, stated, "The target price is based on a sum-of-the-parts (SOTP) valuation method, and the main reason for the adjustment is a change in the applicable multiple, reflecting a 10% discount due to the decline in department store sector valuations. We believe that future earnings forecasts will not fluctuate significantly, and the fundamentals remain robust."
Lotte Shopping reported a consolidated revenue of 3.6532 trillion won for the third quarter, a 7.1% increase compared to the same period last year, with operating profit rising 34.5% to 175.6 billion won, aligning with market consensus. Same-store sales growth for department stores and discount stores was 11% and 18%, respectively.
Joo noted, "Despite concerns of a peak-out, the department store segment continued to grow significantly due to strong sales from large stores and foreign customers. The recovery in high-margin fashion sales has also contributed to stable increases in operating profit." Regarding discount stores, he commented, "The positive effects of Homeplus's rebound, consumer recovery from spending coupons, and the timing of holidays have all contributed to substantial profit improvements, despite initial cost burdens from the Zeta Smart Center."
Supermarket performance also improved, with same-store sales growth reaching 10%, leading to a rebound in profits due to reduced fixed costs from increased sales. He projected that the government's discount support policy for agricultural and marine products would continue to drive performance improvements into the fourth quarter.
Joo also highlighted the potential for resolving undervaluation, stating, "The current stock price is below a price-to-book ratio (PBR) of 0.2, categorizing it as a typical low PBR stock. Efforts are underway to address this undervaluation through various measures, including expanding shareholder returns and introducing a shareholder-friendly discount program." He added, "Improving performance and shareholder-friendly initiatives could serve as factors in alleviating the undervaluation."
* This article has been translated by AI.
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