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Hotel Shilla Buy (008770 KS) (Maintain)

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[Korea] Travel Retail

Hotel Shilla

Buy

(008770 KS)

(Maintain)

Additional negatives to be limited

TP: W100,000

Upside: 42.2%

Mirae Asset Daewoo Co., Ltd.

Myoungjoo Kim [email protected] Minjeong Kyeong [email protected]

2Q20 review

Larger-than-expected operating loss

For 2Q20, Hotel Shilla reported consolidated revenue of W523bn (-61.4% YoY) and an operating loss of W63.4bn (turn to loss YoY).



The operating loss was larger than the market expectation. The weak results were attributable to: 1) disappointing sales of unsold duty-free inventory to third parties overseas; and 2) increased commission fees following a recovery in small daigou.

A QoQ rise in the discount rate given to large-scale daigou also contributed to the weak results.

Additional negatives to be limited

Despite lingering uncertainties, additional negatives to be limited

Hotel Shilla suffered a significant operating loss for the second straight quarter despite sharp rent cuts (W56bn; about four months’ worth) at Incheon International Airport (IIA).



Store traffic failed to recover amid the lingering impact of COVID-19. Due to the prolonged effects of the pandemic, uncertainty still surrounds the recovery outlook. That said, we believe additional negatives beyond COVID-19 are limited. Despite the pandemic, sales to daigou are proving resilient, showing that demand for Korean cosmetics and duty-free channels remains solid.

Accumulate on weakness

Maintain Buy and TP of W100,000



We see no additional negatives aside from COVID-19. Hotel Shilla’s stock is trading at a 2021F P/E of 16.0x. Valuation does not look demanding, assuming a normalization in business conditions in 2021.



We believe the current share price reflects all COVID-19-related uncertainties and sluggish earnings. Near-term share price weakness is possible, given the weak 2Q20 results and persistent uncertainties.

We recommend taking any correction as an opportunity to accumulate shares.

Key data

Currentprice(7/31/20,W) OP (20F,Wbn)
70,300
-149 -120
-
Market cap (Wbn) Shares outstanding (mn) Freefloat (%)
2,759
40

160

  • Hotel Shilla
  • KOSPI

140

120

100
80

ConsensusOP (20F,Wbn) EPSgrowth (20F,%) P/E(20F, x)
77.2
Foreignownership(%) Beta (12M)
21.3

  • -
  • 1.04

Market P/E(20F, x) KOSPI
15.8
2,249.37
52-weeklow(W) 52-weekhigh(W)
61,800
108,500

60

  • 7.19
  • 11.19
  • 3.20
  • 7.20

  • Shareperformance
  • Earningsandvaluationmetrics

(%) Absolute Relative
1M -1.0 -7.2
6M
-19.6 -24.2
12M -10.7 -19.6

  • (Dec.)
  • 2016

3,715
79 2.1 28
696 4.0
69.2
2.5
2017 3,515
73 2.1 25
632 3.8
134.3
4.4
2018 4,714
209 4.4 110
2,758
15.4 27.7
3.5
2019 5,717
296 5.2 170
4,243
20.2 21.4
3.5
2020F 3,475
-149 -4.3 -180
-4,501
-21.8
-
2021F 6,876
308 4.5 176
4,395
21.7 16.0
2.8
Revenue(Wbn) OP (Wbn) OP margin(%) NP (Wbn) EPS(W) ROE(%) P/E(x)

  • P/B(x)
  • 3.4

  • Dividend yield (%)
  • 0.7
  • 0.4
  • 0.5
  • 0.4
  • 0.5
  • 0.5

Notes: Under consolidatedK-IFRS; NP is attributable to owners ofthe parent Source: Company data, Mirae AssetDaewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the US.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

August 3, 2020

Hotel Shilla

Table 1. 2Q20 review

(Wbn, %, %p)

2Q20 MiraeAsset
Daewoo
Growth

  • 2Q19
  • 1Q20

  • Actual
  • Consensus
  • YoY
  • QoQ

Revenue

OP

1,355

79

  • 944
  • 523
  • 535
  • 657
  • -61.4

TTR

-
-44.6

RR

-

  • -67
  • -63
  • -56
  • -53

OP margin(%) NP
5.8

  • 52
  • -74
  • -68
  • -54
  • -55
  • TTR
  • RR

Note: NP is attributable to owners ofthe parent. Source: DataGuide; company data, Mirae AssetDaewoo Research

Table 2. Earnings forecast revisions

(Wbn, %)

Previous
2020F
Revised
2020F
% chg.
2020F
Notes
2021F

6,689

303

  • 2021F
  • 2021F

  • 2.8
  • Revenue

OP

5,113

31

3,475

-147

-4.2
6,876

308

4.5
-32.0

TTR

-4.8 RR
Lowered2H20 estimates to reflect prolongedimpactof COVID-19

1.7

OP margin(%) NP

  • 0.6
  • 4.5
  • 0.0

  • -43
  • 182
  • -181
  • 176
  • -3.0

Note: NP is attributable to owners ofthe parent. Source: DataGuide, Mirae AssetDaewoo Research

Table 3. Earnings and forecasts (consolidated)

(Wbn)

  • 2019 2020F 2021F
  • 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20F 4Q20F
  • 2018

Revenue

Duty-free Downtown Airport

  • 1,126 1,175 1,220 1,193 1,343 1,355 1,475 1,544
  • 944

849 559 290
94

523

439 394
46

809 1,200 4,714 5,717 3,475 6,876

  • 1,014 1,055 1,094 1,072 1,225 1,227 1,339 1,411
  • 704 1,062 4,234 5,201 3,055 6,324

581 432 112 594
53
613 442 120 600
51
626 468 127 631
52
621 451 121 637
53
721 504 118 753
56
756 470 128 741
55
856 482 137 861
58
941 470 133 887
57
579 125 105 474
59
791 2,441 3,274 2,322 3,835 271 1,793 1,927 732 2,488 138 480 516 421 553 735 2,462 3,301 2,090 3,970
61 52.2 57.7 60 58
438 2,042 2,121 1,534 2,599
Hotel/leisure COGS
84
588
62
292

  • 56
  • COGSratio(%)

  • SG&A
  • 487

44

505

69

521

68

529

27

509

82

534

79

557

57

580

78

422

-67

-49 -18 -93

-74

295

-63

-47 -16 -82

-68

378

-44

-39
-4

  • OP
  • 26

23
3

209

196
13

296

267
29

-147

-112
-35

308

281
28
Duty-free Hotel/leisure Pretax profit

NP

  • 48
  • 64
  • 59
  • 25
  • 82
  • 70
  • 45
  • 70

  • -3
  • 6
  • 9
  • 2
  • -1
  • 9
  • 12
  • 8

  • 42
  • 65
  • 66
  • -25

-21

  • 67
  • 68
  • 38
  • 54
  • -55

-42

  • 3
  • 147

110

226

170

-227

-181

234

  • 176
  • 32
  • 53
  • 47
  • 52
  • 52
  • 28
  • 38
  • 2

YoY (%) Revenue OP

  • 10
  • 31
  • 14

124 275
127
77
19 85 64
15 14 -1
21 -16 -41
29
182 TTB
-30 TTR TTR
-61 TTR TTR
-45 TTR TTR
-22 -66 -94
34
186 336
21 41 54
-39.2 TTR TTR
97.9 TTB TTB

  • 342
  • 303

  • NP
  • 1,074 1,668
  • -402

Note: NP is attributable to owners ofthe parent. Source: Company data, Mirae AssetDaewoo Research

Mirae Asset Daewoo Research

2

August 3, 2020

Hotel Shilla

Hotel Shilla (008770 KS)

Income statement (summarized)

(Wbn)

Revenue Costofrevenue Grossprofit SG&Aexpenses OP(adj.) OP Non-operatingprofit

Net financialincome Net incomefrom associates Pretax profit

Balance sheet (summarized)

(Wbn)

Currentassets

Cash&equivalents AR &other receivables Inventory Othercurrent assets

Non-currentassets

Investmentsin associates PP&E
2018

4,714 2,462 2,252 2,042
209 209 -62

-8 0
147
37
110
0

110

110
0

110

110
0
284
76 6.0 4.4 2.3
2019

5,717 3,301 2,416 2,121
296 296 -70

-27
0
226
56
169
0

169

170
0

168

168
0
515 338 9.0
2020F

3,475 2,090 1,385 1,534
-149 -149
-80

-29
0
-229
-49
-180
0

-180

-180
0

-175

-175
0
86 -71 2.5 -4.3 -5.2
2021F

6,876 3,970 2,906 2,599
308 308 -74

-35
0
234
58
176
0

176

176
0

176

176
0
540 203 7.9
2018

1,272

282 203 704
83

1,032

34
697
48

2,304 1,003

350 160 493

536

499
37

1,539
764

200 197 475

1

2019

1,716

508 266 849
93

1,811

48
675
56

3,527 1,438

507 419 512

1,170

1,143
27

2,608
920

200 197 627

0

  • 2020F
  • 2021F

1,901

459 319
1,019
104

1,856

57
637

1,410

472 207 660
71

1,780

37
654
60

3,190 1,356

394 564 398

1,103

1,082
21

2,458
731

200 197 434

0

Intangibleassets

Totalassets

44

3,757 1,749

608 527 614

1,114

1,082
32

2,864
894

Incometax

Currentliabilities

AP &otherpayables Short-term financialliabilities Othercurrentliabilities

Non-currentliabilities

Long-term financialliabilities Othernon-currentliabilities

Totalliabilities Equity attributabletoowners

Capital stock Capital surplus Retained earnings

Minorityinterests Shareholders'equity

Profit from continuing operations Profit fromdiscontinued operations

NP

Attributableto owners Attributableto minorityinterests

Total comprehensiveincome

Attributableto owners Attributableto minorityinterests

  • EBITDA
  • 200

197 596

0

FCF EBITDA margin (%) OP margin(%) Net margin(%)
5.2 3.0
4.5 2.6

  • 765
  • 920
  • 731
  • 894

  • Cash flow statement (summarized)
  • Key valuation metrics/ratios

  • (Wbn)
  • 2018
  • 2019

404

169 341 205
15
121 -44 -28
-139 150 -70

-93

-65
0
2020F

95

-180 218 217
18 -17 15 24
191 -99 30

-137

-165
-15 51
2021F

403

176 326 217
15
2018 27.7 10.6
3.5
12.0
2,758 7,201
21,722
350
2019 21.4
7.1 3.5 9.0
4,243
12,764 25,591
350
2020F
-
73.6
3.4
2021F
16.0
5.6 2.8 7.3
4,395
12,535 24,940
350 7.4

Operatingcashflow

NP Non-cashincome/expenses Depreciation

154

110 178
62
P/E(x) P/CF(x) P/B(x) EV/EBITDA (x) EPS(W) CFPS(W) BPS(W) DPS(W) Dividendpayout ratio (%) Dividend yield (%) Revenuegrowth(%) EBITDAgrowth (%) OPgrowth(%) EPSgrowth (%) AR turnover (x) Inventoryturnover (x) AP turnover (x) ROA (%) ROE(%) ROIC (%) Debt-to-equityratio (%) Current ratio(%) Net debt-to-equityratio (%) Interestcoverageratio(x)
45.9
-4,501
955
20,877
350 -7.2 0.5
-39.2 -83.3
-

  • Amortization
  • 12

  • Other
  • 104

-117
-16
-230
43 -23

-103

-71
0
94
Chg.inworking capital Chg.inAR&other receivables Chg.ininventory Chg.inAP&otherpayables Incometax

Cashflowfrominvestingactivities

Chg.inPP&E Chg.inintangibleassets Chg.infinancialassets Other
-53 -52
-359 183 -58

-297

-200
0
-97
0

-99

-37
0
11.8
0.5
7.7

  • 0.4
  • 0.5

34.1 95.9
186.3 336.4
54.8
8.0
21.3 81.3 41.6 53.8 52.4
7.4
97.9
527.9
-

  • -
  • -

  • 20
  • 7
  • 31.7

4.6 5.4 -5.4
-21.8
-8.3
336.3 104.0 156.9
-3.6
56.3
8.2 9.3
-52

-245

-211
0
-35

-87

903
0
-13
-977

226

282 508
-8

-8

84
0

Cashflowfromfinancingactivities

Chg.infinancialliabilities Chg.inequity
9.4 4.9
9.2

  • 5.8
  • 5.1

15.4 18.7
201.1 126.9
46.3 11.3
20.2 17.3
283.6 119.3 112.2
7.5
21.7 13.9
320.5 108.7 124.6
6.4
Dividends Other

Chg.in cash

Beginningbalance Endingbalance
-13 -21

-193

474 282

  • 0
  • -13

-49

-13

472 459
-92

-36

508 472

Source: Company data, Mirae AssetDaewoo Research estimates

Mirae Asset Daewoo Research

3

August 3, 2020

Hotel Shilla

Appendix 1

Important disclosures and disclaimers

Two-year rating and TP history

  • Company
  • Date
  • Rating

Buy
TradingBuy
Buy Buy
No Coverage
Buy

TP(W)

100,000 100,000 100,000 110,000

(W)
Hotel Shilla

  • Hotel Shilla(008770)
  • 04/27/20

02/02/20 10/28/19 10/01/19 08/07/18 04/29/18

200,000

150,000 100,000

50,000

0

170,000

  • Aug 18
  • Aug 19
  • Aug 20

Stockratings

Buy

Sectorratings

  • Overweight
  • Expected to outperform the market over 12 months

Expected to perform in line with the market over 12 months
Expected 12-month performance: +20% or greater

  • Neutral
  • Trading Buy Expected 12-month performance: +10% to +20%

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    April 19, 2018 Korea Daily Focus Company News & Analysis Major Indices Close Chg Chg (%) Hotel Shilla (008770/Buy/TP: W150,000) Raise TP KOSPI 2,486.10 6.12 0.25 In the early innings of a historical transition KOSPI 200 320.12 1.48 0.46 KOSDAQ 882.73 -10.59 -1.19 i-SENS (099190/Buy/TP: W36,000) Raise TP Business diversification and margin improvement underway Turnover ('000 shares, Wbn) Volume Value Maeil Dairies (267980/Buy/TP: W100,000) KOSPI 718,263 9,996 KOSPI 200 115,118 6,514 How fast will infant formula exports to China recover? KOSDAQ 1,662,376 7,990 Market Cap (Wbn) Sector News & Analysis Value Auto (Neutral) Initiate coverage KOSPI 1,660,196 Market share to be key determinant KOSDAQ 286,582 KOSPI Turnover (Wbn) Buy Sell Net Foreign 2,159 1,982 177 Institutional 1,539 1,768 -228 Retail 6,254 6,190 64 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 725 678 47 Institutional 344 298 46 Retail 6,919 6,993 -75 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,786 1,630 156 KOSDAQ 301 292 9 Advances & Declines Advances Declines Unchanged KOSPI 457 361 69 KOSDAQ 506 654 72 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 2,639,000 71,000 899 Celltrion 266,500 -18,000 596 Hynix 87,900 3,300 512 Hyundai Elevator 104,000 14,600 345 KODEX KOSDAQ150 22,000 -770 289 LEVERAGE KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value JY Solutec 3,640 35 285 Good People 8,640 1,990 258 SillaJen 100,800 -3,000 205 NATURECELL 31,100 -3,100 183 Daea TI 3,395 325 159 Note: As of April 19, 2018 Mirae Asset Daewoo Research This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd.
  • Aliseo References You’Re As Good As the Company You Keep !

    Aliseo References You’Re As Good As the Company You Keep !

    “At Your Service ...” Aliseo References You’re As Good As the Company You Keep ! Mit über 30 Jahre Erfahrung im internationalen Hotelgeschäft und mehr als 1 Million Installationen auf 6 Kontinenten haben ein einzigartiges Verständnis für neue Trends, kulturelle und geographische Unterschiede, Sicherheitsstandards und elektrische Voraussetzungen hervorgebracht. „Design-sensitive, klassische Produkte, technologisch ihrer Zeit voraus, erprobt im tagtäglichen Härtetest.“ Nachstehend nur einige unserer Referenzen von Hotels, die unsere Produkte einsetzen . With over thirty years of experience and more than 1 million installations on 6 continents, Aliseo has a unique understanding of hospitality needs - from design dictates and cultural sensitivities to electrical requirements and safety standards. By incorporating the latest technology with the needs of today’s travellers, Aliseo has developed a wide range of innovative products that bring value to the hotelier and convenience to their guest. A dedication to quality, design and innovation that is shared by many of the world’s top hoteliers. These are but a few . ALGERIA St. Antoner Hof St. Anton am Arlberg Sheraton Resort & Towers Club des Pins Biohotel Daberer St. Daniel Constantine Marriott Hotel Constantine Romantikhotel Weisses Rössl St. Wolfgang Le Meridien Oran Hotel Hochschober Turracher Höhe Sheraton Oran Hotel Oran Schlosshotel Velden am Royal Golden Tulip Skikda Wörthersee Renaissance - Tlemcen Hotel Tlemcen Seehotel Hubertushof Velden am Wörthersee Ana Grand Hotel Vienna ANDORRA
  • Hotel Shilla (008770 KS)

    Hotel Shilla (008770 KS)

    Company Report Nov 16, 2015 Hotel Shilla (008770 KS) Our take on Seoul, Busan downtown duty-free license awards Results of Seoul and Busan round two downtown duty-free license review Retail/leisure The Korea Customs Service announced the round 2 winners of the Seoul and Busan BUY (M) downtown duty-free license review on Saturday. Lotte Sogong and Shinsegae Busan retained TP: W153,000 (D) their licenses, while SK Walkerhill and Lotte World Tower lost theirs to Shinsegae and Doosan, respectively. This is the first time that existing duty-free operators have had their licenses taken away since the government’s introduction of a competitive bidding process. The loss of Lotte’s Share price (won, Nov 13) 103,000 World Tower branch to the duty-free rookie, Doosan, stunned many investors, as this means Paid-in capital (Wbn) 200 duty-free retailers now have to fight to retain their business every five years. The new license Market cap (Wbn) 4,094 BPS (won) 18,822 award system may undermine investor sentiment in the Korean duty-free market unless Net debt to equity (%) 81.1 uncertainties shrouding detailed review items and weightings are addressed. Shares outstanding 40,000,000 Go overweight when risk of Customs Act revision is removed in December Avg daily T/O (2M, Wbn) 34 Avg daily vol (2M, shrs) 304,428 Shilla Duty-Free, the 7th-largest global duty-free retailer, was not a party to the weekend’s 52-week high (won) 138,000 bidding. However, the results are significant because Lotte’s loss means that the renewal of its 52-week low (won) 85,800 existing licenses for its Janchung (2019), downtown Jeju (2019), and HDC (2020) stores is not Foreign ownership (%) 37.4 guaranteed.
  • Aliseo References You’Re As Good As the Company You Keep !

    Aliseo References You’Re As Good As the Company You Keep !

    “At Your Service ...” Aliseo References You’re As Good As the Company You Keep ! Mit über 30 Jahre Erfahrung im internationalen Hotelgeschäft und mehr als 1 Million Installationen auf 6 Kontinenten haben ein einzigartiges Verständnis für neue Trends, kulturelle und geographische Unterschiede, Sicherheitsstandards und elektrische Voraussetzungen hervorgebracht. „Design-sensitive, klassische Produkte, technologisch ihrer Zeit voraus, erprobt im tagtäglichen Härtetest.“ Nachstehend nur einige unserer Referenzen von Hotels, die unsere Produkte einsetzen . With over thirty years of experience and more than 1 million installations on 6 continents, Aliseo has a unique understanding of hospitality needs - from design dictates and cultural sensitivities to electrical requirements and safety standards. By incorporating the latest technology with the needs of today’s travellers, Aliseo has developed a wide range of innovative products that bring value to the hotelier and convenience to their guest. A dedication to quality, design and innovation that is shared by many of the world’s top hoteliers. These are but a few . ALGERIA St. Antoner Hof St. Anton am Arlberg Sheraton Resort & Towers Club des Pins Biohotel Daberer St. Daniel Constantine Marriott Hotel Constantine Romantikhotel Weisses Rössl St. Wolfgang Le Meridien Oran Hotel Hochschober Turracher Höhe Sheraton Oran Hotel Oran Schlosshotel Velden am Royal Golden Tulip Skikda Wörthersee Renaissance - Tlemcen Hotel Tlemcen Seehotel Hubertushof Velden am Wörthersee Ana Grand Hotel Vienna ANDORRA
  • The Rise of Daigou As a New Buying Force

    The Rise of Daigou As a New Buying Force

    Korea Consumer Discretionary 28 June 2018 Korea Consumer The rise of daigou as a new buying force Daigou demand has become integral to Korea’s duty-free industry Easing competition in the DFS segment to lead to improving margins from 2018E; we expect rapid earnings growth from this channel Reiterating Positive sector rating; initiating coverage on Hotel Shilla with a Buy (1) rating; Amorepacific is our top cosmetics pick Iris Park (82) 2787 9165 [email protected] What's new: With the decline in visitors from China to Korea since March Key stock calls 2017, Korea’s duty-free stores (DFS) have sharpened their focus on New Prev. attracting daigou, a Chinese term for personal shoppers. We estimate that Amorepacific (090430 KS) in 2017, daigou sales totalled KRW6.9tn — nearly half of all DFS sales in Rating Buy Buy Korea. The daigou segment has become an important source of cash flow Target 440,000 430,000 Upside p 42.4% for Korea’s DFS and cosmetics players, and we look for it to support LG Household & Health Care (051900 KS) double-digit revenue growth for both groups over our forecast horizon. Rating Buy Outperform Target 1,710,000 1,430,000 What's the impact: Chinese government taking steps to legitimise Upside p 19.3% daigou. We expect the daigou channel to evolve into a legitimate channel, Hotel Shilla (008770 KS) as the Chinese government has been taking measures since 2015 to Rating Buy legalise the grey market created by personal shoppers. At the same time, Target 165,000 we believe the continued growth of mobile commerce will support weishang Upside p 41.6% (online micro-shops) sales.
  • Kakao T Taxi in March 2015, Kakao Mobility Corp

    Kakao T Taxi in March 2015, Kakao Mobility Corp

    Report 20 18 CEO’s Message After the first publication last year, Kakao Mobility Corp. issued the second kakaomobility Report. Since its launch of Kakao T Taxi in March 2015, Kakao Mobility Corp. established its independent entity in August 2017, and introduced Kakao T by consolidating Kakao Taxi, Kakao Driver, Kakao Navi, and Kakao Parking. A large amount of travel data has been collected while Kakao Mobility Corp. has been committed to pursuing innovation. This Report shows our society’s dynamic aspects based on our collected mobility data. Many people have contributed to the publication of this Report. First of all, I would like to express my sincere appreciation to Kakao T users who have provided real time travel data. I also would like to thank taxi drivers and designated drivers for responding to surveys and interviews for this Report. Such valuable information will become a meaningful foundation for Kakao Mobility Corp. to improve customer services and constantly pursue innovation. With the age of digital transformation, the mobility industry worldwide has been experiencing a big change. In particular, travel innovation is considered as a meaningful innovation that can make many people’s life safer and more convenient and create more chances for a happier life by broadening the sphere of living. This mobility business is rapidly growing in a world of borderless competition. However, I am very worried that Korea may fall behind global competition and lose a chance to take the lead in innovation due to several regulations and conflicts. It’s time to make a bold leap forward to innovative growth at the national level.