Shinsegae (004170 KS ) Earnings surprise at department stores Retail In-line revenue; Stronger-than-expected OP (non-consolidated) For 3Q16, Shinsegae generated non-consolidated gross revenue of 1.09tr (+17.4% Results Comment YoY). Gross revenue of department stores climbed 12.7% YoY to W879bn. Same- November 9, 2016 store-sales (SSS), which includes department store products sold online, showed robust growth of +4.4% YoY, and sales at new stores, including the Busan Centum City, Gimhae, and Hanam stores, were additionally recognized. Online revenue expanded 42.9% YoY, driven by the launch of partner shopping malls at eBay, 11 th (Maintain) Buy Street, and NAVER, as well as increased traffic at SSG.com. Target Price (12M, W) 250,000 Non-consolidated operating profit significantly beat the consensus. Department store operating profit surged 32.6% YoY to W40.2bn. Gross margin increased Share Price (11/08/16, W) 186,000 1.1%p with improvement in SG&A expense ratio thanks to revenue growth and rental income of W6bn received from Shinsegae DF. OP margin of the online Expected Return 34% shopping mall (operating loss of W3.4bn) climbed 1.5%p on revenue expansion. We estimate revenue growth to expand further in 4Q. Revenue and operating profit should continue robust growth in 2017 thanks to the opening of the Dong OP (16F, Wbn) 261 Daegu store in December and recognition of revenue from the Hanam store. Consensus OP (16F, Wbn) 249 EPS Growth (16F, %) -35.7 Consolidated OP slightly beats consensus Market EPS Growth (16F, %) 17.5 Shinsegae’s consolidated revenue and operating profit expanded 28.4% YoY and P/E (16F, x) 7.1 8.1% YoY to W771.5bn and W41.2bn, respectively. With an increase in Shinsegae Market P/E (16F, x) 10.7 DF’s revenue, Shinsegae International and Central City also saw solid revenue KOSPI 2,003.38 growth. Market Cap (Wbn) 1,831 Meanwhile, operating profit edged up only 8.1% YoY, mainly due to Shinsegae DF’s Shares Outstanding (mn) 10 operating loss of W19.7bn, larger than 2Q’s. Shinsegae DF’s operating profit was Free Float (%) 71.8 pressured by increased promotional expenses related to the launch of the online Foreign Ownership (%) 27.7 shopping mall and higher commissions (paid to tour companies), despite fast sales Beta (12M) 0.79 growth. Promotional expenses may begin to decrease starting from 4Q, but 52-Week Low 176,500 profitability is unlikely to recover in the foreseeable future due to higher 52-Week High 264,500 commissions resulting from sales competition. Pre-tax profit plummeted 61.6% YoY, weighed down by F/X translation losses driven by decreased value o f (%) 1M 6M 12M perpetual bonds issued in US dollars due to a lower F/X rate. Absolute 0.3 -10.1 -20.9 Relative 2.8 -11.3 -19.4 We revised our profitability estimates of department stores and forecast operating profit to continue to improve in 4Q. Earnings improvement will likely accelerate 120 Shinsegae KOSPI from 2Q17 on smaller losses at the duty-free business. 110 100 Reiterate Buy and TP of W250,000 90 We maintain our Buy rating on Shinsegae with a target price of W250,000. 80 Although the duty-free business is showing slower-than-expected improvement in 70 profitability, we believe earnings improve ment at department stores will play a 60 11.15 3.16 7.16 11.16 larger part in Shinsegae’s earnings. Notably, the growth of Shinsegae Mall (online shopping mall) is outperforming its peers. The growth cycle begins now. Mirae Asset Daewoo Co., Ltd. [Retail ] FY (Dec) 12/13 12/14 12/15 12/16F 12/17F 12/18F Aiden Lee Revenue (Wbn) 2,442 2,492 2,564 3,068 3,768 3,771 +822 -768 -3297 OP (Wbn) 306 273 262 261 319 341 [email protected] OP margin (%) 12.5 11.0 10.2 8.5 8.5 9.0 NP (Wbn) 158 157 402 259 152 167 EPS (W) 16,010 15,908 40,843 26,262 15,411 16,974 ROE (%) 6.8 6.2 14.3 8.3 4.6 4.8 P/E (x) 15.8 11.4 5.6 7.1 12.1 11.0 P/B (x) 1.0 0.7 0.7 0.6 0.5 0.5 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates November 9, 2016 KOREA Daily Focus Company News & Analysis Major Indices Close Chg Chg (%) Shinsegae (004170/Buy/TP: W250,000) KOSPI 1,958.38 -45.00 -2.25 Earnings surprise at department stores KOSPI 200 249.67 -5.59 -2.19 KOSDAQ 599.74 -24.45 -3.92 CJ CGV (079160/Buy/TP: W95,000) Lower TP High expectations for global box office in 2017 Turnover ('000 shares, Wbn) Volume Value It’s Skin (226320/Trading Buy/TP: W60,000) KOSPI 703,003 7,350 Lower valuation vs. existing uncertainties KOSPI 200 122,328 5,328 KOSDAQ 1,059,100 5,724 Market Cap (Wbn) Sector News & Analysis Value Airlines (Overweight) KOSPI 1,247,481 October IIA data: Cargo traffic improves KOSDAQ 189,251 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,689 1,903 -213 Institutional 1,545 1,235 309 Retail 4,065 4,192 -127 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 476 473 3 Institutional 282 159 123 Retail 4,957 5,088 -132 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,684 1,420 263 KOSDAQ 204 148 56 Advances & Declines Advances Declines Unchanged KOSPI 67 802 14 KOSDAQ 91 1,068 17 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KODEX LEVERAGE 10,295 -450 957 KODEX INVERSE 7,935 150 580 Samsung Electronics 1,596,000 -48,000 504 KODEX 200 24,975 -525 403 KODEX 200 Futures 10,460 435 371 Inverse 2X KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Homecast 28,050 3,800 490 Celltrion 102,000 -5,900 229 Victek 3,845 885 161 Suncore 5,750 330 147 Speco 6,650 1,530 117 Note: As of November 9, 2016 Mirae Asset Daewoo Research This document is a summary of a report prepared by Daewoo Securities Co., Ltd. (“Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo 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 informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. CJ CGV (079160 KS ) High expectations for global box office in 2017 Entertainment Sluggish 3Q16 results For 3Q16, CJ CGV reported preliminary consolidated revenue of W422.1bn (+17.9% Results Comment YoY), operating profit of W34bn (-12.9% YoY), and net profit (controlling and non- controlling interests) of W450mn (-98.7% YoY). We attribute the sluggish earnings November 9, 2016 to: 1) operating losses at overseas subsidiaries (China, Vietnam, etc.), due to the global box office slowdown; and 2) non-operating losses from one-off costs on the takeover of Turkey’s MARS Entertainment Group, interest expenses, F/X translation (Maintain) Buy losses, and a fine imposed by the Fair Trade Commission. On a parent basis, the company posted domestic revenue of W288.4bn (+4.1% Yo Y) and operating profit of W38.8bn (+2.5% YoY). Target Price (12M, W) 95,000 Domestic box office up 12% in Oct.; China, Turkey box office to rise in 4Q Share Price (11/08/16, W) 71,500 China’s box office dropped 14.9% YoY during the national holiday (October 1 st through 7th ), causing concerns. Many foreign movies are being released in Expected Return 33% November, ahead of December (when China blocks the release of foreign movies to protect local films). Notably, the upcoming December release of The Great Wall (a Hollywood-China co-production starring Matt Damon and directed by Zhang OP (16F, Wbn) 65 Yimou) by Wanda Cinema, China’s largest theater chain, should boost expectations Consensus OP (16F, Wbn) 61 for China’s box office growth. EPS Growth (16F, %) -18.7 Korea’s box office revenue rose 12% YoY in October. CJ CGV’s domestic box office Market EPS Growth (16F, %) 17.5 revenue also increased 18% YoY. Doctor Strange , which was released in the last week of October, is leading the box office in November, attracting more than 4mn P/E (16F, x) 32.3 viewers. Meanwhile, we expect a strong box office in Turkey in 4Q16. In 2015, Market P/E (16F, x) 10.7 31.7% of total box office revenue in Turkey was generated in 4Q. KOSPI 2,003.38 Betting on 2017 movie lineup; Reiterate Buy, but Lower TP to W95,000 Market Cap (Wbn) 1,513 Shares Outstanding (mn) 21 In the global movie market, January-September cumulative box office revenue Free Float (%) 60.9 declined 15% YoY, owing to the fewer number of hit movies.