[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 Despite lingering uncertainties, additional negatives to be limited 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.