Hotel Shilla (008770.KS) Korea-China Relations to Improve

Hotel Shilla (008770.KS) Korea-China relations to improve

Company Note │ Jan 16, 2020

We expect Hotel Shilla’s 4Q19 results to surpass the market projections thanks to brisk sales and one-off lease reversal gains. Despite lingering uncertainty towards the DFS industry, expectations are rising towards DFS profitability normalization driven by an easing in bans on Korean content Buy (upgrade) and products in China. TP W125,000 (raise) CP (’20/01/14) W107,000 Sector Retail Kospi/Kosdaq 2,238.88 / 678.71 Good news beating out uncertainty Market cap (common) US$3,626.51mn We raise our TP on Hotel Shilla by 38% from W90,000 to W125,000. In Outstanding shares (common) 39.2mn 52W high (’19/04/30) W115,000 light of robust sales at the DFS business, we revise up our 2019E and 2020F low (’19/01/17) W71,500 EPS by 5% and 6%, respectively. We also hike our target P/E from 20x to Average trading value (60D) US$29.45mn 25x to reflect expectations towards an easing in bans on Korean content and Dividend yield (2020F) 0.39% products in China. Of note, even if group tours such as cruises see a Foreign ownership 32.0% recovery, the effects may not prove significant, given that average revenue Major shareholders per foreign traveler is merely a third of that per reseller. We note that Samsung Life & 5 others 17.3% average revenue per foreign visitor at in-city DFSs came to US$500 in 2016 NPS 12.8% (prior to THAAD issues) versus US$1,500 in 2019 (post-THAAD). Share perf 3M 6M 12M Absolute (%) 35.3 29.9 42.5 However, we expect marketing expenses to decline going forward thanks to Relative (%p) 24.9 21.0 31.4 customer diversification. In the DFS industry, uncertainty lingers towards: 1) the reselection of T1 DFS operators at Incheon International Airport over 2018 2019E 2020F 2021F January~February; 2) a change to the DFS on-site delivery system in 1H20; Sales 4,714 5,682 6,377 6,810 Chg 34.1 20.5 12.2 6.8 3) Chinese residents’ increasing access to in-city DFSs in China; and 4) OP 209 279 317 347 intensifying competition with latecomers such as Hyundai Duty Free. Chg 186.1 33.6 13.5 9.4 Nevertheless, we believe that the most important factors to consider at this OPM 4.4 4.9 5.0 5.1 time are expectations for improved relations between Korea and China and NP 110 164 198 216 the normalization of DFS profitability. EPS 2,803 4,166 5,049 5,499 Chg 336.3 48.6 21.2 8.9 P/E 27.3 21.8 21.2 19.5 4Q19 preview: Earnings to outperform P/B 4.0 4.0 3.9 3.3 Hotel Shilla is predicted to log 4Q19 sales of W1.5tn (+26% y-y) and OP of EV/EBITDA 12.0 11.5 11.6 10.3 W61.2bn (+123% y-y), exceeding market expectations. ROE 15.4 19.5 19.7 18.0 Debt/equity 201.1 267.9 234.8 196.8 The DFS division likely saw sales of W1.3tn (+29% y-y) and OP of Net debt 358 536 431 339 W57.2bn (+128% y-y). In detail, in-city DFSs likely enjoyed sales growth of Unit: Wbn, %, won, x Note 1: NP excludes minority interests 48% y-y thanks to increased demand from Chinese visitors, while the figure Note 2: EPS, P/E, P/B, ROE based on NP (excl minority interests) for airport DFSs likely upped only 2-3% y-y due to sluggish outbound Source: NH I&S Research Center estimates traffic and political tensions in Hong Kong. We believe that OPM climbed 1.8%p y-y. Although marketing expense likely remained similar q-q, the firm enjoyed operating leverage effects on the back of strong sales. In addion, one-off gains should be reflected from a reversal of airport lease expense under new accounting standards. We estimate the hotel division’s 4Q19 sales at W130.6bn (+8% y-y) and OP at W3.9bn (+63% y-y). Meanwhile, the occupancy rates of Shilla Hotel and Shilla Stay reached about 70% and 80%, respectively.

JY Lee, Analyst 822)768-7654, [email protected] Jiyoon Jung, RA 822)768-7705, [email protected] Hotel Shilla www.nhqv.com

Summary

Founded in May 1973, Hotel Shilla is engaged in DFS and hotel & leisure businesses. The company has 11 DFSs at home and abroad, and manages Hotel Shilla Seoul, Hotel Shilla Jeju, Shilla Stay, JinJi Lake Shilla Hotel, and Geoje Samsung Hotel. In 2018, Hotel Shilla reported sales of W4,713.7bn (+34% y-y), which broke down as DFS 90% and hotel & leisure 10%. The company plans to secure mid/long-term growth via overseas business expansion and the construction of Korean traditional house-style hotels. We suggest a Buy rating and TP of W125,000.

Share price drivers/earnings momentum Downside risks

Improvement in Korea-China relations Worsening of Korea-China relations Changes in China-Japan relations Improvement in China-Japan relations Growth of the Chinese online market China’s stricter enforcement of its e-commerce laws Domestic DFS operators’ greater bargaining power Changes in domestic DFS operators and DFS systems

Cross valuations (Unit: x, %) Historical valuations (Unit: x, %)

P/E P/B ROE Company Valuations 2017 2018 2019E 2020F 2021F 2019E 2020F 2019E 2020F 2019E 2020F Lagardere SCA 10.5 10.4 1.4 1.3 11.1 11.0 P/E 133.3 27.3 21.8 21.2 19.5 Shinsegae 4.0 11.9 0.8 0.7 20.7 6.0 P/B 5.1 4.0 4.0 3.9 3.3 HDS 10.2 8.7 0.5 0.5 4.9 5.4 P/S 0.9 0.6 0.6 0.7 0.6 ROE 3.8 15.4 19.5 19.7 18.0 ROIC 4.4 17.4 14.2 12.7 13.4 Source: FnGuide, Bloomberg, NH I&S Research Center Source: Bloomberg, NH I&S Research Center

Historical key financials (Unit: Wbn, won, %)

2010 2011 2012 2013 2014 2015 2016 2017 2018 Sales 1,461 1,798 2,220 2,297 2,909 3,252 3,715 3,515 4,714 OP 84 98 129 87 139 77 79 73 209 OPM (%) 5.8 5.4 5.8 3.8 4.8 2.4 2.1 2.1 4.4 Pre-tax profit 69 75 133 16 114 44 52 45 147 NP 51 56 101 11 73 18 28 25 110 NP (excl minority interests) 51 56 101 11 73 18 28 25 110 EBITDA 116 134 174 138 203 151 153 145 284 Capex 42 73 44 218 130 111 67 65 78 Free cash flow 40 -52 101 -66 -8 11 54 142 76 EPS (won) 1,303 1,423 2,567 272 1,865 463 702 637 2,803 BPS (won) 14,252 15,036 17,230 16,964 18,249 18,599 16,539 16,687 19,110 DPS (won) 300 300 300 150 350 350 350 350 350 Net debt 170 287 195 362 411 532 404 392 358 ROE (%) 18.0 9.6 15.6 1.6 10.4 2.5 4.0 3.8 15.4 ROIC (%) 25.7 10.8 13.7 7.2 9.6 3.0 4.5 4.4 17.4 DPR (%) 22.5 20.6 11.5 53.6 18.4 73.1 46.7 51.4 11.8 DY (%) 1.1 0.8 0.7 0.2 0.4 0.5 0.7 0.4 0.5 Net debt ratio (%) 29.8 47.8 28.2 53.4 56.3 71.5 61.1 58.7 46.7 Source: Hotel Shilla, NH I&S Research Center

2 Hotel Shilla www.nhqv.com

Positives to outshine negatives Raise EPS and We upgrade our investment rating on Hotel Shilla to Buy as we raise our TP by 38% target P/E from W90,000 to W125,000. In light of robust sales at the DFS business, we upwardly adjust our 2019E and 2020F EPS by 5% and 6%, respectively. We also hike our target P/E from 20x to 25x to reflect expectations towards easing bans on Korean content and products in China. Given that the firm’s 12-month forward P/E has moved around 20~30x over the past two years, we believe that a target P/E of 25x is justified at a time when Chinese momentum is entering the limelight.

Chinese visitors to We estimate Chinese visitors to Korea in 2020 at roughly 7.7mn (+28% y-y), breaking Korea to climb 28% down as: around 5.62mn (+13% y-y) by flight (thanks to an increase in routes) and y-y this year 2.08mn (+100% y-y) by vessel (driven by easing bans on Korean content and products in China). That said, average revenue per foreign traveler is merely a third of that per reseller. Average revenue per foreign visitor at in-city DFSs came to US$500 in 2016, when travelers took up the lion’s share of DFS sales (prior to the emergence of THAAD issues). But, average revenue per foreign visitor stood at US$1,500 in 2019, when resellers accounted for a large share of DFS sales (post-THAAD). We also note that in mainland China, Chinese consumers can easily buy Korean DFS products via Weishangs. Accordingly, a 28% increase in inbound travelers is estimated to translate into a mere 5~10% growth of DFS sales.

Expectations for That said, as DFS customers diversify from resellers to travelers, DFS operators are bottom-line growth expected to enjoy stronger negotiating power and a resultant decline in marketing exceed those for expenses (including discounts and commission fees). These developments should help top-line growth the DFS sector to shed discounts going forward.

Positives to outshine In the DFS sector, uncertainties linger towards: 1) the reselection of T1 DFS operators at negatives for time Incheon International Airport over January~February; 2) a change to the DFS on-site being delivery system in 1H20; 3) Chinese residents’ increasing access to in-city DFSs in China; and 4) intensifying competition with latecomers such as Hyundai Duty Free. However, these negatives should be outshined by expectations for improving relations between Korea and China and normalization of DFS profitability.

P/E chart P/B chart

(won) Share price 15.0 20.0 (won) Share price 1.0 2.0 180,000 160,000 25.0 30.0 35.0 3.0 4.0 5.0 160,000 140,000 140,000 120,000 120,000 100,000 100,000 80,000 80,000 60,000 60,000 40,000 40,000 20,000 20,000 0 0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: Dataguide, NH I&S Research Center Source: Dataguide, NH I&S Research Center

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Chinese visitors to Korea estimated at roughly 7.7mn (+28% y-y),

(mn pns) Chinese visitors to Korea (LHS) Growth (y-y)(RHS) (%) 10 42 50 35 8 40 26 28 6 30 15 4 8.1 7.7 20 6.1 6.0 6.0 2 4.2 10 -2 4.8 0 0 -2 -10 -4 -20 -6 -30 -8 -48 -40 -10 -50 -12 -60 '14 '15 '16 '17 '18 '19 '20F

Source: KTO, NH I&S Research Center

Inbound Chinese traveler growth: +13% y-y by flight and +100% y-y by vessel

(mn pns) Vessel/others Flight 9 8 7 2.7 2.1 6 1.0 5 1.9 2.9 0.8 4 0.9 2.0 3 5.4 5.6 1.1 5.0 2 4.1 4.0 0.7 0.9 3.2 3.3 2.3 1 1.7 1.2 1.4 0 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19E '20F

Source: KTO, NH I&S Research Center

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4Q19 preview (Unit: Wbn, %) 4Q19E 4Q18 1Q19 2Q19 3Q19 1Q20F Revised y-y q-q Estimate Consen Sales 1,193 1,343 1,355 1,475 1,509 26.5 2.3 1,423 1,403 1,498 OP 27 82 79 57 61 122.6 6.6 41 45 63 OPM 2.3 6.1 5.8 3.9 4.1 2.9 3.2 4.2 Pre-tax profit -25 67 68 38 43 TTP 14.9 33 32 50 NP (excl minority -21 52 52 28 32 TTP 17.0 25 26 38 interests) Note: K-IFRS consolidated Source: FnGuide, NH I&S Research Center estimates

Earnings forecasts (IFRS consolidated) (Unit: Wbn, won, x, %) 2018 2019E 2020F 2021F Sales - Revised 4,714 5,682 6,377 6,810 - Previous - 5,597 6,128 6,561 - Change - 1.5 4.1 3.8 OP - Revised 209 279 317 347 - Previous - 259 294 332 - Change - 7.9 7.7 4.5 OPM - Revised 4.4 4.9 5.0 5.1 EBITDA 284 361 404 446 NP (excl minority interests) 110 164 198 216 EPS - Revised 2,803 4,166 5,049 5,499 - Previous - 3,965 4,750 5,420 - Change - 5.1 6.3 1.5 P/E 27.3 21.8 21.2 19.5 P/B 4.0 4.0 3.9 3.3 EV/EBITDA 12.0 11.5 11.6 10.3 ROE 15.4 19.5 19.7 18.0 Note: EPS, P/E, P/B, and ROE based on NP (excluding minority interests) Source: NH I&S Research Center estimates

Valuations (relative valuation approach) (Unit: Wbn, x, won, shr) Value (Wbn) Value per share (won) Remarks Operating value (a) 4,961 126,407 12M FWD NP 189 5,056 12M FWD NP Upper end of DFS industry’s P/E range applied, considering mounting P/E 25.0x 25.0x expectations towards rising Chinese inbound traffic Hotel Shilla (a) 4,961 126,407 2020E P/E of 25.0x No. of outstanding shares 39,248,121 39,248,121 No. of outstanding shares (shr) Source: NH I&S Research Center estimates

5 Hotel Shilla www.nhqv.com

4Q19 preview: To post consensus-beating earnings 4Q19 sales and OP Hotel Shilla is predicted to book consolidated 4Q19 sales of W1.5tn (+26% y-y) and OP to surpass of W61.2bn (+123% y-y), exceeding market expectations. The DFS division likely saw consensus sales of W1.3tn (+29% y-y) and OP of W57.2bn (+128% y-y). In detail, in-city DFSs likely enjoyed sales growth of 48% y-y thanks to increased Chinese demand, while the figure for airport DFSs likely upped only 2-3% y-y due to sluggish domestic outbound traffic and political tensions in Hong Kong. We believe OPM climbed 1.8%p y-y. Although marketing expenses likely came in similar to the 3Q19-level, operating leverage likely expanded on the back of strong sales alongside one-off gains from a reversal of airport space rental fees following the adoption of new accounting standards. We estimate the hotel division’s 4Q19 sales at W130.6bn (+8% y-y) and OP at W3.9bn (+63% y-y). With the occupancy rate of Shilla Hotel and Shilla Stay standing at about 70% and 80%, respectively, sound operating conditions look solid at the hotel division.

To sustain earnings For 2020, we foresee sales of W6.3tn (+12% y-y) and OP of W317bn (+14% y-y), growth in 2020, excluding 3Sixty-related earnings. Sales at in-city DFSs should continue to enjoy 15% backed by strong y-y growth thanks to rising Chinese cosmetics demand. But, sales at airport DFSs will sales likely show low single-digit growth y-y due to tepid domestic outbound traffic. We expect OPM to arrive at a level similar to that in 2019, noting Daigous (Chinese bulk purchasers)’ expanding bargaining power (stemming from rising purchasing power).

Quarterly income statement snapshot (Unit: Wbn) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19P 4Q19E 2019E Sales 1,125.5 1,174.9 1,220.4 1,192.8 4,713.7 1,343.2 1,354.9 1,475.3 1,508.6 5,682.0 y-y (%) 28% 47% 29% 34% 34% 19% 15% 21% 26% 21% DFS 1,013.7 1,054.9 1,093.5 1,071.5 4,233.6 1,225.2 1,226.5 1,338.6 1,378.0 5,168.3 y-y (%) 30% 53% 33% 38% 38% 21% 16% 22% 29% 22% In-city DFS 581.4 613.2 625.5 620.9 2,441.0 721.0 756.1 856.4 916.3 3,249.8 y-y (%) 22% 54% 23% 31% 31% 24% 23% 37% 48% 33% Airport DFS 432.3 441.7 468.0 450.6 1,792.6 504.2 470.4 482.2 461.6 1,918.4 y-y (%) 41% 51% 48% 50% 47% 17% 6% 3% 2% 7% Domestic 190.1 205.3 209.2 203.1 807.7 229.4 211.4 218.9 209.2 868.9 y-y (%) 13% 27% 22% 44% 26% 21% 3% 5% 3% 8% Overseas 242.2 236.4 258.8 247.5 984.9 274.8 259.0 263.3 252.5 1,049.6 y-y (%) 76% 80% 81% 54% 72% 13% 10% 2% 2% 7% Hotel & Leisure 111.8 120.0 126.9 121.3 480.0 118.0 128.4 136.7 130.6 513.7 y-y (%) 17% 9% 8% 5% 9% 6% 7% 8% 8% 7% Seoul 34.0 39.6 39.5 42.6 155.7 34.2 42.7 41.6 43.9 162.4 y-y (%) 13% 6% 7% 15% 10% 1% 8% 5% 3% 4% Jeju 16.4 19.4 23.7 14.5 74.0 16.5 19.2 24.2 14.9 74.8 y-y (%) 2% -3% 1% -14% -3% 1% -1% 2% 3% 1% Shilla Stay 28.7 31.8 33.5 35.1 129.1 30.2 34.2 37.4 39.0 140.8 y-y (%) 33% 14% 5% 5% 12% 5% 8% 12% 11% 9% Others 3.3 0.4 3.6 1.3 8.6 3.6 1.0 3.9 1.4 9.9 y-y (%) 14% -50% 38% -77% -28% 9% 150% 8% 10% 15% Leisure 29.4 28.8 26.6 27.8 112.6 33.5 31.3 29.6 30.3 124.7 y-y (%) 16% 22% 15% 20% 18% 14% 9% 11% 9% 11% Note: IFRS consolidated Source: NH I&S Research Center estimates

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Quarterly income statement snapshot (Unit: Wbn) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19P 4Q19E 2019E OP 44.2 69.5 68.0 27.5 209.1 81.7 79.2 57.4 61.2 279.4 y-y (%) 342% 303% 124% 77% 186% 85% 14% -16% 123% 34% OPM 4% 6% 6% 2% 4% 6% 6% 4% 4% 5% DFS 47.6 64.0 59.4 25.1 196.1 82.2 69.8 45.1 57.2 254.3 y-y (%) 182% 680% 153% 154% 235% 73% 9% -24% 128% 30% Domestic 50.2 69.5 56.4 26.6 202.7 77.6 71.2 51.2 61.0 261.0 y-y (%) 135% 302% 82% 23% 122% 55% 2% -9% 129% 29% Overseas -2.6 -5.5 3.0 -1.5 -6.6 4.6 -1.4 -6.1 -3.8 -6.7 y-y (%) RR RR TTP RR RR TTP RR TTL RR RR Hotel & Leisure -3.4 5.5 8.6 2.4 13.1 -0.5 9.4 12.3 3.9 25.1 y-y (%) RR -40% 26% -57% -10% RR 71% 43% 63% 92% Pre-tax profit 41.5 64.8 65.7 -25.0 147.0 66.5 67.8 37.6 43.2 215.0 y-y (%) 683% 818% 220% TTL 228% 60% 5% -43% TTP 46% Pre-tax margin 4% 6% 5% -2% 3% 5% 5% 3% 3% 4% NP (excl minority interests) 31.7 52.6 47.2 -21.2 110.3 51.9 52.1 27.7 32.4 164.1 y-y (%) 1074% 1668% 275% TTL 336% 64% -1% -41% TTP 49% NPM 3% 4% 4% -2% 2% 4% 4% 2% 2% 3% Note: IFRS consolidated Source: NH I&S Research Center estimates

7 Hotel Shilla www.nhqv.com

STATEMENT OF COMPREHENSIVE INCOME Valuation / Profitability / Stability (Wbn) 2018/12A 2019/12E 2020/12F 2021/12F 2018/12A 2019/12E 2020/12F 2021/12F Sales 4,714 5,682 6,377 6,810 Price/ Earnings (X) 27.3 21.8 21.2 19.5 Growth (%) 34.1 20.5 12.2 6.8 Price/ Book Value (X) 4.0 4.0 3.9 3.3 COGS 2,462 2,745 3,138 3,348 Price/ Gross Cash Flow (X) 10.4 12.0 11.9 10.8 Gross Profit 2,252 2,937 3,240 3,462 Price/ Sales (X) 0.6 0.6 0.7 0.6 Gross margin (%) 47.8 51.7 50.8 50.8 EV/ EBITDA (X) 12.0 11.5 11.6 10.3 SG&A 2,042 2,657 2,923 3,115 EV/ EBIT (X) 16.2 14.8 14.7 13.2 Operating Income 209 279 317 347 Fully diluted EPS (W) 2,803 4,166 5,049 5,499 Growth (%) 186.1 33.6 13.5 9.4 BVPS (W) 19,110 22,874 27,503 32,574 Operating margin (%) 4.4 4.9 5.0 5.1 Sales PS (W) 120,099 144,771 162,484 173,511 EBITDA 284 361 404 446 ROE (%) 15.4 19.5 19.7 18.0 Non-Operating Profit -62 -64 -52 -59 ROA (%) 4.9 5.8 5.6 5.7 Financial Income(Costs) -8 -7 -6 -7 ROIC (%) 17.4 14.2 12.7 13.4 Other Non-Operating Profit -54 -58 -46 -52 Dividend Yield (%) 0.5 0.4 0.3 0.3 Gains(Losses) in Associates, Subsidiaries and JVs 0 0 0 0 Payout Ratio (%) 11.8 7.9 6.5 6.0 Pre-tax Profit from Cont. Op. 147 215 265 288 Total Cash Dividend (Wbn) 13 13 13 13 Income Taxes 37 51 66 72 Cash DPS (W) 350 350 350 350 Profit from Continuing Op. 110 164 198 216 Net debt(cash)/ equity (%) 46.7 58.5 39.1 26.0 Net Profit 110 164 198 216 Debt/ equity (%) 201.1 267.9 234.8 196.8 Growth (%) 336.2 48.5 21.2 8.9 Interest-Bearing Debts (Wbn) 659 1,392 1,394 1,295 Net margin (%) 2.3 2.9 3.1 3.2 Current Ratio (%) 126.9 100.8 108.3 108.7 Net Profit of Parent 110 164 198 216 Total shares (mn) 40 40 40 40 Net Profit to Non-Controlling 0 0 0 0 Par value (W) 5,000 5,000 5,000 5,000 Other Comprehensive Income 0 0 0 0 Share price (W) 76,500 90,800 107,000 107,000 Total Comprehensive Income 110 164 198 216 Market Cap (Wbn) 3,037 3,604 4,243 4,243

STATEMENT OF FINANCIAL POSITION CASH FLOW STATEMENT (Wbn) 2018/12A 2019/12E 2020/12F 2021/12F (Wbn) 2018/12A 2019/12E 2020/12F 2021/12F Cash and Cash Equivalents 282 125 232 224 Operating Cash Flow 154 335 298 323 Accounts Receivables 95 114 128 137 Net Profit 110 164 198 216 Total Current Assets 1,272 1,188 1,412 1,478 Depreciation&Amortization 75 82 87 99 Tangible Assets 697 715 779 882 + Loss(Gains) from Subs 2 0 0 0 Investment Assets 253 304 341 364 + FC translation loss(profit) -2 0 0 0 Non-Current Assets 1,032 2,181 2,273 2,392 Gross Cash Flow 288 297 352 387 Assets 2,304 3,369 3,685 3,869 - Incr. (Decr.) in WC -117 89 12 7 Short-Term Debt 160 162 163 141 Investing Cash Flow -103 -1,212 -179 -218 Account Payables 284 343 384 411 + Decr. In Tangible Assets 6 0 0 0 Current Liabilities 1,003 1,178 1,304 1,359 - Incr. In Tangible Assets(CAPEX) -78 -86 -142 -195 Long-Term Debt 499 1,231 1,231 1,154 + Disp.(Acq.) of Inv. Assets 33 -51 -37 -23 Long-Term Allowance 17 21 24 25 Free Cash Flow 76 249 156 128 Non-Current Liabilities 536 1,275 1,281 1,207 Net Cash Flow 51 -877 119 105 Liabilities 1,539 2,453 2,584 2,566 Financing Cash Flow -245 720 -12 -112 Capital Stock 200 200 200 200 Equity Financing 0 0 0 0 Capital Surplus 197 197 197 197 Debt Financing -245 720 -12 -112 Retained Earnings 475 626 811 1,014 Incr.(Decr.) in Cash -193 -157 107 -8 Non-Controlling Interests Equity 1 1 1 1 Ending Cash and Cash Equivalents 282 125 232 224 Shareholders' Equity 765 916 1,101 1,304 Net Debt (Cash) 358 536 431 339

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Rating and TP update Hotel Shilla (008770.KS) Disparity ratio (%) Date Rating TP Avg Max/Min (won) Closing Price 2020.01.16 Buy W125,000(12M) - - 200,000 Target price(12M) 2019.10.28 Hold W90,000(12M) -5.4% - 2019.04.26 Buy W155,000(12M) -43.4% -25.8% 160,000 2018.12.27 Buy W120,000(12M) -28.7% -10.8% 120,000 2018.05.04 Buy W160,000(12M) -37.9% -17.5% 80,000

40,000

0 '18.1 '18.5 '18.9 '19.1 '19.5 '19.9 '20.1

NH Investment & Securities stock ratings 1. Rating based on a stock’s forecasted absolute return over a period of 12 months from the date of publication.

l Buy: Greater than +15% l Hold: -15% to +15% l Sell: Less than -15% 2. Regarding listed companies under NH I&S’ coverage, our stock ratings break down as follows (as of Jan 10, 2020).

l NH I&S’ stock rating distribution Buy Hold Sell 74.9% 25.1% 0.0%

- The stock rating on an individual company can change at irregular intervals. Our stock rating distribution is calculated on a weekly basis.

Compliance notice

l NH I&S does not have a stake greater than or equal to 1% in Hotel Shilla as of the preparation date. l NH I&S has not provided this material to any institutional investor or other third party in advance. l NH I&S is an issuer and LP (liquidity provider) of ELW taking Hotel Shilla as an underlying asset. l The analyst and his/her spouse do not own any securities of Hotel Shilla as of the preparation date. l This report correctly reflects the analyst’s opinion and was written without any external influence or intervention.

Disclosures The research is based on current public information that NH I&S considers reliable, but NH I&S does not represent it as accurate or complete and it should not be relied on as such. Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and NH I&S is in no way legally responsible for future returns or loss of original capital. All materials in this report are the intellectual property of NH I&S. Copying, distributing, transmitting, transforming or lending of this material without NH I&S' consent is prohibited.