June 15, 2012 Company Report GS Retail (007070 KS) Retail Daewoo Securities Co., Ltd. Well-positioned for outgrowth amid mature retail industry Mina Kim +822-768-4163 Initiate with a Buy call and TP of W31,000
[email protected] We initiate coverage on GS Retail with a Buy rating and a target price of W31,000. Jieun Lee Our target price is derived by applying a target P/E of 15x to GS RetailÊs 2013F EPS. +822-768-3265 Our target P/E is the top-end of the trading multiple for the Korean retail sector over
[email protected] the past 10-years. We believe a premium for GS Retail is justified, given: 1) GS RetailÊs core business, convenience stores, is likely to outgrow the domestic retail sector, 2) GS Retail can preserve stable operating margins thanks to its franchise business model, and 3) the companyÊs ample cash holdings can support future business opportunities, including external expansion through M&As. Since GS Buy (Initiate) RetailÊs listing on December 23, 2011 at W22,400 per share, it has outperformed Target Price (12M, W) 31,000 the KOSPI by 9.8%p. We believe the outperformance is a reflection of the Share Price (06/13/12, W) 24,500 marketÊs optimism on GS RetailÊs structural growth potential in the convenience Expected Return (%) 26.5 store segment, and expect the positive sentiment to continue in the future. EPS Growth (12F, %) 45.4 Market EPS Growth (12F, %) 19.4 Domestic convenience stores to see further growth P/E (12F, x) 13.9 Market P/E (12F, x) 9.3 The domestic convenience store industry was estimated at W10.1tr 2011, up 20.7% KOSPI 1,859.32 YoY.