July 6, 2012 2H12 Outlook Report Industry Report
Retail (Overweight)
Daewoo Securities Co., Ltd. Mina Kim +822-768-4163 [email protected] Jieun Lee +822-768-3265 [email protected]
Sunny days ahead
In 2H12, we anticipate domestic consumption to pick up, driven by improving consumer sentiment and the structural growth of new retail channels, along with low base effect. Domestic consumption stagnated during 1H12, affected by factors such as declining disposable income, dampened consumer sentiment (amid an economic slump), and high base effect. In particular, spending restraint (due to wide economic uncertainties), greater household debt burdens (resulting from jeonse surges), and declining asset values drove down consumption and sentiment. For the department store segment, we expect a considerable recovery in 2H. We forecast department store sales growth to pick up starting in 3Q12 (after showing deterioration since 3Q11). With consumers becoming increasingly price-conscious, SPA (specialty-store retailers of private label (PL) apparel) brands and low-end cosmetics are likely to stay strong in 2H (regardless of economic conditions). We attribute this to their successful efforts to provide quality products at reasonable prices and effective marketing. Given their strong competitiveness, we expect these types of companies to display hyper growth going forward. We believe that new retail channels (e.g., convenience stores, category killers) still have ample room for growth. The convenience store segment is likely to expand in light of the increase in single households, consumers seeking convenience in shopping, and the reinforcement of product merchandising. Category killers (e.g., electronic appliance segment) are also likely to show structural growth on the back of product diversification and consumersÊ increasing awareness of product values. Meanwhile, the SSM (super supermarket) segment could expand on the back of market consolidation. However, this growth is likely to be slow due to regulations. We recommend Hyundai Department Store (069960 KS/Buy/TP: W197,000) as one of our top picks, as the company should benefit from the potential economic recovery as well as trading- up by a subset of consumers. Our other top pick is GS Retail (007070 KS/Buy/TP: W31,000) in light of the anticipated structural growth of the convenience store and SSM segments.
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
I. 2H12 Retail sector outlook and major themes...... 3 1. Private consumption growth to recover in 2H12...... 3 2. Polarization of consumption to be enhanced...... 4 3. Structural growth of convenience stores and specialty stores ...... 5
II. Valuation ...... 6 Premium valuation to be maintained...... 6
Hyundai Department Store (069960 KS) ...... 8
GS Retail (007070 KS)...... 11
Shinsegae (004170 KS)...... 14
Hi-Mart (071840 KS)...... 17
Hyundai Home Shopping (057050 KS)...... 20
Emart (139480 KS)...... 23
CJ O Shopping (035760 KQ) ...... 26
GS Home Shoppping (028150 KQ) ...... 29
2
July 6, 2012 Retail
I. 2H12 Retail sector outlook and major themes
1. Private consumption growth to recover in 2H12
2H12 domestic In 2H12, we anticipate domestic consumption to pick up, driven by improving consumer consumption to pick up: sentiment and the structural growth of new retail channels, along with low base effect. 1) improving consumer Domestic consumption stagnated during 1H12, affected by factors such declining sentiment disposable income, dampened consumer sentiment (amid an economic slump), and a high 2) structural growth base effect. In particular, spending restraint (due to wide economic uncertainties), greater 3) low base effect household debt burdens (resulting from jeonse surges), and asset value drops drove down consumption and sentiment.
Expect quarterly GDP Private consumption in 1H12 deteriorated due to the unstable economic situation and stalled and domestic asset value movement, but should rebound from 2H12. We expect KoreaÊs GDP growth will consumption growth to gradually accelerate from 2H12, in contrast to 1H12 where we have seen slowing growth on gradually accelerate the back of external economic uneasiness and negative wealth effects. According to KDB Daewoo SecuritiesÊ economics research team, 2012 GDP growth is forecast at 3.2% (vs. 3.6% in 2011). In particular, while 1Q12 GDP growth was 2.8% YoY, we expect it to gradually pick up towards the end of the year (3% YoY in 2Q12, 3.3% YoY in 3Q12 and 3.5% YoY in 4Q12).
Domestic consumption growth should be slower than GDP growth in 2012. KDB Daewoo Securities economics research team forecasts 2012 domestic consumption growth at 2.8% YoY (vs. 2.7% YoY in 2011) and the quarterly growth trend should be in line with that of GDP growth forecasts. While 1Q12 domestic consumption growth was just 1.6% YoY, we expect domestic consumption growth to improve to 2% YoY in 2Q12, 2.2% YoY in 3Q12 and 2.8% YoY in 4Q12.
CSI remained over 100 Consumer sentiment index, which reflects the consumersÊ intention to spend in the future, for six consecutive has improved since January 2012 and has remained over 100 for six consecutive months (an months index over 100 indicates that more consumers intend to increase spending in 6 months than now). Considering that the consumer sentiment index is more affected by the direction of the economic growth than the absolute growth rate, we expect consumer sentiment should improve further in the months ahead, but the pace should be gradual because of the sluggishness of asset prices.
Figure 1. Korean quarterly GDP trend Figure 2. Korean Consumer Sentiment Index (CSI) trend
(QoQ, %) (YoY, %) (p) 6 GDP QoQ growth (L) 10 120 Consumer Sentiment Index GDP YoY growth (R)
3 6 110
0 2 100
-3 -2 90
-6 -6 80 02 03 04 05 06 07 08 09 10 11 12F 13F 07 08 09 10 11 12
Source: Thomson Reuters, KDB Daewoo Securities Research estimates Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 3 July 6, 2012 Retail
2. Polarization of consumption to be enhanced
Expect recovery of For the department store segment, we expect a considerable recovery in 2H. We forecast department store department store sales growth to pick up starting in 3Q12 (after showing deterioration since segment in 2H: 3Q11). 1) improving consumer With consumers becoming increasingly price-conscious, SPA (specialty-store retailers of sentiment private label (PL) apparel) brands and low-end cosmetics are likely to stay strong in 2H 2) trading up remains (regardless of economic conditions). We attribute this to their successful efforts to provide 3) low base effect quality products at reasonable prices and effective marketing. Given their strong competitiveness, we expect these types of companies to display hyper growth going forward.
Discount stores have Meanwhile, the discount store industry also holds great potential to successfully grow great potential to private labels in cooperation with sister companies (e.g., Shinsegae International), and successfully grow PLs emulate the success of many international SPA brands, such as Muji, Zara or Uniqlo. Private labels are a perfect fit for the discount store business model, which is grounded on offering premium value at fair prices. We also believe that the timing is ripe to launch more private labels in the current economic downturn. In this respect, we expect private labels to become an attractive growth driver in the mid- to long-term. At a time when SPA brands are gaining widespread success globally, we expect EmartÊs private labels to emerge as a new growth engine on the back of their good value and quality design.
In reference to international SPA brands, Uniqlo, one of the leading SPA brands, entered the Korean market in 2005 via a 49/51 joint venture between Lotte Shopping and the Japanese firm, Fast Retailing. The brandÊs annual revenues have surged from W122.6bn in 2009 (up 69% YoY) to W226bn in 2010 (up 84% YoY). 2011 Revenues are estimated to have reached W380bn (up 68% YoY) based on 60 stores nationwide.
Secondly, Zara advanced into the Korean market through a 20/80 joint venture between Lotte Shopping and the Spanish company, Inditex, in 2008. Revenues at the joint venture reached W79.9bn (up 132% YoY) in 2009 and W133.8bn (up 68% YoY) in 2010. In 2011, revenues are estimated to have risen by 35% YoY to W180bn.
Figure 3. Private label portion of Emart Figure 4. Sales and OP trend of Zara
(Wbn) (%) (Wbn)Sales (L) (%) 14,000 Total revenues (L) 30 175 Operating profit (L) 9.5 Portion of PL products (R) OP margin (R)
12,000 25 140 8.0
10,000 20 105 6.5
8,000 15 70 5.0
6,000 10 35 3.5
4,000 5 0 2.0 07 08 09 10 11 12F 08 09 10 11
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 4 July 6, 2012 Retail
3. Structural growth of convenience stores and specialty stores
Structural growth of We expect the domestic convenience store industry to continue to post robust growth, CVS: 1) customers supported mainly by consumers seeking convenience in shopping and increasing demand seeking convenience, 2) for HMR (home meal replacement). Recent trends indicate that a segment of Korean increasing demand for consumers are seeking convenience at the expense of price discounts. Moreover, demand for franchise businesses should continue to grow along with the accelerating retirement of franchise businesses, 3) the baby-boom generation. Additionally, the product mix at convenience stores is improving product mix continuously improving. Although cigarette sales still account for the largest portion of convenience store revenues (~40%), the stores are adding more fresh food products to cater to the changing needs of consumers. Structural growth of We believe that the category killer segment will be the next retail segment to undergo category killer: 1) wider structural growth. Category killers carry a wider range of selection and brands for a certain range of selection, 2) category of products with a well trained sales force. Experience has shown that category higher level of killers usually take off when the GDP per capita of a country reaches US$15,000. The involvement, 3) leads pragmatic explanation to this development is as follows: 1) shopping becomes more of an trend as an early adopter entertainment, where you can shop and play with the products; 2) emotional consumption evolves from rational consumption, which triggers a higher level of involvement, and 3) retailers become an opinion leader to early adopters.
Figure 5. LawsonÊs store growth and JapanÊs GDP per capita Figure 6. KoreaÊs growth and KoreaÊs GDP per capita
(US$) (number of stores) (US$) (number of stores) 50,000 12,500 25,000 25,000 CAGR of 2.9% during Number of stores increased CAGR of 17.4% during CAGR of 14.7% during 1980~2002 2002~2011 from 7 to 1,620 from 1989~1995 1995~2011 40,000 10,000 20,000 20,000 GDP per capita (L) GDP per capita (L) Number of stores (R) Number of stores (R) 30,000 7,500 15,000 15,000
20,000 5,000 10,000 10,000
10,000 2,500 5,000 5,000
0 0 0 0 80 83 86 89 92 95 98 01 04 07 10 89 92 95 98 01 04 07 10
Source: Company data, IMF, KDB Daewoo Securities Research Source: KACS, IMF, KDB Daewoo Securities Research
Figure 7. Best BuyÊs sales and U.S. GDP per capita Figure 8. Category killersÊ market share by country
(US$mn) (US$) (%) Specialty shop Discount store CAGR of 28.6% from 1991~2007 Direct brand shop Others (online, drugstore, dept. store, etc.) 50,000 50,000 Sales (L) Korea 25.3 15.6 20.1 39.0 U.S. GDP per capita (R) 40,000 40,000
30,000 30,000 U.S. 47.4 34.4 18.2
20,000 20,000
10,000 10,000 Japan 70.0 8.4 21.4
0 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 0 102030405060708090100
Source: Company data, IMF, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 5 July 6, 2012 Retail
II. Valuation
Premium valuation to be maintained
Korean retail sector Korean retail players are trading at a 2012F P/E of 10x, which represents a 18.4% premium continues to deserve a to the KOSPI. We believe the Korean retail sector continues to deserve a premium to the premium KOSPI, as 1) domestic consumption is likely to grow further and 2) the growth of select segments (such as convenience stores and specialty stores) will continue to outpace GDP growth.
Table 1. KDB Daewoo Securities' retail sector coverage (W, Wbn, x) Company Rating Target price Current price Market Cap 2012F P/E 2012F P/B 2012F EV/EBITDA HDS Buy 197,000 139,000 3,253 9.2 1.2 5.8 GS Retail Buy 31,000 24,100 1,856 13.6 1.3 2.9 Shinsegae Buy 328,000 212,500 2,092 8.8 0.8 4.0 Hi-Mart Buy 75,000 58,300 1,376 11.0 0.9 3.8 HDHS Buy 148,000 112,000 1,344 7.7 1.4 4.3 Emart Trading Buy 281,000 245,500 6,844 11.5 1.1 5.7 CJ O Shopping Trading Buy 207,000 192,700 1,195 11.7 2.8 6.9 GSHS Trading Buy 113,000 93,600 614 7.5 1.0 2.6 Note: Price as of July 5, 2011 Source: KDB Daewoo Securities Research estimates
Table 2. Global peer group valuations of retail companies EV/EBITDA (x) P/E (x) P/B (x) ROE (%) Company 10 11F 12F 10 11F 12F 10 11F 12F 10 11F 12F HDS 9.0 5.8 5.0 10.9 9.2 8.5 1.6 1.2 1.0 15.4 13.6 13.0 GS Retail 9.2 2.9 2.7 19.1 13.6 11.7 1.4 1.3 1.1 6.7 9.2 10.0 Shinsegae 8.7 4.0 3.0 1.3 8.8 8.2 1.2 0.8 0.7 75.7 10.5 9.5 Hi-Mart 8.4 3.8 3.6 12.3 11.0 8.5 1.3 0.9 0.8 11.6 8.5 10.1 HDHS 4.7 4.3 3.1 11.2 7.7 7.5 1.9 1.4 1.2 18.5 19.0 16.7 Emart 14.4 5.7 5.2 25.4 11.5 10.1 1.4 1.1 1.0 5.6 10.3 10.6 CJ O Shopping 12.6 6.9 7.0 18.1 11.7 10.2 4.9 2.8 2.2 28.9 26.0 23.7 GSHS 3.9 2.6 2.1 4.0 7.5 6.6 1.3 1.0 0.8 37.1 12.9 13.2 Domestic average 8.9 4.5 4.0 12.8 10.1 8.9 1.9 1.3 1.1 24.9 13.8 13.4 Wal-Mart (US) 6.9 8.0 7.7 15.4 14.5 13.3 3.5 3.1 2.8 22.5 21.9 22.0 Tesco (UK) 5.0 6.4 6.0 8.6 9.3 8.7 1.4 1.3 1.3 16.4 15.1 15.1 Costco (US) 11.8 10.0 9.1 26.2 24.4 21.3 3.2 3.1 2.9 12.8 13.4 14.3 Target (US) 5.1 7.3 6.9 12.9 13.1 11.7 2.4 2.2 2.1 18.7 17.4 18.5 Nordstrom (US) 6.6 7.1 6.4 16.1 15.0 13.2 5.2 4.5 3.9 34.3 33.5 32.9 Kroger (US) 4.4 4.8 4.7 10.8 9.5 9.0 3.0 2.9 2.5 13.0 30.9 30.3 Metro (GR) 2.4 4.2 4.0 13.4 8.2 7.5 1.1 1.1 1.0 10.0 13.8 14.4 MacyÊs (US) 4.1 5.2 5.0 - 10.2 9.0 2.3 2.2 2.0 21.9 22.5 22.9 Circle K Sunkus (JP) 4.1 2.3 2.2 15.9 13.1 12.3 1.0 0.9 0.8 11.7 13.9 14.5 Seven & I (JP) 4.9 4.5 4.2 16.7 12.4 11.4 1.2 1.1 1.0 7.3 6.6 6.8 Lawson (JP) 5.5 4.5 4.3 21.9 14.2 13.0 2.6 2.2 2.1 12.9 13.8 14.3 Ministop (JP) 2.9 1.5 1.4 12.9 10.2 9.8 0.7 0.7 0.7 6.3 5.9 5.9 Family Mart (JP) 5.8 3.7 3.5 20.5 13.2 12.0 1.6 1.4 1.3 12.9 13.8 14.1 Home Depot (US) 9.3 9.5 8.9 20.0 17.8 15.7 4.4 4.4 4.5 21.1 25.6 28.6 TJX (US) 10.4 9.1 8.4 20.5 18.1 16.3 9.8 9.1 7.8 47.4 52.4 53.5 Best Buy (US) 2.3 3.0 3.0 5.2 6.0 5.8 2.0 1.5 1.3 -23.8 27.6 92.1 Yamada Denki (JP) 3.2 4.3 3.9 6.0 6.5 5.8 0.7 0.6 0.6 11.8 9.8 9.9 Gome (HK) 5.3 4.6 3.6 7.8 9.4 7.3 0.9 0.9 0.8 12.0 8.9 10.7 AaronÊs (US) 2.7 6.3 5.9 17.2 14.1 12.8 2.1 1.9 1.8 11.6 13.8 16.6 Office Depot (US) 2.6 3.9 3.4 - 91.7 15.1 0.8 0.7 0.7 8.6 1.9 6.3 Global average 5.3 5.5 5.1 14.9 16.5 11.5 2.5 2.3 2.1 14.5 18.1 22.2 Note: Price as of July 5, 2011 Source: KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 6 July 6, 2012 Retail
Global Peer Group Valuation
Figure 9. Relative share price of Korean retailers Figure 10. Relative share price of U.S. retailers
(-1Y=100) Lotte Shopping Hyundai Department (-1Y=100) 130 Hyundai Home Shopping KOSPI 135 Walmart Target Costco 125 110
115 90 105
70 95
50 85 6/11 8/11 10/11 12/11 2/12 4/12 6/12 6/11 8/11 10/11 12/11 2/12 4/12 6/12
Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research
Figure 11. Relative share price of overseas category killers Figure 12. Relative share price of overseas supermarkets
(-1Y=100) (-1Y=100) 180 Best Buy Radio Shack 180 Kroger H.Gregg Home Depot Safeway TJX 160 Whole Foods Market 150 Carrefour 140 Ahold 120 120
100 90
80 60 60
30 40 6/11 8/11 10/11 12/11 2/12 4/12 6/12 6/11 8/11 10/11 12/11 2/12 4/12 6/12
Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research
Figure 13. 2012F P/B-ROE Figure 14. 2012F P/E-EPS growth
(P/B, x) Tesco (P/E, x) 3.0 Metro 25 Target CJOS 2.5 Lawson 20
2.0 Tesco Kroger GS Retail Family Mart 15 Circle K Seven & I CJOS Nordstrom Emart Circle K 1.5 10 Macys Ministop HDHS HDS Metro GS Retail Macys Nordstrom Costco HDHS HDS Seven & I Hi-Mart 1.0 Costco 5 Wal-Mart Shinsegae GSHS Ministop Wal-Mart (EPSG, %) Hi-Mart (ROE, %) 0.5 0 0 5 10 15 20 25 30 35 -10 0 10 20 30 40 50
Source: Thomson Reuters, KDB Daewoo Securities Research estimates Source: Thomson Reuters, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 7 July 6, 2012 Retail
Hyundai Department Store (069960 KS)
Buy (Maintain) Highly leveraged toward consumption recovery
Target Price (12M, W) 197,000 Stagnant growth from 3Q11 to 2Q12 Share Price (07/05/12, W) 139,000 Expected Return (%) 41.7 HDS’s revenues to pick up after bottoming in 2Q EPS Growth (12F, %) 0.9 New store openings and refurbishment of existing stores to boost top line growth Market EPS Growth (12F, %) 17.1 P/E (12F, x) 9.2 Market P/E (12F, x) 9.5 We maintain our Buy call on Hyundai Department Store (HDS) but lower our target KOSPI 1,875.49 price to W197,000 (from W209,000). We adjusted our target price by 5.5% Market Cap (Wbn) 3,253 because we cut our 2012 EPS forecasts. Using a sum-of-the-parts methodology, Shares Outstanding (mn) 23 we derived our target price by adding the value of HDSÊs operations (W182,000; Avg Trading Volume (60D, '000) 121 based on a P/E of 12x and our 2012F EPS) to the value of its equity stakes Avg Trading Value (60D, Wbn) 18 (W15,000). To calculate the value of HDSÊs equity stakes, we added the value of Dividend Yield (12F, %) 0.5 Free Float (%) 63.5 its 15.6% stake in Hyundai Home Shopping (based on a target P/E of 10x and our 52-Week Low (W) 129,000 2012F EPS) to the value of its Hyundai Communications & Network (HCN) stake 52-Week High (W) 203,500 (30% discount to its June 28th market value). Beta (12M, Daily Rate of Return) 0.67 Price Return Volatility (12M Daily, %, SD) 2.6 On a consolidated basis under K-IFRS, we forecast HDS to post 2Q gross Foreign Ownership (%) 40.7 merchandise sales (GMS) of W1tr (up 7.7% YoY), net revenues of W362.1bn (up Major Shareholder(s) 8.5% YoY), and an operating profit of W131bn (up 3.7% YoY). The companyÊs J. S. Jung et al. (36.16%) consolidated numbers include the earnings of Hyundai Shopping and Hanmoo NPS (6.16%) Shopping. We project HDSÊ 2Q OP margins (based on GMS) to slide 0.5%p YoY to 12.7% in light of greater marketing expenses related to increased promotions Price Performance from economic recession. (%) 1M 6M 12M Absolute 4.1 -13.9 -19.7 In Korea, revenue growth at department stores began to slow in 3Q11, as Relative 0.0 -14.6 -6.4 consumers (especially middle-end) cut their spending due to jitters over the economic slowdown and rising household debts. Same-store sales growth reached ~1% in 1Q and is expected to post similar growth in 2Q.
We forecast HDSÊs revenues to pick up after bottoming in 2Q. We believe HDSÊs sales growth is likely to improve as: 1) the consumer sentiment is likely to improve, 2) demand for luxury goods should remain relatively strong (thanks to trading up), and 3) the base comparison for sales growth will gradually become lower in 2H.
The performances of new stores should help sales growth. HDS expects to open its Chungcheong store in August 2012. Also, as the refurbishment of its COEX store ends in November, we expect +4% area growth which should improve sales growth. In addition, HDS should improve sales growth on the back of growth in its internet shopping mall, and entering into new businesses (premium outlet mall).
Share price § Earnings & Valuation Metrics 120 KOSPI Revenu 110 FY OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 100 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 90 12/10 1,271 392 30.9 336 14,798 444 -10 17.9 9.4 1.6 8.3 80 12/11 1,439 450 31.3 346 15,027 514 -302 15.4 10.9 1.6 9.0 70 60 12/12F 1,610 503 31.2 355 15,157 579 393 13.6 9.2 1.2 5.8 50 12/13F 1,706 532 31.2 385 16,432 620 397 13.0 8.5 1.0 5.0 40 12/14F 1,922 610 31.8 449 19,186 700 466 13.3 7.3 0.9 4.9 6/11 10/11 2/12 6/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 8
July 6, 2012 Retail
Table 3. New store openings Location Owner Date Expected sales (Wbn) Selling space (m²) Capex (Wbn) Chungcheong Hanmoo Shopping 2012 228 41,168 187 Pangyo Hyundai Dept Store 2015 457 60,390 650 (for entire shopping mall) Gwanggyo Hyundai Dept Store 2015 278 42,900 291 Ansan Hyundai Dept Store 2016 245 39,600 217 Asan Hyundai Dept Store 2016 250 29,700 179 Source: Company data, KDB Daewoo Securities Research
Table 4. Same-store sales growth trend of HDS (%) 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 10/2011 11/2011 12/2011 1/2012 2/2012 3/2012 4/2012 5/2012 HDS 24.0 3.6 13.0 11.5 11.0 9.0 8.0 10.0 7.0 4.0 2.0 5.0 1.0 4.0 3.0 1.0 2.0 Source: Company data, KDB Daewoo Securities Research
Figure 15. GMS trend and forecasts Figure 16. OP margin trend and forecasts
(Wbn) (YoY, %) (Wbn) (%) 5,500 17 GMS (L) 750 Operating profit (R) 15 Growth rate (R) OP margin (R)
5,000 12 600 14
4,500 7 450 13
4,000 2 300 12
3,500 -3 150 11
3,000 -8 0 10 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Company data, KDB Daewoo Securities Research estimates
Figure 17. VIP customersÊ sales portion of HDS Figure 18. Sales space forecasts
General Gold Above Platinum (000 m²) 800 100% 2.7 New stores 8.6 Extension 28.1 Existing stores 80% 600 70.4% growth 263
60% 23.0 400 24 88.8 10 40%
48.3 200 407 407 20% 335 335
0% 0 # of customers Sales portion 08 09 10 16F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 9 July 6, 2012 Retail
Hyundai Department Store (069960 KS/Buy/TP: W197,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 1,439 1,610 1,706 1,922 Current Assets 849 1,125 1,592 2,200 Cost of Sales 248 278 295 332 Cash and Cash Equivalents 9 205 625 398 Gross Profit 1,192 1,331 1,411 1,589 AR & Other Receivables 625 702 744 838 SG&A Expenses 755 834 879 979 Inventories 41 46 49 55 Operating Profit (Adj) 437 498 532 610 Other Current Assets 24 21 21 22 Operating Profit 450 503 532 610 Non-Current Assets 3,871 4,140 4,173 4,209 Non-Operating Profit 110 36 52 72 Investments in Associates 403 405 407 409 Net Financial Income 7 10 -1 -19 Property, Plant and Equipment 3,258 3,476 3,489 3,500 Net Gain from Inv in Associates 44 20 20 21 Intangible Assets 39 39 39 39 Pretax Profit 561 539 584 682 Total Assets 4,720 5,265 5,765 6,409 Income Tax 166 135 146 170 Current Liabilities 1,132 1,235 1,291 1,414 Profit from Continuing Operations 395 404 438 511 AP & Other Payables 707 919 972 1,093 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 115 115 115 115 Net Profit 395 404 438 511 Other Current Liabilities 310 202 204 206 Controlling Interests 346 355 385 449 Non-Current Liabilities 695 698 701 704 Non-Controlling Interests 48 49 53 62 Long-Term Financial Liabilities 399 0 0 0 Total Comprehensive Profit 391 412 438 511 Other Non-Current Liabilities 276 698 701 704 Controlling Interests 343 362 385 449 Total Liabilities 1,828 1,933 1,992 2,118 Non-Controlling Interests 48 49 53 62 Controlling Interests 2,444 2,782 3,150 3,582 EBITDA 514 579 620 700 Capital Stock 117 117 117 117 FCF (Free Cash Flow) -302 393 397 466 Capital Surplus 612 612 612 612 EBITDA Margin (%) 35.7 36.0 36.3 36.4 Retained Earnings 1,708 2,046 2,414 2,846 Operating Profit Margin (%) 31.3 31.2 31.2 31.8 Non-Controlling Interests 449 550 623 709 Net Profit Margin (%) 24.1 22.0 22.5 23.4 Stockholders' Equity 2,892 3,332 3,773 4,291
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 348 476 503 591 P/E (x) 10.9 9.2 8.5 7.3 Net Profit 395 404 438 511 P/CF (x) 8.9 7.5 6.9 6.0 Non-Cash Income and Expense 151 53 54 57 P/B (x) 1.6 1.2 1.0 0.9 Depreciation 77 81 88 89 EV/EBITDA (x) 9.0 5.8 5.0 4.9 Amortization 1 0 0 0 EPS (W) 15,027 15,157 16,432 19,186 Others 66 -5 0 0 CFPS (W) 18,394 18,649 20,178 23,008 Chg in Working Capital -77 23 11 23 BPS (W) 103,481 117,586 134,025 153,214 Chg in AR & Other Receivables -4 -74 -42 -94 DPS (W) 650 650 650 650 Chg in Inventories -14 -5 -3 -6 Payout ratio (%) 4.3 4.3 4.0 3.4 Chg in AP & Other Payables 11 101 54 121 Dividend Yield (%) 0.4 0.5 0.5 0.5 Income Tax Paid -121 -4 0 0 Revenue Growth (%) 13.3 11.8 6.0 12.6 Cash Flows from Inv Activities -665 -262 -66 -69 EBITDA Growth (%) 15.9 12.7 6.9 13.0 Chg in PP&E -662 -100 -100 -100 Operating Profit Growth (%) 14.8 11.6 5.8 14.8 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 1.6 0.9 8.4 16.8 Chg in Financial Assets -17 0 2 2 Accounts Receivable Turnover (x) 2.7 2.5 2.4 2.4 Others 14 -163 33 30 Inventory Turnover (x) 42.5 37.0 36.1 37.1 Cash Flows from Fin Activities 241 -18 -17 -17 Accounts Payable Turnover (x) 2.9 2.2 1.8 1.9 Chg in Financial Liabilities 213 0 0 0 ROA (%) 9.1 8.1 7.9 8.4 Chg in Equity 0 0 0 0 ROE (%) 15.4 13.6 13.0 13.3 Dividends Paid -17 -15 0 0 ROIC (%) 12.0 12.6 13.5 15.5 Others 45 -1 0 0 Liability to Equity Ratio (%) 63.2 58.0 52.8 49.4 Increase (Decrease) in Cash -76 196 420 506 Current Ratio (%) 75.0 91.1 123.4 155.6 Beginning Balance 85 9 205 625 Net Debt to Equity Ratio (%) 12.3 -7.2 -17.6 -10.2 Ending Balance 9 205 625 1,131 Interest Coverage Ratio (x) 31.3 28.8 30.7 35.2 Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 10
July 6, 2012 Retail
GS Retail (007070 KS)
Buy (Maintain) Well-positioned for outgrowth amid mature retail industry
Target Price (12M, W) 31,000 Relatively lighter regulatory environment to help boost industry expansion Share Price (07/05/12, W) 24,100 Expected Return (%) 28.6 Domestic convenience stores to see further growth EPS Growth (12F, %) 45.4 GS Retail is looking for new growth opportunities including external M&As Market EPS Growth (12F, %) 17.1 P/E (12F, x) 13.6 Market P/E (12F, x) 9.5 We maintain our Buy rating on GS Retail with a target price of W31,000. Our KOSPI 1,875.49 target price is derived by applying a target P/E of 15x to GS RetailÊs 2013F EPS. Market Cap (Wbn) 1,856 We believe a premium for GS Retail is justified, given: 1) GS RetailÊs core business, Shares Outstanding (mn) 77 convenience stores, is likely to outgrow the domestic retail sector, 2) GS Retail Avg Trading Volume (60D, '000) 118 can preserve stable operating margins thanks to its franchise business model, and Avg Trading Value (60D, Wbn) 3 3) the companyÊs ample cash holdings can support future business opportunities, Dividend Yield (12F, %) 1.2 Free Float (%) 34.3 including external expansion through M&As. 52-Week Low (W) 19,350 On a consolidated basis under K-IFRS, we forecast GS Retail to post 2Q sales of 52-Week High (W) 26,450 W1.2tr (up 20.1% YoY) and an operating profit of W46.2bn (up 80.8% YoY). We Beta (12M, Daily Rate of Return) -0.05 Price Return Volatility (12M Daily, %, SD) 3.0 project GS RetailÊs 2Q OP margins (based on GMS) to rise 1.3%p YoY to 3.9% in Foreign Ownership (%) 6.7 light of better operating efficiency on the back of sales growth improvement. Major Shareholder(s) The governmentÊs regulation of convenience stores is relatively lighter than other GS (65.75%) LG Corp. (11.97%) retail segments. However, the Fair Trade Commission recently announced that it is considering a restriction on new convenience store openings within a 500m distance Price Performance from an existing convenience store, in order to limit the impact to profitability of (%) 1M 6M 12M existing stores. We believe the probability of such regulation being introduced for Absolute 4.6 0.4 - convenience stores to be low, given that the convenience storesÊ shut down rate is Relative 0.5 -0.2 - only 4% vs. 12% for average franchise business models. Meanwhile, the supermarket industry is likely to continue to suffer from regulatory risks. In addition, we believe the HMR product industry (which improves profit margins for convenience stores) will see stagnant growth, as higher scalability and product quality improvements may be challenging under a fragmented market.
Based on these assumptions, we forecast the domestic convenience store industry to post a CAGR of 15% over the next three years to reach W15.4tr by 2014. Also, we project the SSM sector will post a CAGR of 15% over the next three years to reach W8tr by 2014.
The company is known to have submitted a LOI (letter of intent) to acquire Woongjin Coway, which we believe would be positive to the company, as GS Retail could add new growth drivers from WoongjinÊs current rental business and devise a new business using WoongjinÊs sales network.
Share price § Earnings & Valuation Metrics 120 KOSPI Revenu 110 FY OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 100 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 90 12/10 3,280 95 2.9 442 5,743 173 96 37.4 - - - 80 12/11 3,982 103 2.6 94 1,215 214 -263 6.7 19.1 1.4 9.2 70 60 12/12F 4,710 154 3.3 136 1,767 257 229 9.2 13.6 1.3 2.9 50 12/13F 5,416 179 3.3 158 2,057 289 95 10.0 11.7 1.1 2.7 40 12/14F 6,138 208 3.4 181 2,344 324 117 10.5 10.3 1.0 2.4 12/11 4/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 11 July 6, 2012 Retail
Figure 19. Market size trend of convenience stores Figure 20. Market share of convenience stores in 2011
(Wtr) (%) Others Ministop 3.2% 32 Market size (L) 13 Expect 3yr CAGR of 4% 8.3% YoY Growth (R)
28 10 Family Mart 31.2%
24 8 Seven Eleven As of 2011 26.6% 20 5
16 3
12 0 GS25 30.5% 07 08 09 10 11 12F 13F 14F
Source: KOSTAT, KDB Daewoo Securities Research estimates Note: Based on number of convenience stores Source: Each company data, KDB Daewoo Securities Research
Figure 21. Market size trend of supermarket Figure 22. Market share of SSM in 2011
(Wtr) (%) Others 11.6% 17 Market size (L) Expect 3yr CAGR of 15% 24 YoY growth (R) Kim's Club + Emart Lotte Super 14 20 7.4% 33.5%
11 16 As of 2011
Homeplus 8 12 Express 25.6%
5 8 GS Supermarket 07 08 09 10 11 12F 13F 14F 22%
Source: KOSTAT, KDB Daewoo Securities Research estimates Note: Based on number of convenience stores Source: Each company data, KDB Daewoo Securities Research
Figure 23. GS RetailÊs current/target revenue mix Figure 24. GS 25Ês store expansion
(%) (Number of stores) (%) Cigarette Beverage Milk Beer Snacks, Chewing gum Others 9,307 100 9,400 GS25 (L) 30 YoY growth (R) 8,307 31.3 32.1 34.3 80 7,550 7,307 25 4.2 4.4 4.5 6,307 60 4.4 4.1 6.4 6.8 4.7 6.5 9.8 5,700 20 10.6 9.5 5,026 40 3,915 3,850 15 43.9 42.0 40.5 3,388 20 2,856
0 2,000 10 08 09 10 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Daewoo Securities Research 12
July 6, 2012 Retail
GS Retail (007070 KS/Buy/TP: W31,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 3,982 4,710 5,416 6,138 Current Assets 994 1,348 1,404 1,455 Cost of Sales 3,136 3,705 4,254 4,815 Cash and Cash Equivalents 30 307 286 255 Gross Profit 846 1,006 1,162 1,323 AR & Other Receivables 69 94 108 122 SG&A Expenses 752 855 982 1,115 Inventories 133 157 181 205 Operating Profit (Adj) 94 150 179 208 Other Current Assets 30 21 24 26 Operating Profit 103 154 179 208 Non-Current Assets 2,001 1,940 2,154 2,373 Non-Operating Profit 26 28 32 33 Investments in Associates 12 12 12 12 Net Financial Income -22 -15 -13 -10 Property, Plant and Equipment 683 493 571 648 Net Gain from Inv in Associates 3 0 0 0 Intangible Assets 110 657 715 772 Pretax Profit 129 181 211 241 Total Assets 2,994 3,287 3,559 3,828 Income Tax 36 45 53 60 Current Liabilities 957 1,015 1,064 1,110 Profit from Continuing Operations 93 136 158 181 AP & Other Payables 393 477 526 571 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 507 305 305 305 Net Profit 93 136 158 181 Other Current Liabilities 57 233 233 234 Controlling Interests 94 136 158 181 Non-Current Liabilities 603 745 847 929 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 404 494 594 674 Total Comprehensive Profit 90 136 158 181 Other Non-Current Liabilities 169 251 253 255 Controlling Interests 90 136 158 181 Total Liabilities 1,559 1,759 1,911 2,039 Non-Controlling Interests 0 0 0 0 Controlling Interests 1,430 1,528 1,648 1,790 EBITDA 214 257 289 324 Capital Stock 77 77 77 77 FCF (Free Cash Flow) -263 229 95 117 Capital Surplus 156 156 156 156 EBITDA Margin (%) 5.4 5.5 5.3 5.3 Retained Earnings 1,198 1,296 1,415 1,557 Operating Profit Margin (%) 2.6 3.3 3.3 3.4 Non-Controlling Interests 4 0 0 0 Net Profit Margin (%) 2.4 2.9 2.9 2.9 Stockholders' Equity 1,435 1,528 1,648 1,790
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 34 208 211 226 P/E (x) 19.1 13.6 11.7 10.3 Net Profit 93 136 158 181 P/CF (x) 8.3 7.7 6.9 6.3 Non-Cash Income and Expense 166 55 43 41 P/B (x) 1.4 1.3 1.1 1.0 Depreciation 101 81 83 85 EV/EBITDA (x) 9.2 2.9 2.7 2.4 Amortization 20 23 27 31 EPS (W) 1,215 1,767 2,057 2,344 Others -38 -9 0 0 CFPS (W) 2,782 3,151 3,490 3,849 Chg in Working Capital -62 17 10 5 BPS (W) 17,141 18,912 21,320 24,060 Chg in AR & Other Receivables -15 -15 -14 -14 DPS (W) 300 300 300 300 Chg in Inventories -63 -24 -24 -24 Payout ratio (%) 24.7 17.0 14.6 12.8 Chg in AP & Other Payables 47 58 49 45 Dividend Yield (%) 1.3 1.2 1.2 1.2 Income Tax Paid -164 -1 0 0 Revenue Growth (%) 21.4 18.3 15.0 13.3 Cash Flows from Inv Activities -199 -20 -294 -298 EBITDA Growth (%) 24.2 19.9 12.6 11.8 Chg in PP&E -183 0 -240 -160 Operating Profit Growth (%) 8.4 49.3 16.5 15.9 Chg in Intangible Assets -43 0 0 0 EPS Growth (%) -78.8 45.4 16.4 13.9 Chg in Financial Assets -4 -37 -38 -40 Accounts Receivable Turnover (x) 122.2 70.5 53.9 53.5 Others 30 17 -15 -98 Inventory Turnover (x) 39.3 32.5 32.1 31.9 Cash Flows from Fin Activities 158 89 62 42 Accounts Payable Turnover (x) 17.7 13.3 10.8 11.2 Chg in Financial Liabilities 246 140 100 80 ROA (%) 3.3 4.3 4.6 4.9 Chg in Equity 0 0 0 0 ROE (%) 6.7 9.2 10.0 10.5 Dividends Paid -39 -39 -39 -39 ROIC (%) 6.9 11.1 13.4 16.1 Others -50 -13 0 0 Liability to Equity Ratio (%) 108.7 115.2 116.0 113.9 Increase (Decrease) in Cash -8 277 -21 -31 Current Ratio (%) 103.9 132.8 132.0 131.1 Beginning Balance 38 30 307 286 Net Debt to Equity Ratio (%) 10.3 -18.1 -11.8 -6.9 Ending Balance 30 307 286 255 Interest Coverage Ratio (x) 5.2 5.6 5.8 6.2 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 13 July 6, 2012 Retail
Shinsegae (004170 KS)
Buy (Maintain) Focused strategy after the split
Target Price (12M, W) 328,000 Expected to recover after bottoming out in 2Q12 Share Price (07/05/12, W) 212,500 Expected Return (%) 54.4 New store openings to help grow the top line EPS Growth (12F, %) -86.8 Considering external M&As Market EPS Growth (12F, %) 17.1 P/E (12F, x) 8.8 Market P/E (12F, x) 9.5 We maintain our Buy rating on Shinsegae with a lower target price of W328,000 KOSPI 1,875.49 (from W330,000). We adjusted our target price by 1.5% because we cut our 2012 Market Cap (Wbn) 2,092 EPS forecasts. Using a sum-of-the-parts methodology, we derived our target price Shares Outstanding (mn) 10 by summing the value of ShinsegaeÊs operations and the value of its equity Avg Trading Volume (60D, '000) 37 holdings. The value of the companyÊs operations (W265,000/sh) was derived by Avg Trading Value (60D, Wbn) 9 applying a P/E of 11x to our 2012F EPS. The value of the companyÊs equity Dividend Yield (12F, %) 0.4 Free Float (%) 72.8 holdings (W63,000/sh) was derived by adding the value of its Samsung Life th 52-Week Low (W) 205,000 Insurance shares (W34,000/sh; based on a 50% discount to their June 28 closing 52-Week High (W) 355,500 price of W91,400) to the value of its Shinsegae International shares (W29,000/sh; Beta (12M, Daily Rate of Return) 0.67 based on their June 28th closing price of W86,100; no discount). Price Return Volatility (12M Daily, %, SD) 2.3 Foreign Ownership (%) 50.8 On a consolidated basis under K-IFRS, we forecast Shinsegae to post 2Q gross Major Shareholder(s) merchandise sales (GMS) of W1.1tr (up 12.6% YoY), net revenues of W611.6bn M.H. Lee et al. (27.13%) (up 11.1% YoY), and an operating profit of W80.1bn (up 9.5% YoY). We project Aberdeen Asset Manangement Asia Limited ShinsegaeÊ 2Q OP margins (based on GMS) to slide 0.2%p YoY to 7.3% in light of et al. (10.24%) greater marketing expenses related to increased promotions and new store OppenheimerFunds, Inc.(OFI) et al. (7.16%) Price Performance openings. (%) 1M 6M 12M In light of improving consumer sentiment, we expect ShinsegaeÊs department Absolute -5.1 -18.0 -38.1 store sales growth to recover full swing starting in 2H. The Consumer Sentiment Relative -9.2 -18.6 -24.8 Index (CSI) has improved for four consecutive months (since coming in at 98 in January). In light of consumersÊ trading-up tendencies, we believe that demand for luxury goods should stay solid. And the base of comparison will gradually become lower starting in 2H.
Another important factor affecting ShinsegaeÊs share price will be the potential acquisition of retail-related companies. Shinsegae Group considered acquiring the stake of ET Land, the fourth largest electronics goods retailer in Korea, but decided to pull out due to discrepancy between the bidding and selling prices. We believe that the company would have benefited from such an acquisition, if it had taken place, but cannot confirm whether Shinsegae Group will re-try this option.
Share price § Earnings & Valuation Metrics 120 KOSPI Revenu 110 FY OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 100 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 90 12/10 1,868 239 12.8 1,088 28,829 351 357 18.6 14.0 2.1 42.5 80 12/11 2,186 268 12.2 3,502 182,729 383 -774 75.7 1.3 1.2 8.7 70 60 12/12F 2,447 309 12.6 237 24,070 420 -22 10.5 8.8 0.8 4.0 50 12/13F 2,602 320 12.3 255 25,897 463 1 9.5 8.2 0.7 3.0 40 12/14F 2,734 338 12.4 275 27,966 504 34 9.4 7.6 0.7 2.5 6/11 10/11 2/12 6/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 14
July 6, 2012 Retail
Table 5. New store opening plan of Shinsegae Location Date Total space (m²) Description Daegu End of 2014 90,000 Largest shopping complex in Northern Gyeongsang and Daegu province Hanam End of 2015 330,000 Complex mall (Dep. Store with luxury and SPA brands, entertainment, sports, etc. Source: Company data, KDB Daewoo Securities Research
Table 6. Same-store sales growth trend of Shinsegae (%) 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 10/2011 11/2011 12/2011 1/2012 2/2012 3/2012 4/2012 5/2012 Shinsegae 30.1 5.0 16.3 15.0 12.5 13.0 13.4 11.3 10.6 5.8 3.0 11.5 1.0 8.0 5.5 -3.7 1.3 Source: Company data, KDB Daewoo Securities Research
Figure 25. GMS trend and forecasts Figure 26. OP margin trend and forecasts
(Wtr) (YoY, %) (Wbn) (%) 6 GMS (L) 30 350 Operating profit (L) 7.5 Growth rate (R) OP margin (R) 5 25 275 7.0
4 20 200 6.5 3 15
125 6.0 2 10
1 5 50 5.5 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Company data, KDB Daewoo Securities Research estimates
Figure 27. Product distribution ratio Figure 28. Sales space forecasts
Women's clothing Men's clothing Sports goods (000 m²) Luxury goods Cosmetics/Accessories Foods 1,000 Home Appliances Sales area Sales portion of women's clothing and luxury goods are decreaseing (%) while cosmetics/access. and sports goods are increasing 100 850 6.1 7.0 7.0 7.5 7.1 17.3 12.0 11.5 11.9 12.0 80 700 Expect 3yr CAGR of +25.1% 20.5 20.2 18.4 20.4 22.0 60 17.7 20.2 21.2 18.9 17.7 550 40 11.1 12.3 13.2 13.9 14.1 9.6 7.2 6.9 7.8 400 20 8.1 19.8 20.9 20.0 19.6 18.9 0 250 1/12 2/12 3/12 4/12 5/12 11 12F 14F 15F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 15 July 6, 2012 Retail
Shinsegae (004170 KS/Buy/TP: W328,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 2,186 2,447 2,602 2,734 Current Assets 507 1,097 1,260 1,458 Cost of Sales 773 864 918 964 Cash and Cash Equivalents 78 620 754 927 Gross Profit 1,413 1,582 1,684 1,770 AR & Other Receivables 145 164 174 183 SG&A Expenses 1,158 1,283 1,364 1,432 Inventories 192 215 229 240 Operating Profit (Adj) 254 300 320 338 Other Current Assets 26 25 25 25 Operating Profit 268 309 320 338 Non-Current Assets 3,638 4,032 4,403 4,752 Non-Operating Profit 6 9 21 30 Investments in Associates 66 166 266 366 Net Financial Income 24 29 31 26 Property, Plant and Equipment 2,147 2,430 2,689 2,926 Net Gain from Inv in Associates 14 17 20 24 Intangible Assets 40 38 35 32 Pretax Profit 274 318 341 368 Total Assets 4,145 5,130 5,663 6,209 Income Tax 62 80 85 91 Current Liabilities 1,323 1,471 1,521 1,563 Profit from Continuing Operations 212 238 256 277 AP & Other Payables 285 767 814 763 Profit from Discontinued Operations 3,310 0 0 0 Short-Term Financial Liabilities 384 84 84 174 Net Profit 3,522 238 256 277 Other Current Liabilities 655 620 623 626 Controlling Interests 3,502 237 255 275 Non-Current Liabilities 642 1,044 1,276 1,509 Non-Controlling Interests 21 1 1 1 Long-Term Financial Liabilities 419 699 829 959 Total Comprehensive Profit 3,371 340 256 277 Other Non-Current Liabilities 198 345 447 549 Controlling Interests 3,351 339 255 275 Total Liabilities 1,965 2,515 2,797 3,071 Non-Controlling Interests 20 1 1 1 Controlling Interests 1,965 2,563 2,809 3,076 EBITDA 383 420 463 504 Capital Stock 49 49 49 49 FCF (Free Cash Flow) -774 -22 1 34 Capital Surplus 364 364 364 364 EBITDA Margin (%) 17.5 17.2 17.8 18.4 Retained Earnings 8,118 1,281 1,528 1,795 Operating Profit Margin (%) 12.2 12.6 12.3 12.4 Non-Controlling Interests 215 52 57 62 Net Profit Margin (%) 160.2 9.7 9.8 10.1 Stockholders' Equity 2,180 2,614 2,866 3,139
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities -34 459 442 479 P/E (x) 1.3 8.8 8.2 7.6 Net Profit 274 255 256 276 P/CF (x) 1.3 5.9 5.3 4.7 Non-Cash Income and Expense 153 149 170 191 P/B (x) 1.2 0.8 0.7 0.7 Depreciation 126 118 140 163 EV/EBITDA (x) 8.7 4.0 3.0 2.5 Amortization 2 2 3 3 EPS (W) 182,729 24,070 25,897 27,966 Others -16 -2 0 0 CFPS (W) 189,428 36,242 40,405 44,809 Chg in Working Capital -159 56 18 14 BPS (W) 197,575 265,534 291,119 310,044 Chg in AR & Other Receivables -17 -18 -10 -9 DPS (W) 750 750 750 750 Chg in Inventories -47 -23 -14 -12 Payout ratio (%) 0.2 3.1 2.9 2.7 Chg in AP & Other Payables 37 70 39 31 Dividend Yield (%) 0.3 0.4 0.4 0.4 Income Tax Paid -303 0 0 0 Revenue Growth (%) 17.0 12.0 6.4 5.1 Cash Flows from Inv Activities -466 -265 -531 -529 EBITDA Growth (%) 9.0 9.6 10.3 8.8 Chg in PP&E -275 -400 -400 -400 Operating Profit Growth (%) 12.0 15.5 3.5 5.6 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 533.8 -86.8 7.6 8.0 Chg in Financial Assets -116 -8 -5 -4 Accounts Receivable Turnover (x) 12.7 17.7 15.4 15.3 Others -75 144 -127 -125 Inventory Turnover (x) 5.5 12.0 11.7 11.7 Cash Flows from Fin Activities 566 348 223 223 Accounts Payable Turnover (x) 5.2 5.9 3.3 3.5 Chg in Financial Liabilities 485 376 230 230 ROA (%) 38.1 5.1 4.8 4.7 Chg in Equity 162 0 0 0 ROE (%) 75.7 10.5 9.5 9.4 Dividends Paid -47 -7 0 0 ROIC (%) 3.7 10.8 11.9 13.7 Others -33 -10 0 0 Liability to Equity Ratio (%) 90.2 96.2 97.6 97.9 Increase (Decrease) in Cash 66 542 133 173 Current Ratio (%) 38.3 74.6 82.8 93.3 Beginning Balance 12 78 620 754 Net Debt to Equity Ratio (%) 30.3 3.4 2.8 4.0 Ending Balance 78 620 754 927 Interest Coverage Ratio (x) 7.4 7.7 6.1 5.5 Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 16
July 6, 2012 Retail
Hi-Mart (071840 KS)
Buy (Maintain) To be re-born by the new management
Target Price (12M, W) 75,000 Hi-Mart is looking for new management Share Price (07/05/12, W) 58,300 Expected Return (%) 28.6 Competition to intensify in electronics goods retail market EPS Growth (12F, %) -19.5 Hi-Mart shares are vulnerable to any changes in the management Market EPS Growth (12F, %) 17.1 P/E (12F, x) 11.0 Market P/E (12F, x) 9.5 We maintain our Buy rating on Hi-Mart with a target price of W75,000. We applied KOSPI 1,875.49 a target P/E of 11x to 2013F EPS. We expect operating margin, which peaked at Market Cap (Wbn) 1,376 7.6% in 2011, to deteriorate to 6.5% in 2012 due to weakened operating Shares Outstanding (mn) 24 environment, but recover to 6.9% in 2013F and 7% in 2014F, thanks to Avg Trading Volume (60D, '000) 169 consumption recovery and Lotte ShoppingÊs expected efforts to turn around Hi- Avg Trading Value (60D, Wbn) 10 Mart. Dividend Yield (12F, %) 1.5 Free Float (%) 33.0 On a consolidated basis under K-IFRS, we forecast Hi-Mart to post 2Q sales of 52-Week Low (W) 45,950 W733.1bn (down 13% YoY) and an operating profit of W53.3bn (down 26.8% 52-Week High (W) 95,000 YoY). We project Hi-MartÊs 2Q OP margin to slide 1.2%p YoY to 7.3% mainly due Beta (12M, Daily Rate of Return) 0.51 Price Return Volatility (12M Daily, %, SD) 3.4 to sluggish sales growth from weak operations and greater marketing expenses Foreign Ownership (%) 6.3 related to increased promotions from economic slowdown. Major Shareholder(s) Hi-Mart announced that Lotte Shopping was selected as the preferred bidder for Eugene Corp. et al. (67.04%) the 65.25% (including Eugene Corp et al. 32.4%, J.G. Sun et al. 18.2%) of Hi-Mart shares. MBK Partners, which was previously selected as the preferred bidder, Price Performance failed to close the deal with the sellers by the deadline (July 2nd). According to (%) 1M 6M 12M local media, Lotte Shopping proposed approximately W80,000 per share for the Absolute 0.9 -25.5 8.0 take-over price, which is similar to what MBK Partners had proposed. The total Relative -3.2 -26.2 21.2 amount for the 65.25% stake based on the proposed price is W1.2tr, which is a 38% premium to the closing price of W57,800 on July 4, 2012. The exclusive position to negotiate with the sellers should be valid until July 6th. Lotte Shopping is currently targeting electronic goods sales of W10tr by 2018.
Through this deal, Lotte Shopping would obtain the missing piece to its retail coverage. Furthermore, Lotte Shopping could leverage Hi-MartÊs consumer electronic goods sourcing power into other channels, such as discount stores and home shopping, to improve its operating margin. In addition, Hi-Mart could add stores within LotteÊs existing sites. This could be implemented through independent stores within LotteÊs shopping mall sites, a shop-in-shop within Lotte Marts, and a virtual store within Lotte.com. In addition, Hi-Mart could expedite its overseas expansion in Indonesia, where Lotte Shopping already has operations.
Share price § Earnings & Valuation Metrics 180 KOSPI FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 160
140 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 120 12/10 3,052 216 7.1 107 5,711 254 81 13.0 - - - 100 12/11 3,411 259 7.6 141 6,604 298 326 11.6 12.3 1.3 8.4 80 12/12F 3,332 215 6.5 125 5,316 262 114 8.5 11.0 0.9 3.8 60 12/13F 3,619 248 6.9 161 6,839 302 200 10.1 8.5 0.8 3.6 40 12/14F 4,030 283 7.0 195 8,272 345 224 11.1 7.1 0.7 2.8 6/11 10/11 2/12 6/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 17 July 6, 2012 Retail
Figure 29. Revenues and operating profit forecasts Figure 30. Market share of category killers (2011)
(Wbn) (Wbn) 5,000 Revenues (L) 400 Others Operating profit (R) 21.0%
4,000 300 Hi-Mart 34.9%
3,000 200 ET Land 2011 9.3%
2,000 100
LG Best Shop Samsung Digital Plaza 14.8% 1,000 0 20.0% 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Source: Company data, KDB Daewoo Securities Research
Figure 31. Gross margin comparison Figure 32. Operating margin comparison
(%) Hi-Mart ET Land (%) Hi-Mart ET Land 28 Samsung Digital Plaza LG Best Shop 8 Samsung Digital Plaza LG Best Shop Gome Suning Gome Suning Best Buy Best Buy 24 6
20 4
16 2
12 0
8 -2 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11
Source: Each company data, KDB Daewoo Securities Research Source: Each company data, KDB Daewoo Securities Research
Figure 33. Product distribution ratio Figure 34. Electronic goods sales trend (YoY)
(%) TV Refrigerator Washing machine Kimchi fridge (%) Air-conditioner PC Mobile Digital convergence 40 Total Seasonal items Home appliance Others 100 Electronic goods
30 80
20 60
10 40
20 0
0 -10 07 08 09 10 11 1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/12 4/12
Source: Company data, KDB Daewoo Securities Research Source: KOSTAT, KDB Daewoo Securities Research
Daewoo Securities Research 18
July 6, 2012 Retail
Hi-Mart (071840 KS/Buy/TP: W75,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 3,411 3,332 3,619 4,030 Current Assets 573 564 529 743 Cost of Sales 2,551 2,496 2,714 3,027 Cash and Cash Equivalents 269 250 204 389 Gross Profit 859 836 905 1,003 AR & Other Receivables 42 39 40 44 SG&A Expenses 602 621 657 721 Inventories 226 212 218 240 Operating Profit (Adj) 257 216 248 283 Other Current Assets 14 37 37 37 Operating Profit 259 215 248 283 Non-Current Assets 2,195 2,076 2,072 2,060 Non-Operating Profit -72 -48 -28 -19 Investments in Associates 0 0 0 0 Net Financial Income 65 50 33 22 Property, Plant and Equipment 384 389 385 374 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 1,688 1,687 1,687 1,686 Pretax Profit 187 167 215 260 Total Assets 2,768 2,640 2,601 2,804 Income Tax 46 42 54 65 Current Liabilities 301 264 283 309 Profit from Continuing Operations 141 125 161 195 AP & Other Payables 243 210 228 255 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit 141 125 161 195 Other Current Liabilities 58 54 54 55 Controlling Interests 141 125 161 195 Non-Current Liabilities 1,039 841 642 644 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 866 680 480 480 Total Comprehensive Profit 138 125 161 195 Other Non-Current Liabilities 162 161 162 164 Controlling Interests 138 125 161 195 Total Liabilities 1,340 1,104 925 953 Non-Controlling Interests 0 0 0 0 Controlling Interests 1,428 1,535 1,676 1,850 EBITDA 298 262 302 345 Capital Stock 118 118 118 118 FCF (Free Cash Flow) 326 114 200 224 Capital Surplus 1,056 1,056 1,056 1,056 EBITDA Margin (%) 8.7 7.9 8.3 8.6 Retained Earnings 254 362 502 677 Operating Profit Margin (%) 7.6 6.5 6.9 7.0 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 4.1 3.8 4.5 4.9 Stockholders' Equity 1,428 1,535 1,676 1,850
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 298 160 237 269 P/E (x) 12.3 11.0 8.5 7.1 Net Profit 141 125 161 195 P/CF (x) 9.5 8.0 6.4 5.4 Non-Cash Income and Expense 168 0 0 0 P/B (x) 1.3 0.9 0.8 0.7 Depreciation 40 46 54 62 EV/EBITDA (x) 8.4 3.8 3.6 2.8 Amortization 1 1 1 1 EPS (W) 6,604 5,316 6,839 8,272 Others -16 -4 0 0 CFPS (W) 8,514 7,264 9,124 10,897 Chg in Working Capital 32 -21 11 1 BPS (W) 60,307 64,916 71,754 80,032 Chg in AR & Other Receivables -6 3 -1 -4 DPS (W) 880 880 880 880 Chg in Inventories -24 0 0 0 Payout ratio (%) 14.8 16.6 12.9 10.6 Chg in AP & Other Payables 74 -38 18 26 Dividend Yield (%) 1.1 1.5 1.5 1.5 Income Tax Paid -43 0 0 0 Revenue Growth (%) 11.7 -2.3 8.6 11.4 Cash Flows from Inv Activities -51 -52 -54 -53 EBITDA Growth (%) 17.2 -12.1 15.4 14.1 Chg in PP&E -60 -50 -50 -50 Operating Profit Growth (%) 20.2 -16.9 15.3 13.9 Chg in Intangible Assets -1 0 0 0 EPS Growth (%) 15.6 -19.5 28.6 21.0 Chg in Financial Assets 9 -4 -2 -3 Accounts Receivable Turnover (x) 105.0 94.9 91.1 95.2 Others 0 2 -2 0 Inventory Turnover (x) 15.9 15.2 16.8 17.6 Cash Flows from Fin Activities -182 -218 -221 -21 Accounts Payable Turnover (x) 22.1 16.8 16.5 16.7 Chg in Financial Liabilities -489 -200 -200 0 ROA (%) 5.2 4.6 6.2 7.2 Chg in Equity 262 0 0 0 ROE (%) 11.6 8.5 10.1 11.1 Dividends Paid 0 -21 0 0 ROIC (%) 9.4 8.1 9.3 10.7 Others 46 0 0 0 Liability to Equity Ratio (%) 93.9 71.9 55.2 51.5 Increase (Decrease) in Cash 65 -19 -45 185 Current Ratio (%) 190.2 213.8 187.1 240.3 Beginning Balance 204 269 250 204 Net Debt to Equity Ratio (%) 40.2 26.3 14.7 3.1 Ending Balance 269 250 204 389 Interest Coverage Ratio (x) 3.4 3.9 6.6 9.6 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 19 July 6, 2012 Retail
Hyundai Home Shopping (057050 KS)
Buy (Maintain) Convenient way of buying luxury
Target Price (12M, W) 148,000 Commissions paid to channel operators to continue to increase Share Price (07/05/12, W) 112,000 Expected Return (%) 32.1 Efforts to improve operating margin by cutting costs and better product mix EPS Growth (12F, %) 14.3 Highest profitability among home shopping companies Market EPS Growth (12F, %) 17.1 P/E (12F, x) 7.7 Market P/E (12F, x) 9.5 We maintain our Buy rating on Hyundai Home Shopping (HDHS) but cut our target KOSPI 1,875.49 price to W148,000 (from W168,000). We adjusted our target price by 11.9% Market Cap (Wbn) 1,344 because 1) we lowered our 2012 and 2013 EPS estimates by 3.6% and 5.7%, Shares Outstanding (mn) 12 respectively, to reflect margin pressure from increasing SO commission, and 2) Avg Trading Volume (60D, '000) 20 revised down our target P/E multiple from 11x to 10x to reflect concern over Avg Trading Value (60D, Wbn) 3 remaining margin pressure. Using a sum-of-the-parts methodology, we derived our Dividend Yield (12F, %) 1.0 Free Float (%) 58.8 target price by adding HDHSÊ operating value of W145,000 (2012F P/E of 10x) to 52-Week Low (W) 104,500 its asset value of W3,000 (from its 24.0% stake in Hyundai Communications & 52-Week High (W) 158,000 Network (HCN); 30% holding company discount to HCNÊs market cap as of June Beta (12M, Daily Rate of Return) 0.32 28th). Price Return Volatility (12M Daily, %, SD) 2.6 Foreign Ownership (%) 45.3 On a non-consolidated basis under K-IFRS, we forecast Hi-Mart to post 2Q gross Major Shareholder(s) merchandise sales (GMS) of W639.4bn (up 12% YoY), net revenues of W199.3bn Hyundai Department Store et al. (41.19%) (up 14.2% YoY), and an operating profit of W41.9bn (up 10.9% YoY). We project Wellington Management Company, LLP Hi-MartsÊ 2Q OP margins (based on GMS) to slide 0.2%p YoY to 6.6% in light of (5.08%) increasing commission payments to channel operators to secure premium channel.
Price Performance We expect that commissions paid by HDHS to channel operators to increase (%) 1M 6M 12M 20.2% YoY and remain as a threat. We attribute this increase to 1) intensifying Absolute -4.3 -11.1 -14.8 competition among home shopping companies, and 2) the strengthened Relative -8.4 -11.7 -1.6 bargaining power of channel operators, especially satellite TV and IPTV operators.
Even in such circumstances, HDHS boasts the highest profitability among Korean home shopping companies. We attribute the companyÊs competitive edge to: 1) its efficient marketing strategy, which has led to reduced promotion costs, and 2) product mix improvement, especially in the cosmetics and household goods segments. These factors should continue to reinforce the companyÊs edge over its competitors. With regard to Handsome, we believe that HDHSÊ decision to preserve the current management and business model is the right strategy for now, as the subsidiary has already built strong brand equity and a solid distribution network. In the long-term, the alliance with HDS will benefit Handsome to easily secure stores and sourcing networks when launching new brands.
Share price § Earnings & Valuation Metrics 140 KOSPI FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 120 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 100 12/10 581 132 22.8 113 11,403 143 132 22.1 9.0 1.8 3.6
80 12/11 711 152 21.4 143 11,874 163 123 18.5 11.2 1.9 4.7 12/12F 812 168 20.6 174 14,463 182 160 19.0 7.7 1.4 4.3 60 12/13F 907 185 20.4 180 14,959 199 166 16.7 7.5 1.2 3.1 40 12/14F 1,013 204 20.1 204 16,997 218 182 16.3 6.6 1.0 1.9 6/11 10/11 2/12 6/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 20
July 6, 2012 Retail
Figure 35. GMS trend and forecasts by division Figure 36. OP margin trend and forecasts
(Wbn) CATV (L) Internet (L) (YoY, %) (Wbn) (%) 3,500 Catalog (L) Others (L) 30 250 Operating profit (L) OP margin (R) 8.5 GMS growth rate (R)
200 7.9 2,800 25
150 7.3
2,100 20
100 6.7
1,400 15 50 6.1
700 10 0 5.5 09 10 11 12F 13F 14F 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Company data, KDB Daewoo Securities Research estimates
Figure 37. System operator commission to GMS trend and forecasts Figure 38. OP margin comparison
(Wbn) (%) (%) 3,500 GMS (L) 8.0 9.0 Hyundai Home Shopping SO commission to GMS (R) CJ O Shopping GS Home shopping 2,800 7.5 7.5
2,100 7.0 6.0 1,400 6.5
4.5 700 6.0
0 5.5 3.0 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Each company data, KDB Daewoo Securities Research estimates
Figure 39. Sales and operating profit trend of Handsome Figure 40. Market share comparison (based on GMS)
(Wbn) (%) Hyundai Home Shopping 550 Sales 35 CJ O Shopping Operating profit GS Home Shopping 440 30
330
25 220
20 110
0 15 05 06 07 08 09 10 11 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research Source: Each company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 21 July 6, 2012 Retail
Hyundai Home Shopping (057050 KS/Buy/TP: W148,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 711 812 907 1,013 Current Assets 889 611 797 1,010 Cost of Sales 21 31 28 23 Cash and Cash Equivalents 121 257 436 642 Gross Profit 690 782 879 990 AR & Other Receivables 25 46 51 57 SG&A Expenses 536 613 694 786 Inventories 6 7 8 9 Operating Profit (Adj) 154 168 185 204 Other Current Assets 18 3 3 3 Operating Profit 152 168 185 204 Non-Current Assets 212 678 682 686 Non-Operating Profit 35 64 54 68 Investments in Associates 61 482 482 482 Net Financial Income -32 -29 -14 -23 Property, Plant and Equipment 91 131 130 128 Net Gain from Inv in Associates 0 35 40 46 Intangible Assets 5 5 5 5 Pretax Profit 188 231 239 272 Total Assets 1,102 1,289 1,479 1,696 Income Tax 45 58 60 68 Current Liabilities 260 287 311 337 Profit from Continuing Operations 143 174 180 204 AP & Other Payables 36 240 263 289 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 2 2 2 2 Net Profit 143 174 180 204 Other Current Liabilities 222 45 46 46 Controlling Interests 143 174 180 204 Non-Current Liabilities 9 9 9 9 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 139 176 180 204 Other Non-Current Liabilities 3 9 9 9 Controlling Interests 139 176 180 204 Total Liabilities 269 296 320 346 Non-Controlling Interests 0 0 0 0 Controlling Interests 833 993 1,159 1,350 EBITDA 163 182 199 218 Capital Stock 60 60 60 60 FCF (Free Cash Flow) 123 160 166 182 Capital Surplus 254 254 254 254 EBITDA Margin (%) 23.0 22.4 22.0 21.5 Retained Earnings 507 667 833 1,024 Operating Profit Margin (%) 21.4 20.6 20.4 20.1 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 20.0 21.4 19.8 20.1 Stockholders' Equity 833 993 1,159 1,350
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 138 176 175 196 P/E (x) 11.2 7.7 7.5 6.6 Net Profit 143 174 179 204 P/CF (x) 10.5 7.2 6.9 6.2 Non-Cash Income and Expense 22 -19 -22 -28 P/B (x) 1.9 1.4 1.2 1.0 Depreciation 9 14 14 15 EV/EBITDA (x) 4.7 4.3 3.1 1.9 Amortization 0 0 0 0 EPS (W) 11,874 14,463 14,959 16,997 Others 0 -1 0 0 CFPS (W) 12,626 15,609 16,142 18,219 Chg in Working Capital 12 20 18 19 BPS (W) 68,954 81,243 96,271 113,299 Chg in AR & Other Receivables -16 -6 -5 -6 DPS (W) 1,100 1,100 1,100 1,100 Chg in Inventories -5 -1 -1 -1 Payout ratio (%) 9.3 7.6 7.4 0.0 Chg in AP & Other Payables 31 26 23 26 Dividend Yield (%) 0.8 1.0 1.0 1.0 Income Tax Paid -38 -45 -60 -68 Revenue Growth (%) 22.4 14.2 11.6 11.7 Cash Flows from Inv Activities -11 -16 18 24 EBITDA Growth (%) 14.2 11.5 9.4 9.5 Chg in PP&E -17 -5 -5 -5 Operating Profit Growth (%) 15.1 10.1 10.4 10.0 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 4.1 21.8 3.4 13.6 Chg in Financial Assets -8 -350 0 0 Accounts Receivable Turnover (x) 79.0 25.9 18.8 18.8 Others 14 339 23 29 Inventory Turnover (x) 209.9 127.4 126.0 126.0 Cash Flows from Fin Activities -10 -14 -13 -13 Accounts Payable Turnover (x) 628.7 6.7 3.6 3.7 Chg in Financial Liabilities 2 0 0 0 ROA (%) 14.1 14.5 13.0 12.9 Chg in Equity 0 0 0 0 ROE (%) 18.5 19.0 16.7 16.3 Dividends Paid -12 -13 0 0 ROIC (%) -104.7 -103.6 -97.3 -89.2 Others 0 0 0 0 Liability to Equity Ratio (%) 32.3 29.8 27.6 25.6 Increase (Decrease) in Cash 117 135 180 206 Current Ratio (%) 341.6 212.9 256.5 299.7 Beginning Balance 5 121 257 436 Net Debt to Equity Ratio (%) -100.8 -55.8 -63.3 -69.6 Ending Balance 121 257 436 642 Interest Coverage Ratio (x) 418.8 456.4 498.8 543.2 Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 22
July 6, 2012 Retail
Emart (139480 KS)
Trading Buy (Maintain) Deteriorating operating environment
Target Price (12M, W) 281,000 Still exposed to the highest level of regulatory risks among retailers Share Price (07/05/12, W) 245,500 Expected Return (%) 14.5 Diverse business models to feed future growth EPS Growth (12F, %) 95.1 Considering external M&As to add new growth engines Market EPS Growth (12F, %) 17.1 P/E (12F, x) 11.5 Market P/E (12F, x) 9.5 We maintain our Trading Buy rating on Emart with a lower target price of KOSPI 1,875.49 W281,000 (from 290,000). We adjusted our target price by 3.1% because we Market Cap (Wbn) 6,844 lowered our 2012 and 2013 EPS estimates by 2.9%. Using a sum-of-the-parts Shares Outstanding (mn) 28 methodology, we derived our target price by adding the value of the companyÊs Avg Trading Volume (60D, '000) 34 operations to the value of its equity holdings. The value of EmartÊs operations Avg Trading Value (60D, Wbn) 9 (W257,000/sh) was derived by applying a target P/E of 12x to our 2012F EPS. The Dividend Yield (12F, %) 0.3 Free Float (%) 72.9 value of the companyÊs equity holdings (W24,000/sh) was derived by calculating 52-Week Low (W) 212,500 the value of its Samsung Life Insurance shares based on their June 28th closing 52-Week High (W) 334,000 price of W91,400 (with a 50% discount). Beta (12M, Daily Rate of Return) 0.36 Price Return Volatility (12M Daily, %, SD) 2.6 On a consolidated basis under K-IFRS, we forecast Emart to post 2Q gross Foreign Ownership (%) 63.9 merchandise sales (GMS) of W3.4tr (up 11% YoY), net revenues of W3.1tr (up 9% Major Shareholder(s) YoY), and an operating profit of W189.5bn (up 5% YoY). We project EmartsÊ 2Q M.H. Lee et al. (27.14%) OP margins (based on GMS) to slide 0.5%p YoY to 6.6% due to margin Aberdeen Asset Manangement Asia Limited deterioration from large discounts in products. et al. (10.24%) First State Investment Management (UK) We believe that regulatory risks remain the biggest factor affecting EmartÊs shares. Limited et al. (9.51%) The governmentÊs restrictions on large discount storesÊ operating hours and Price Performance (%) 1M 6M 12M business days (since March) have significantly affected EmartÊs sales as well as Absolute 3.4 -11.2 1.0 investor sentiment. Although regulatory risks are unlikely to ease, we believe that Relative -0.7 -11.8 14.3 all of the known measures have already been priced in.
Discount store industry, however, is coming out of its stagnant stage of growth through: 1) finer segmentation of business formats, such as warehouse-type (such as E-traders of Emart) and online shopping mall, and 2) emphasizing private labels, such as Naturalism, and Daiz. Meanwhile, Emart tried to take over ET Land, but pulled out due to price discrepancies. We believe Emart could improve their pricing power and margins via such M&As. Emart may look for another opportunity for any external M&As if there are possible synergy effects.
Share price § Earnings & Valuation Metrics 140 KOSPI FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 120 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 100 12/11 7,974 491 6.2 306 10,972 750 642 5.6 25.4 1.4 14.4
80 12/12F 12,575 905 7.2 597 21,410 1,214 1,799 10.3 11.5 1.1 5.7 12/13F 13,807 1,015 7.4 677 24,297 1,328 1,549 10.6 10.1 1.0 5.2 60 12/14F 15,195 1,132 7.5 762 27,326 1,452 1,652 10.8 9.0 0.9 4.7 40 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests 6/11 10/11 2/12 6/12 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 23 July 6, 2012 Retail
Figure 41. GMS trend and forecasts Figure 42. OP margin trend and forecasts
(Wbn) (YoY, %) (Wbn) (%) 18,000 20 Gross sales (L) 1,200 Operating profit (L) 9 Growth rate (R) OP margin (R) 15,000 16
800 8 12,000 12
9,000 8 400 7
6,000 4
3,000 0 0 6 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Company data, KDB Daewoo Securities Research estimates
Figure 43. Same-store sales growth trend Figure 44. Diversified domestic channels
(YoY,%) 40
30
20
10
0
-10
-20 1/10 7/10 1/11 7/11 1/12
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Figure 45. Store expansion trend Figure 46. Sales trend of Emart Mall
(number of stores) (Wbn) (YoY, %) 175 320 Revenues (L) 160.0 163 Growth rate (R) 160 153 143 240 110.0 145 130 133 130 123 160 60.0 115 99 100 90 80 10.0
85
70 0 -40.0 07 08 09 10 11 12F 13F 14F 06 07 08 09 10 11
Note: Excludes Emart Traders and Emart Super Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research estimates
July 6, 2012 Retail
Emart (139480 KS/Trading Buy/TP: W281,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) awkd(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 7,974 12,575 13,807 15,195 Current Assets 1,059 1,092 1,210 1,334 Cost of Sales 5,788 9,158 10,055 11,066 Cash and Cash Equivalents 52 33 53 67 Gross Profit 2,186 3,417 3,752 4,129 AR & Other Receivables 273 289 318 350 SG&A Expenses 1,652 2,518 2,737 2,997 Inventories 606 641 704 775 Operating Profit (Adj) 534 899 1,015 1,132 Other Current Assets 65 65 66 67 Operating Profit 491 905 1,015 1,132 Non-Current Assets 10,051 11,363 12,275 13,186 Non-Operating Profit -40 -80 -85 -86 Investments in Associates 116 116 116 116 Net Financial Income 77 84 91 96 Property, Plant and Equipment 7,634 8,934 9,834 10,734 Net Gain from Inv in Associates 10 18 14 17 Intangible Assets 217 209 199 189 Pretax Profit 451 826 930 1,046 Total Assets 11,110 12,456 13,485 14,520 Income Tax 136 207 232 261 Current Liabilities 3,040 3,302 3,468 3,655 Profit from Continuing Operations 315 619 697 784 AP & Other Payables 1,062 1,648 1,810 1,992 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 1,221 368 368 368 Net Profit 315 619 697 784 Other Current Liabilities 758 1,285 1,290 1,294 Controlling Interests 306 597 677 762 Non-Current Liabilities 2,495 3,002 3,209 3,317 Non-Controlling Interests 9 22 20 23 Long-Term Financial Liabilities 1,775 843 843 843 Total Comprehensive Profit 95 829 697 784 Other Non-Current Liabilities 635 2,159 2,367 2,474 Controlling Interests 86 807 677 762 Total Liabilities 5,535 6,304 6,678 6,971 Non-Controlling Interests 9 22 20 23 Controlling Interests 5,486 6,062 6,718 7,459 EBITDA 750 1,214 1,328 1,452 Capital Stock 139 139 139 139 FCF (Free Cash Flow) 642 1,799 1,549 1,652 Capital Surplus 4,237 4,237 4,237 4,237 EBITDA Margin (%) 9.4 9.7 9.6 9.6 Retained Earnings 211 787 1,444 2,185 Operating Profit Margin (%) 6.2 7.2 7.4 7.5 Non-Controlling Interests 89 89 89 89 Net Profit Margin (%) 3.8 4.8 4.9 5.0 Stockholders' Equity 5,575 6,151 6,808 7,549
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 681 1,132 1,046 1,143 P/E (x) 25.4 11.5 10.1 9.0 Net Profit 451 662 698 785 P/CF (x) 14.9 7.5 6.9 6.3 Non-Cash Income and Expense 370 340 274 275 P/B (x) 1.4 1.1 1.0 0.9 Depreciation 211 298 304 310 EV/EBITDA (x) 14.4 5.7 5.2 4.7 Amortization 6 9 9 10 EPS (W) 10,972 21,410 24,297 27,326 Others -19 -56 0 0 CFPS (W) 18,730 32,688 35,536 38,800 Chg in Working Capital -131 217 74 83 BPS (W) 194,938 217,528 242,157 269,850 Chg in AR & Other Receivables -38 -16 -28 -32 DPS (W) 750 750 750 750 Chg in Inventories -48 -10 -1 -1 Payout ratio (%) 6.8 3.5 3.1 2.7 Chg in AP & Other Payables 37 -36 -63 -71 Dividend Yield (%) 0.3 0.3 0.3 0.3 Income Tax Paid -9 -88 0 0 Revenue Growth (%) - 57.7 9.8 10.1 Cash Flows from Inv Activities -677 -1,584 -1,205 -1,209 EBITDA Growth (%) - 61.7 9.4 9.3 Chg in PP&E -381 -800 -400 -400 Operating Profit Growth (%) - 84.5 12.1 11.6 Chg in Intangible Assets -5 0 0 0 EPS Growth (%) - 95.2 13.5 12.5 Chg in Financial Assets -104 -4 -6 -7 Accounts Receivable Turnover (x) 35.4 48.9 45.5 45.6 Others -188 -781 -799 -802 Inventory Turnover (x) 13.2 20.2 20.5 20.6 Cash Flows from Fin Activities 2 446 179 79 Accounts Payable Turnover (x) 9.5 10.1 8.0 8.0 Chg in Financial Liabilities 43 495 200 100 ROA (%) 2.8 5.3 5.4 5.6 Chg in Equity -3 0 0 0 ROE (%) 5.6 10.3 10.6 10.8 Dividends Paid 0 -21 0 0 ROIC (%) 10.1 9.2 10.7 12.4 Others -38 -29 0 0 Liability to Equity Ratio (%) 99.3 102.5 98.1 92.4 Increase (Decrease) in Cash 8 -18 20 13 Current Ratio (%) 34.9 33.1 34.9 36.5 Beginning Balance 44 52 33 53 Net Debt to Equity Ratio (%) 51.7 18.1 16.0 14.2 Ending Balance 52 33 53 67 Interest Coverage Ratio (x) 5.7 9.6 9.7 10.4 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 25 July 6, 2012 Retail
CJ O Shopping (035760 KQ)
Trading Buy (Maintain) Domestic business has become the center of focus now
Target Price (12M, W) 207,000 Stake disposal in Dong Bang CJ lowered the expectation for China business Share Price (07/05/12, W) 192,700 Expected Return (%) 7.4 Commissions paid to channel operators to increase further EPS Growth (12F, %) -8.9 Time of the IPO of CJ Hellovision remains uncertain Market EPS Growth (12F, %) 17.1 P/E (12F, x) 11.7 Market P/E (12F, x) 9.5 We maintain our Trading Buy rating on CJ O Shopping (CJOS) but lower our target KOSDAQ 497.34 price to W207,000 (from W214,000). We adjusted our target price by 3.3% Market Cap (Wbn) 1,195 because we lowered our 2012 and 2013 EPS estimates by 4.5% and 6.1%, Shares Outstanding (mn) 6 respectively, to reflect margin pressure from increasing SO commission. Using a Avg Trading Volume (60D, '000) 78 sum-of-the-parts methodology, we derived our target price by adding CJOSÊ Avg Trading Value (60D, Wbn) 15 operating value (W166,000/sh), which was calculated by applying a P/E multiple of Dividend Yield (12F, %) 1.0 Free Float (%) 56.9 10x to our 2012F EPS, to its equity-stakes value (W41,000/sh), which was 52-Week Low (W) 163,300 calculated by adding the estimated value of CJ HelloVision (Hyundai 52-Week High (W) 314,000 Communications & NetworkÊs value/subscriber figure; 30% holdings discount) to Beta (12M, Daily Rate of Return) 0.41 the value of Dongbang CJ (derived by applying a target P/E of 20x to our 2012F Price Return Volatility (12M Daily, %, SD) 2.4 equity-method gains; 50% discount rate). Foreign Ownership (%) 16.6 Major Shareholder(s) On a non-consolidated basis under K-IFRS, we forecast CJOS to post 2Q gross CJ Corp. et al. (40.12%) merchandise sales (GMS) of W710.5bn (up 16.1% YoY), net revenues of NPS (9.19%) W250.4bn (up 15.6% YoY), and an operating profit of W35.5bn (up 2.3% YoY). We Fidelity Funds et al. (7.59%) project CJOSÊ 2Q OP margins (based on GMS) to slide 0.7%p YoY to 5% due to Price Performance increasing commission payments to channel operators to secure premium channel (%) 1M 6M 12M and increase in internet division sales growth. Absolute 9.6 -26.4 -16.3 Relative 5.5 -27.0 -3.1 After selling off part of its stake in Dongbang CJ, CJOSÊ stake diminished to 16%. With the proceeds from the sell-off, CJOS plans to inest further in its wholly- owned China-based sourcing subsidiary, CJ IMC. Although we believe that the growth potential for CJOSÊ sourcing/merchandising business is promising, it may take some time for it to generate material earnings contributions.
In 2012, we expect CJOS to continue to face pressure from cost increases (i.e., promotion expenses and additional SO commission hikes). But we note that further risks related to SO commission increases should be somewhat mitigated, as equity-method gains from CJOSÊ stake in CJ HelloVision (a SO) should offset a portion of any commission increase.
Possibility and timing of CJ HelloVisionÊs IPO is uncertain in light of difficult market circumstances. In addition, the CATV industry face risks over intensifying competition among satellite TV, IPTV operators, and telecom companies.
Share price § Earnings & Valuation Metrics 160 KOSDAQ FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 140 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 120 12/10 711 122 17.2 76 7,789 138 140 18.6 29.7 5.9 11.6 100 12/11 895 132 14.8 88 14,258 144 83 28.9 18.1 4.9 12.6 80 12/12F 1,043 143 13.7 103 16,522 153 133 26.0 11.7 2.8 6.9 60 12/13F 1,164 153 13.1 117 18,928 165 136 23.7 10.2 2.2 7.0 40 12/14F 1,299 164 12.6 128 20,646 158 129 21.0 9.3 1.7 6.8 6/11 10/11 2/12 6/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
Daewoo Securities Research 26
July 6, 2012 Retail
Figure 47. GMS trend and forecasts by division Figure 48. OP margin trend and forecasts
(Wbn) (YoY, %) (Wbn) (%) 3,200 CATV (L) Internet (L) 30 200 Operating profit (L) 6.6 Catalog/Others (L) Growth Rate (R) OP margin (R)
2,400 20 150 6.0
1,600 10 100 5.4
800 0 50 4.8
0 -10 0 4.2 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Company data, KDB Daewoo Securities Research estimates
Figure 49. System operator commission to GMS trend and forecasts Figure 50. Product distribution ratio
(Wbn) (%) Electronics Apparel Accessories/Jewelry Home/Living Sports/Leisure Food Others 3,600 GMS (L) 7.2 100% SO comission to GMS (R)
2,800 6.4 80%
60% 2,000 5.6
40%
1,200 4.8 20%
400 4.0 0% 07 08 09 10 11 12F 13F 14F 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
Source: Company data, KDB Daewoo Securities Research estimates Source: Company data, KDB Daewoo Securities Research estimates
Figure 51. GMS trend of Dongbang CJ Home Shopping Figure 52. 12MF P/E band chart
(Wbn) (%) (Mkt cap, Wbn) 20x 1,000 GMS (L) 40 2,000 Dongfang CJ/CJOS (R) 16x
750 30 1,500 12x
500 20 1,000 8x
250 10 500 4x
0 0 0 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11 12
Source: KDB Daewoo Securities Research estimates Source: KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 27 July 6, 2012 Retail
CJ O Shopping (035760 KQ/Trading Buy/TP: W207,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 895 1,043 1,164 1,299 Current Assets 150 176 172 284 Cost of Sales 140 163 182 203 Cash and Cash Equivalents 28 33 14 108 Gross Profit 755 881 982 1,096 AR & Other Receivables 68 79 88 99 SG&A Expenses 624 738 830 933 Inventories 42 49 55 61 Operating Profit (Adj) 131 142 153 164 Other Current Assets 6 6 6 6 Operating Profit 132 143 153 164 Non-Current Assets 755 767 814 859 Non-Operating Profit -15 -6 4 7 Investments in Associates 56 548 598 648 Net Financial Income 11 6 -3 -6 Property, Plant and Equipment 119 82 81 79 Net Gain from Inv in Associates -1 -1 -1 -1 Intangible Assets 21 18 15 12 Pretax Profit 118 137 157 171 Total Assets 906 942 986 1,143 Income Tax 29 34 39 43 Current Liabilities 336 378 413 452 Profit from Continuing Operations 88 103 117 128 AP & Other Payables 83 298 332 371 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 34 34 34 34 Net Profit 88 103 117 128 Other Current Liabilities 218 46 47 47 Controlling Interests 88 103 117 128 Non-Current Liabilities 222 123 23 23 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 212 109 9 9 Total Comprehensive Profit 90 117 117 128 Other Non-Current Liabilities 6 13 13 13 Controlling Interests 90 117 117 128 Total Liabilities 558 501 436 475 Non-Controlling Interests 0 0 0 0 Controlling Interests 348 441 550 668 EBITDA 144 153 165 158 Capital Stock 31 31 31 31 FCF (Free Cash Flow) 83 133 136 129 Capital Surplus -73 -73 -73 -73 EBITDA Margin (%) 16.1 14.7 14.1 12.2 Retained Earnings 404 498 606 725 Operating Profit Margin (%) 14.8 13.7 13.1 12.6 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 9.9 9.8 10.1 9.9 Stockholders' Equity 348 441 550 668
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 103 144 153 167 P/E (x) 18.1 11.7 10.2 9.3 Net Profit 88 103 117 128 P/CF (x) 15.8 10.6 9.3 9.8 Non-Cash Income and Expense 60 15 16 17 P/B (x) 4.9 2.8 2.2 1.7 Depreciation 8 8 9 9 EV/EBITDA (x) 12.6 6.9 7.0 6.8 Amortization 5 3 3 4 EPS (W) 14,258 16,522 18,928 20,646 Others -6 -2 0 0 CFPS (W) 16,343 18,266 20,832 19,713 Chg in Working Capital -12 25 20 22 BPS (W) 52,646 70,004 89,447 110,655 Chg in AR & Other Receivables -19 -11 -9 -10 DPS (W) 2,000 2,000 2,000 2,000 Chg in Inventories -29 3 0 0 Payout ratio (%) 13.6 12.1 10.6 9.7 Chg in AP & Other Payables 27 -4 -6 -6 Dividend Yield (%) 0.8 1.0 1.0 1.0 Income Tax Paid -34 0 0 0 Revenue Growth (%) 25.8 16.6 11.6 11.6 Cash Flows from Inv Activities -115 -27 -63 -63 EBITDA Growth (%) 4.3 6.6 7.4 -4.0 Chg in PP&E -15 -10 -10 -10 Operating Profit Growth (%) 8.2 7.8 7.1 7.2 Chg in Intangible Assets -1 0 0 0 EPS Growth (%) 83.1 15.9 14.6 9.1 Chg in Financial Assets -60 -1 -1 -1 Accounts Receivable Turnover (x) 19.7 15.6 13.9 13.9 Others -39 -16 -52 -52 Inventory Turnover (x) 31.3 22.9 22.4 22.4 Cash Flows from Fin Activities -41 -112 -109 -9 Accounts Payable Turnover (x) 46.0 6.4 3.7 3.7 Chg in Financial Liabilities -20 -100 -100 0 ROA (%) 10.4 11.1 12.2 12.0 Chg in Equity 1 0 0 0 ROE (%) 28.9 26.0 23.7 21.0 Dividends Paid -7 -12 0 0 ROIC (%) -192.1 -186.8 -141.0 -129.0 Others -14 -3 0 0 Liability to Equity Ratio (%) 160.5 113.5 79.3 71.1 Increase (Decrease) in Cash -53 6 -20 94 Current Ratio (%) 44.8 46.4 41.6 62.8 Beginning Balance 81 28 33 14 Net Debt to Equity Ratio (%) 61.0 23.1 3.8 -11.2 Ending Balance 28 33 14 108 Interest Coverage Ratio (x) 9.6 13.0 28.8 66.3 Source: Company data, KDB Daewoo Securities Research estimates
July 6, 2012 Retail
GS Home Shoppping (028150 KQ)
Trading Buy (Maintain) OP margin contracted on higher commissions
Target Price (12M, W) 113,000 High vulnerability to commission increases to limit share price upside Share Price (07/05/12, W) 93,600 Expected Return (%) 20.7 OP margin contracted on higher commissions and higher growth of online EPS Growth (12F, %) -59.3 Looking for new growth opportunities with ample cash holdings Market EPS Growth (12F, %) 17.1 P/E (12F, x) 7.5 Market P/E (12F, x) 9.5 We maintain our Trading Buy rating on GS Home Shopping (GSHS) but lower our KOSDAQ 497.34 target price to W113,000 (from W123,000). We adjusted our target price by 8% Market Cap (Wbn) 614 because we lowered our 2012 and 2013 EPS estimates by 8.4% and 8.1%, Shares Outstanding (mn) 7 respectively, to reflect margin pressure from increasing in commissions (paid to Avg Trading Volume (60D, '000) 15 TV channel operators.) We derived our target price by applying a target P/E of 9x to Avg Trading Value (60D, Wbn) 2 our 2012F EPS. Dividend Yield (12F, %) 3.2 Free Float (%) 66.4 On a non-consolidated basis under K-IFRS, we forecast GSHS to post 2Q gross 52-Week Low (W) 88,600 merchandise sales (GMS) of W678.8bn (up 9.1% YoY), net revenues of W235.2bn 52-Week High (W) 156,000 (up 7.2% YoY), and an operating profit of W26.3bn (down 3.6% YoY). We project Beta (12M, Daily Rate of Return) 0.60 Price Return Volatility (12M Daily, %, SD) 2.5 GSHSÊ 2Q OP margins (based on GMS) to slide 0.5%p YoY to 3.9% due to Foreign Ownership (%) 30.1 increasing commission payments to channel operators to secure premium channel Major Shareholder(s) and increase in internet division sales growth. GSHS recorded negative OP growth GS (30%) for four consecutive quarters since 2Q11, which we believe will continue in 2Q12. Truston Asset Mngt. (9.18%) Matthews International Capital We believe that GSHSÊ profitability in 2012 will be affected by further increases in Management,LLC (7.35%) commissions to channel operators and higher online shopping mall growth (which Price Performance could dilute the companyÊs blended OP margin). GSHS is directly affected by an (%) 1M 6M 12M increase in commission payments due to the sale of its system operators (GS Absolute -1.4 -17.5 -34.6 Gangnam and GS Ulsan). Also, the online shopping mall division has been posting Relative -5.5 -18.2 -21.3 robust growth, which has boosted top-line growth, but has yet to generate significant profit contributions.
However, it should be noted that GSHS could potentially devise future expansion strategies in partnership with GS Retail. In our view, cash-rich GSHS (W588bn in cash holdings as of end-1Q12) and GS Retail (W859bn as of end-1Q12) could cooperate to devise new growth engines for the GS GroupÊs retail business. Currently, GS Retail is known to have submitted a LOI to acquire Woongjin Coway. We believe that the total amount for the 30% stake will be above W1tr, given premium to the closing market cap of W817.9bn on June 28th 2012. If GS Group acquires Woongjin, this can add new growth drivers from WoongjinÊs current rental business, as well as devise a new business using WoongjinÊs sales network.
Share price § Earnings & Valuation Metrics 120 KOSDAQ Revenu 110 FY OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 100 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 90 12/10 792 117 14.7 97 14,816 127 -97 24.6 7.4 1.7 5.4 80 12/11 906 106 11.7 192 29,322 116 -51 37.1 4.0 1.3 3.9 70 60 12/12F 1,001 105 10.5 82 12,543 109 96 12.9 7.5 1.0 2.6 50 12/13F 1,124 116 10.3 93 14,228 120 74 13.2 6.6 0.8 2.1 40 12/14F 1,263 128 10.2 107 16,235 132 82 13.5 5.8 0.7 1.6 6/11 10/11 2/12 6/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 29 July 6, 2012 Retail
Figure 53. GMS trend and forecasts by division Figure 54. OP margin trend and forecasts
(Wbn) (YoY, %) (Wbn) (%) 3,700 Catalog/Others (L) 30 160 Operating profit (L) 6 Internet (L) OP margin (R) CATV (L) 2,900 Growth Rate (R) 20 120 5
2,100 10 80 4
1,300 0 40 3
500 -10 0 2 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research estimates Note: Margins based on GMS Source: Company data, KDB Daewoo Securities Research estimates
Figure 55. System operator commission to GMS trend and forecasts Figure 56. Market size of B2C and C2C shopping mall
(Wbn) (%) (Wtr) 40 3,700 GMS (L) 8 C2C System operator commission growth (R) B2C
2,900 7 30
2,100 6 20
1,300 5 10
500 4 0 07 08 09 10 11 12F 13F 14F 03 04 05 06 07 08 09 10 1112F 12
Source: Company data, KDB Daewoo Securities Research estimates Source: Euromonitor, KDB Daewoo Securities Research estimates
Figure 57. 12MF P/E band chart Figure 58. 12MF P/B band chart
(Mkt cap, Wbn) (Mkt cap, Wbn) 2.0x 1,500 1,500 15.0x 1.7x 1,200 1,200 12.0x 1.4x
900 900 9.0x 1.1x
600 600 0.8x 6.0x
300 3.0x 300
0 0 02 03 04 05 06 07 08 09 10 11 12 02 03 04 05 06 07 08 09 10 11 12
Source: KDB Daewoo Securities Research estimates Source: KDB Daewoo Securities Research estimates
Daewoo Securities Research 30
July 6, 2012 Retail
GS Home Shoppping (028150 KQ/Trading Buy/TP: W113,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 906 1,001 1,124 1,263 Current Assets 707 736 820 918 Cost of Sales 160 152 188 229 Cash and Cash Equivalents 313 332 366 409 Gross Profit 746 849 937 1,035 AR & Other Receivables 345 381 428 481 SG&A Expenses 637 744 821 906 Inventories 42 16 19 21 Operating Profit (Adj) 110 105 116 128 Other Current Assets 7 7 7 7 Operating Profit 106 105 116 128 Non-Current Assets 261 320 344 369 Non-Operating Profit 156 5 8 12 Investments in Associates 6 65 65 65 Net Financial Income -20 -30 -28 -32 Property, Plant and Equipment 62 60 67 73 Net Gain from Inv in Associates 137 -18 -18 -18 Intangible Assets 22 22 22 21 Pretax Profit 262 110 125 141 Total Assets 967 1,056 1,163 1,286 Income Tax 70 28 31 34 Current Liabilities 351 376 408 444 Profit from Continuing Operations 192 82 93 107 AP & Other Payables 238 304 336 372 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit 192 82 93 107 Other Current Liabilities 112 71 72 73 Controlling Interests 192 82 93 107 Non-Current Liabilities 10 10 10 10 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 195 82 93 107 Other Non-Current Liabilities 7 10 10 10 Controlling Interests 195 82 93 107 Total Liabilities 360 385 418 454 Non-Controlling Interests 0 0 0 0 Controlling Interests 607 671 746 832 EBITDA 116 109 120 132 Capital Stock 33 33 33 33 FCF (Free Cash Flow) -51 96 74 82 Capital Surplus 80 80 80 80 EBITDA Margin (%) 12.9 10.9 10.7 10.5 Retained Earnings 512 575 650 737 Operating Profit Margin (%) 11.7 10.5 10.3 10.2 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 21.2 8.2 8.3 8.4 Stockholders' Equity 607 671 746 832
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 3 91 76 84 P/E (x) 4.0 7.5 6.6 5.8 Net Profit 192 82 94 106 P/CF (x) 3.8 7.2 6.3 5.6 Non-Cash Income and Expense -75 30 -1 -2 P/B (x) 1.3 1.0 0.8 0.7 Depreciation 5 3 4 4 EV/EBITDA (x) 3.9 2.6 2.1 1.6 Amortization 2 0 0 0 EPS (W) 29,322 12,543 14,228 16,235 Others -5 -67 5 0 CFPS (W) 30,380 13,080 14,802 16,847 Chg in Working Capital -81 14 -16 -19 BPS (W) 89,139 98,326 112,602 128,891 Chg in AR & Other Receivables -9 -36 -47 -53 DPS (W) 3,500 3,000 3,000 3,000 Chg in Inventories -17 25 -2 -2 Payout ratio (%) 11.6 23.9 21.1 18.5 Chg in AP & Other Payables 40 24 32 35 Dividend Yield (%) 3.0 3.2 3.2 3.2 Income Tax Paid -34 -54 -31 0 Revenue Growth (%) 14.4 10.5 12.3 12.4 Cash Flows from Inv Activities 287 -53 -22 -23 EBITDA Growth (%) -8.4 -6.5 10.3 10.3 Chg in PP&E -15 0 0 0 Operating Profit Growth (%) -9.0 -1.4 11.1 10.4 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 97.9 -57.2 13.4 14.1 Chg in Financial Assets -15 0 0 0 Accounts Receivable Turnover (x) 3.0 2.8 2.8 2.8 Others 317 -53 -22 -23 Inventory Turnover (x) 27.4 34.4 64.4 64.4 Cash Flows from Fin Activities -19 -19 -19 -19 Accounts Payable Turnover (x) 40.3 6.1 3.5 3.6 Chg in Financial Liabilities 0 0 0 0 ROA (%) 22.4 8.1 8.4 8.7 Chg in Equity 0 0 0 0 ROE (%) 37.1 12.9 13.2 13.5 Dividends Paid -19 -22 0 0 ROIC (%) 65.5 41.5 42.5 42.0 Others 0 0 0 0 Liability to Equity Ratio (%) 59.3 57.4 56.1 54.6 Increase (Decrease) in Cash 271 19 35 43 Current Ratio (%) 201.5 195.9 200.8 206.6 Beginning Balance 42 313 332 366 Net Debt to Equity Ratio (%) -51.5 -49.4 -49.1 -49.1 Ending Balance 313 332 366 409 Interest Coverage Ratio (x) 148.3 0.0 162.5 0.0 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 31 July 6, 2012 Retail
Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of CJ O Shopping as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with CJ O Shopping as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies.
Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -10% * Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystÊs estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
(W) Hyundai Department Store (W) GS Retail (W) Shinsegae (W) Hi-Mart
250,000 35,000 800,000 140,000 30,000 200,000 120,000 25,000 600,000 100,000 150,000 20,000 80,000 400,000 100,000 15,000 60,000 10,000 200,000 40,000 50,000 5,000 20,000 0 0 0 0 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12
(W) Hyundai Home Shopping (W) Emart (W) CJ O Shopping (W) GS Home Shoppping 250,000 400,000 400,000 200,000
200,000 300,000 300,000 150,000 150,000 200,000 200,000 100,000 100,000 100,000 100,000 50,000 50,000
0 0 0 0 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12 7/10 1/11 7/11 12/11 6/12
Analyst Certification The research analysts who prepared this report (the „Analysts‰) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. („Daewoo‰), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or
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redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the „Order‰), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as „Relevant Persons‰). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
KDB Daewoo Securities International Network
Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 Suite 301 Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022
Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 7th Floor, Yusen Building Suite 2602, Twin Towers (East) 25 Old Broad Street 2-3-2 Marunouchi, Chiyoda-ku B-12 Jianguomenwai Avenue London EC2N 1HQ Tokyo 100-0005 Chaoyang District, Beijing 100022 United Kingdom Japan China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699
Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28th Floor, Hang Seng Bank Tower Centec Tower 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-6000
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