Target Price Lowered, But "Buy Now. 70% Upside Remains" [Weekend Money]

Korea Investment & Securities Lowers Hotel Shilla Target Price to 85,000 Won
Highlights Strong Q2 Results and Favorable Outlook for Second Half

Korea Investment & Securities has lowered its target price for Hotel Shilla by 15% compared to the previous estimate but advised that the recent share price correction should be seen as a buying opportunity. This is based on the view that the company's second-quarter results are expected to be better than the first quarter, and that industry conditions in the second half of the year will likely be more favorable than market expectations.

According to Korea Investment & Securities on July 4, the target price for Hotel Shilla was revised downward from 100,000 won to 85,000 won as of the previous day. However, the investment opinion remains 'Buy.' Given that the current share price is around 50,000 won, the firm sees nearly 70% upside potential remaining.

Kim Myoungjoo, an analyst at Korea Investment & Securities, commented, "Despite posting solid results in the first quarter, Hotel Shilla's share price declined." He analyzed, "Unfavorable supply-demand dynamics and characteristics shown in Hotel Shilla’s earnings over the past five years have increased investors’ appetite for profit-taking." Since COVID-19, Hotel Shilla’s earnings have been highly volatile, driven by Daigou demand dependent on the Chinese economy and commission rates within the duty-free industry.

However, Korea Investment & Securities assessed that Hotel Shilla’s earnings stability has significantly improved compared to the past. The duty-free and hotel industry environments were also evaluated as favorable. The company estimates that Hotel Shilla’s operating profit in the second quarter will exceed market expectations by 12.5%.

Analyst Kim explained, "Second-quarter revenue in the duty-free industry is expected to rise slightly from the first quarter, and Daigou commissions are likely to remain at similar levels. Since it is impossible for hotel supply to increase rapidly in Korea, and inbound travel trends in the second quarter were extremely favorable, the increase in Hotel Shilla’s average daily rate (ADR) for rooms in the second quarter is likely to be larger than in the first quarter."

Furthermore, inbound tourism in the second half is expected to exceed market expectations. Analyst Kim added, "In the second half, some tourists who would have traveled to Japan are likely to visit Korea instead. As a result, the inbound flow of tourists should be better than the market expects." He noted that the emergence of overtourism issues and strengthened regulations in Japan could serve as a positive for Korea’s tourism industry.

He said, "Following the share price correction after the first-quarter results announcement, Hotel Shilla’s valuation appeal has increased. Considering the better second-quarter results compared to the first quarter and the favorable industry environment, we recommend taking advantage of the share price correction as a buying opportunity."

This content was produced with the assistance of AI translation services.