[Click e-Stock] "A Disappointing Stock, but One With Promise in Duty-Free"

Kyobo Securities lowered its target price for Hotel Shilla from 64,000 won to 59,000 won. It maintained its Buy rating.

On October 13, Jang Minji, a researcher at Kyobo Securities, said, "The duty-free business is expected to see its profitability weaken in the third quarter of this year, as rising exchange rates increase cost pressures. However, if exchange rate volatility eases in the fourth quarter, the cost burden is expected to decline. Growth in the hotel business is expected to continue, driven by rising average daily rates (ADR), supporting consolidated results."

Hotel Shilla is expected to post consolidated revenue of 938.4 billion won in the third quarter of this year, down 8.5% from a year earlier, and operating profit of 51.2 billion won, up 347.6% over the same period. Operating profit is expected to fall short of the market consensus of 59.8 billion won.

Third-quarter revenue from the duty-free business is estimated at 739.4 billion won, with operating profit of 25 billion won. Jang said, "At downtown stores, revenue is expected to edge down from the previous quarter as demand falls during the off-season for daigou shoppers. At airport stores, revenue is expected to decline as the full impact of the suspension of operations in Incheon International Airport's DF1 zone is reflected. In terms of profitability, rising exchange rates appear to be increasing cost pressures. The growing share of individual tourists, whose average spending per customer is relatively low, is also likely to raise rental costs as a proportion of revenue. However, discount rates appear to be under control at stable levels."

Revenue from the hotel and leisure business is expected to reach 199 billion won in the third quarter of this year, with operating profit of 26.2 billion won. Jang said, "Following the second quarter of this year, ADR is expected to continue rising by more than 10% across all business locations, making a stable contribution to consolidated results."

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