[Click e-Stock] Department Stores "Bustling" Despite Stock Market Woes... "Shinsegae Is Top Pick in Sector"

Semiconductor Bonuses and More Foreign Tourists
Department Store Gross Sales Expected to Rise 6.1% Next Year
Airport Duty-Free Stores Expected to Return to Profit

Shinhan Securities maintained its "Buy" rating and named Shinsegae its top pick in the retail sector on November 9, saying, "Despite the recent correction in asset markets, department store performance is holding up better than feared."

However, it lowered its target price by 19% to KRW 460,000, citing limited room for improvement in return on equity (ROE).

Will Semiconductor Bonuses Translate Into Department Store Spending?

According to Cho Sang-hoon, an analyst at Shinhan Securities, Shinsegae's department store division revenue rose 10.4% year over year in the third quarter of 2026. Consolidated revenue increased 3.8% to KRW 1.6979 trillion, while operating profit rose 70.8% to KRW 170.4 billion, in line with the market consensus estimate of KRW 170.8 billion.

In the first half of 2026, department store companies boosted earnings on rising asset prices and increased sales to foreign customers. However, their share prices fell after July as stock market volatility increased and the won strengthened, raising concerns that foreign tourists' purchasing power could weaken.

Cho said semiconductor industry bonus payments in 2027 could increase the spending power of high-income earners. He also expects renovations at major department stores and an increase in foreign tourists to support sales. He estimated department store gross sales would grow 6.1% next year.

He forecast improved profitability at both downtown and airport duty-free stores. At downtown stores, easing competition is expected to reduce the burden of discounts, while airport stores are expected to return to profit. Accordingly, Shinsegae's consolidated revenue is forecast to rise 3.8% year over year to KRW 7.5652 trillion in 2027, with operating profit increasing 10.9% to KRW 870.7 billion.

Stock Trades at 5 Times Expected Earnings...Shareholder Returns and Express Bus Terminal Redevelopment in Focus

Cho said concerns about slower department store growth had pushed Shinsegae's 12-month forward price-to-earnings ratio (PER) down to around 5.

However, he expects ROE, estimated at 9.1% in 2026, to reach only 9.2% in 2027. In setting his target price, he applied a valuation multiple to the department store business that was 20% below the global peer average.

"Improving ROE requires both strengthening the fundamentals of the core business and actively returning capital to shareholders," Cho said. "The redevelopment of the Seoul Express Bus Terminal site could also highlight the value of the company's assets and serve as a catalyst for a re-rating of the stock."

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