[Edaily Reporter Shin Ha-yeon] On the 9th, Shinhan Investment Securities assessed that #Lotte Shopping has expanding room for earnings improvement amid continued strong performance in its department store business. The firm maintained its “Buy” rating and target price of 200,000 won.

Cho Sang-hoon, an analyst at Shinhan Investment Securities, stated, “In addition to rising labor income, rising asset prices, and a surge in foreign sales, the department store sector continues to show exceptional strength due to the renovation of key stores and efforts to expand overseas operations,” adding, “We maintain our view that it is the top pick in the sector.”

He explained, “Customer data spanning department stores, supermarkets, and e-commerce, along with offline assets, are key differentiators,” adding, “If the RMN (advertising) and AI commerce strategies materialize, a revaluation of the company’s value is possible.”

In the department store sector, the expansion of inbound sales was identified as the strongest investment point. According to Shinhan Investment Securities, inbound sales at Lotte Department Store’s main branch in the first quarter of this year increased by 92% year-over-year, accounting for 23% of total sales.

Analyst Cho noted, “The strongest investment point for department stores is inbound tourism,” and analyzed, “In terms of attracting foreign customers, the company’s differentiators compared to competitors include exclusive membership cards for foreigners, extensive advertising and promotional activities, and merchandise differentiation leveraging K-content.”

He continued, “The current 7% share of foreign sales is expected to reach over 10% in the second half of the year,” and assessed, “Considering that the average stock price of Japanese department stores rose by 94% between June 2023 and July 2024, there is ample upside potential for the stock price and valuation.”

He also predicted that profitability in the e-commerce sector would continue to improve. Analyst Cho explained, “As e-commerce shifts to a vertical model, it is reducing operating losses through improved gross profit margins and cost efficiency,” adding, “It is accelerating its role as a marketing platform by leveraging exclusive IP and experiential consumption.”

He further predicted, “Starting in the third quarter, the RMN business will take shape, strengthening customer lock-in.”

In the grocery sector, analysts note that the spillover benefits from Homeplus store closures are now fully materializing. Homeplus decided to close nine stores last year and 13 this year, and has also decided to close the 37 stores that were scheduled to suspend operations by this coming July.

Analyst Cho emphasized, “The grocery sector is also seeing the full impact of the spillover benefits from Homeplus,” adding, “Benefiting from the normalization of competitive intensity, same-store sales growth at discount stores exceeded 5% in April and May.”

He judged that valuation concerns are limited. Analyst Cho noted, “Although the 12-month forward price-to-earnings ratio has risen to 12 times due to the recent stock price increase, this can be explained by higher sales growth rates and strengthened shareholder return policies,” adding, “Unlike in the past, the core business is stable, and the reliability of book value has also increased through asset revaluation.”