[Edaily Reporter kyoungeun kim ] Hana Securities announced on the 14th that it is downgrading its investment rating for E-MART Co., Ltd.(139480)—which posted a loss in the second quarter due to the unexpected impact of Shinsegae Co.,Ltd.’s loan loss provisions—from “Buy” to “Neutral” and lowering its target price from 110,000 won to 82,000 won. The firm’s analysis indicates that uncertainty surrounding the subsidiary’s performance is offsetting the improvement in the company’s core business.

Park Jong-dae, an analyst at Hana Securities, stated in a report released that day, “Although consolidated revenue for the second quarter increased by 2% year-over-year, the company posted an operating loss of 43 billion won, resulting in a shift to a loss,” adding “Growth at existing hypermarket locations rose to 3.8% year-over-year, contributing 7 billion won in additional profit, while Traders and Everyday also showed solid performance improvements as their growth rates both increased compared to the first quarter,” he added.
Regarding the target price downgrade, he explained, “We are lowering the target price due to downward revisions to earnings estimates and valuation,” adding, “The price of 82,000 won corresponds to a 12-month price-to-earnings ratio (PER) of 27 times and reflects the standalone operating value of E-MART Co., Ltd. as well as the value of its unlisted subsidiaries.”
Shinsegae Co.,Ltd posted an unexpected operating loss. As unsold inventory was sold off at lower-than-expected prices, the company set aside a large amount of provisions for bad debts, resulting in an operating loss of 39.7 billion won.
The hypermarket segment continues to perform well. The same-store sales growth rate in July rose significantly to 8.6% year-over-year, and is expected to increase further in August. The impact of Homeplus’s suspension of operations is taking full effect, and it is expected to result in the transfer of over 400 billion won in annual sales. Trader’s and Everyday also posted strong growth in July (same-store sales up 8.5% and 12.5%, respectively, year-over-year). However, SSG.com’s operating loss is widening again, and equity method losses related to Gmarket exceed 40 billion won every quarter.
Analyst Park noted, “The normalization of SCK Company is taking longer than expected, and it seems earnings recovery will not occur until next year following a marketing overhaul,” adding, “Above all, the provision for bad debts related to unsold apartments and commercial spaces at Shinsegae Co.,Ltd is a one-time expense that is difficult to predict.”
He continued, “While Starbucks has high visibility for a performance recovery thanks to its strong brand power, and the losses from SSG.com and Gmarket can be sufficiently offset by the parent company’s earnings, the uncertainty surrounding Shinsegae Co.,Ltd.’s performance is a valuation discount factor that lowers the visibility of E-MART Co., Ltd.’s overall earnings.” He added, “A conservative approach is advisable for the time being until concerns regarding Shinsegae Co.,Ltd. are alleviated.”