[Edaily Reporter Kim Kyung-eun ] On the 5th, KIWOOM Securities lowered its target price for HYUNDAIDEPARTMENTSTORECO.,LTD(069960)by 13.3% from 150,000 won to 130,000 won, citing that the deterioration of the wealth effect due to the recent decline in the domestic stock market could constrain improvements in consumer sentiment. However, the firm maintained its “Buy” rating, noting that expectations for a consumption recovery driven by a large-scale income effect in the first quarter of next year remain valid.

Park Sang-jun, an analyst at KIWOOM Securities, stated in a report released today, “Reflecting concerns over a deterioration in the wealth effect due to the recent decline in the domestic stock market, we have further expanded the target price-to-earnings ratio (PER) discount rate by an additional 10 percentage points compared to the previous level.”

The wealth effect refers to the phenomenon where fluctuations in the value of held assets, such as stocks or real estate, influence consumption. Analysts suggest that the recent sharp decline in the domestic stock market, which has reduced investors’ asset values, could have a negative impact on department store spending.

KIWOOM Securities lowered its forecast for HYUNDAIDEPARTMENTSTORECO.,LTD’s fourth-quarter same-store sales growth this year by 3 percentage points, from 7% to 4%. In fact, same-store sales growth in the third quarter already slowed compared to the second quarter due to the deterioration of the wealth effect.

The slowdown in the growth of foreign spending due to the strengthening won is also a concern. HYUNDAIDEPARTMENTSTORECO.,LTD’s sales growth from foreign customers fell from 60% in August to 30% in September and 20% in October. This is interpreted as a result of the rising value of the won weakening the price competitiveness of domestic shopping for foreign tourists.

Third-quarter earnings exceeded market expectations. HYUNDAIDEPARTMENTSTORECO.,LTD’s consolidated operating profit for the third quarter was 94.6 billion won, a 30.1% increase year-over-year. This figure exceeded the market forecast of 85.3 billion won by 10.9%. This was driven by a stronger-than-expected recovery in sales and a reduction in operating losses at its subsidiary, ZINUS.

Operating profit in the department store segment increased by 24.8 billion won year-over-year. Excluding the effect of reduced depreciation expenses, the increase in operating profit attributable to sales growth at existing stores was estimated at approximately 18.8 billion won. On the other hand, net profit fell short of market expectations as ZINUS recorded foreign exchange valuation losses of approximately 25 billion won due to the strengthening of the Korean won.

KIWOOM Securities continued to place significant weight on the possibility of a consumption recovery in the first quarter of next year. The firm believes that if a large-scale income effect is concentrated in a specific period, department store sales growth could rebound.

Analyst Park stated, “While the recent deterioration in the wealth effect may dampen improvements in domestic consumer sentiment, expectations for a large-scale income effect in the first quarter of next year remain,” adding, “Since the income effect could be concentrated in a specific period, the medium-term growth outlook for department stores could rebound.”