Hundreds of millions of won in performance bonuses paid by semiconductor companies are lifting both the share prices and earnings of department store operators. Analysts in the brokerage industry are calling department store stocks a key beneficiary of the chip super-cycle.
According to industry sources on Tuesday, the high-value performance bonuses paid by semiconductor companies are translating into spending at nearby department stores.
On the 21st of this month, Samsung Electronics (005930.KS) labor and management reached an agreement to pay employees in the memory business unit performance bonuses averaging around 600 million won per person. Employees at SK hynix (000660.KS), which had already linked bonuses to 10% of operating profit, are expected to receive bonuses averaging about 700 million won. Earlier this year, SK hynix paid its employees performance bonuses of approximately 150 million won based on an annual salary of 100 million won.
The impact of these large bonuses is being detected in sales at nearby department stores. Sales at Lotte Department Store's Dongtan branch, located near the Samsung Electronics and SK hynix sites, jumped 25% from January 1 to 20 compared with the same period a year earlier, while first-quarter sales at Shinsegae Department Store's South City branch grew 21% year-on-year.
"In every year that Samsung Electronics has paid out large performance bonuses in the past, department store stocks have shown a clear tendency to rise in tandem," said Lee Jae-won, an analyst at Yuanta Securities Korea. "The semiconductor earnings cycle is functioning as both an earnings momentum driver and a valuation re-rating logic for department store stocks."
The same trend is detected in department store share prices. On the 22nd, Shinsegae (004170.KS) closed down 7.44% on the Korea Exchange, but is up 40.05% over the past month. Over the same period, Lotte Shopping (023530.KS) and Hyundai Department Store (069960.KS) surged 37.66% and 19.83%, respectively.
'Wealth Effect' Pushes Luxury Share to 40%, with Bargain-Hunting Opportunity Cited
There is also a view that this is not solely a story about semiconductor employees. With the recent strength in the stock market boosting consumers' financial assets, shoppers are opening their wallets more broadly, according to one analysis.
"It is worth noting that the share of luxury goods is rising to nearly 40% of total domestic department store sales," Suh Jung-yeon, an analyst at Shinyoung Securities, said in a recent report. "Behind the rise in fashion consumption centered on luxury goods and the resulting department store boom are growth in domestic households' financial assets and inbound foreign visitors."
She added, "Because financial assets are easier and faster to liquidate than real estate, they tend to have a direct impact on consumption, and unrealized gains and losses are also quantified in real time, maximizing the psychological wealth effect. This effect drives high-priced consumption such as fashion and luxury, and in fact, the products selling like hotcakes at department stores recently are luxury jewelry and watches."
Some in the brokerage industry see a bargain-hunting opportunity in department store stocks. This month, Korea Investment & Securities set target prices of 700,000 won, 200,000 won and 140,000 won for Shinsegae, Lotte Shopping and Hyundai Department Store, respectively. Based on the closing prices on the 22nd, that implies upside of 30.8%, 22.4% and 27.3%, respectively.
