Brokerages have successively raised their price targets for Korean department store stocks, including Shinsegae (004170.KS), Lotte Shopping (023530.KS), and Hyundai Department Store (069960.KS). They reasoned that a sustained rally in the domestic stock market is boosting incomes, and that the resulting rise in consumption could translate into earnings growth for department stores.
According to the Korea Exchange, Shinsegae shares closed Monday at 685,000 won, up 9.78% from the previous trading session. Beyond Shinsegae, Lotte Shopping (+7.48%) and Hyundai Department Store (+2.46%) also posted gains. Given that the KOSPI fell more than 4% the previous day, the stocks are seen as having delivered outstanding performance relative to the market.
Kiwoom Securities raised its price target for Shinsegae to 850,000 won from 630,000 won in a report the previous day. It lifted Lotte Shopping to 230,000 won from 200,000 won, and Hyundai Department Store to 220,000 won from 147,000 won.
"The wealth effect from the strong domestic stock market and the boost from rising foreign sales have appeared stronger than expected, so department store revenue is likely to exceed previous expectations," said Park Sang-joon, an analyst at Kiwoom Securities.
The brokerage raised its annual operating profit forecast for Shinsegae this year to 816.9 billion won, a 70% increase from a year earlier, and for Lotte Shopping to 814.6 billion won, up 49%. It projected Hyundai Department Store's operating profit at 431.3 billion won, a 14% increase from a year earlier.
"In the medium term, the current strength in department store sales is expected to continue," Park said. "The trend of rising stock indices is being sustained on the strong earnings of major Korean companies, and based on this year's strong results, the effects of incentive payments and wage increases at major companies could be significant early next year."
"We raised our earnings per share (EPS) estimate from our previous forecast to reflect department store division results that were better than the market expected," said Kim Myung-joo, an analyst at Korea Investment & Securities.
"Driven by factors such as the wealth effect, the department store industry is entering structural growth, with not only metropolitan-area department stores but also regional ones showing solid revenue trends," Kim said.
