IBK Securities assessed on August 31 that Hotel Shilla is likely to see an increase in corporate value due to the rise in inbound tourists and improved profitability of its duty-free shops. The firm maintained a 'Buy' rating and a target price of 81,000 won.
Nam Seong-hyun, a researcher at IBK Securities, stated, "We believe that the potential for an increase in Hotel Shilla's corporate value is high," citing three reasons: the growth in inbound tourism, stabilization of duty-free shop performance, and reduced valuation.
In July, the number of foreign visitors to South Korea reached approximately 2.093 million, a 20.8% increase compared to the same period last year. Among them, Chinese tourists numbered 777,000, marking a 29.0% rise and driving growth. The proportion of Chinese visitors has also increased to about 37%. Following the expansion of routes to China in the first half of the year, there is potential for further increases in demand from Chinese tourists through next year.
The improvement in duty-free shop profitability was also viewed positively. Hotel Shilla has alleviated rental burdens following the exit from DF1 and has secured stable fundamentals by continuing a profitability-focused strategy. Nam noted that while the expansion of the duty-free business may be limited, it has the capacity to generate profits exceeding 100 billion won annually.
Despite the improvement in performance, the stock price has seen limited growth, leading to increased valuation attractiveness. The operating profit forecast for this year has risen from 146.6 billion won at the beginning of the year to 197.6 billion won, an increase of over 30%. Next year's operating profit is expected to reach 261.9 billion won, a 32.5% increase from this year.
Nam concluded, "The hotel division has entered a structural growth cycle, and the previously underperforming duty-free shops are improving, so we consider the current stock price to be undervalued."
* This article has been translated by AI.
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