Multiline Retail
Spring is in the air
We believe macroeconomic indicators are turning supportive for retailers. A weak
export outlook and job instability are still risks, but we believe the downside is
limited. We prefer the department store plays Hyundai Department and Lotte
Shopping.
Key recommendations & forecasts
Reuters Year end Recom Price Target
price
EPS
1fcst
PE
1fcst
Hyundai Dept St¹ 069960.KS Dec 2009 Buy W74600.00 W10000.00% 7,553% 9.88&
Lotte Shopping¹ 023530.KS Dec 2009 Buy% W215000.00 W250000.00% 19,616% 11.00&
Shinsegae¹ 004170.KS Dec 2009 Hold W463000.00 W470000.00% 28,564% 16.20&
Priced at close of business 22 Apr 2009.
1. Normalised EPS - Post-goodwill amortisation and pre-exceptional items
Source: Company data, ABN AMRO forecasts
Declining interest burden and increasing asset prices should limit the downside
We turn positive on the retail shares because we believe the contraction in the economy is
stabilising and consumer sentiment is improving. A sustainable recovery in exports and
employment may wait until next year (based on our projections), but we believe various taxcut
benefits, lower household lending rates, a recovery in apartment transactions and an
upturn in asset prices (both property and stocks) can prevent a sharp drop in household
spending. Based on our estimates, a 100bp fall in loan rates translates into a W5trn savings
(or 1% of total household spending in 2008), while a 1% recovery in property value would
result in households seeing about W25trn of valuation gains (or 5% of total household
spending in 2008).
Turning positive at the margin – drop in comparable sales should be less severe
We believe high-income households will lead in spending given their greater property
holdings and higher potential wealth effect. The key beneficiaries should be department
stores, whose sales growth was supported by strong sales of luxury brands and cosmetics in
1Q09. We raise our earnings forecasts for all three retailers as we turn positive on the
department stores’ outlook, though we keep our revised assumptions relatively conservative
(a 3% drop in existing store sales for department stores and a 4% drop for discount stores)
should the job market deteriorate further. We raise our 2009F earnings for Lotte and HDS by
38% and 23%, respectively, and for Shinsegae by only 9%.
We prefer the department store plays
We reiterate our Buy recommendation on HDS with a new target price of W100,000, while
upgrading Lotte Shopping to Buy (target price of W250,000) as a result of better-thanexpected
department store performance and its relatively attractive valuation. We maintain
our Hold recommendation on Shinsegae (new target of W470,000) due to its larger exposure
to the low-to middle-income households that are likely to be more affected by instability in the
job market. We think Shinsegae’s valuations remain at risk of further negative news flow
regarding unemployment, and its strong management quality appears to be discounted.
Contents
Spring is in the air 3
We believe the macro environment is turning supportive for retailers thanks to fiscal
stimulus and falling interest rates. Export weakness and job market instability are
still risks, but we believe the downside is limited. We prefer the department store
plays.
3
Bottoming out? 3
Turning cautiously optimistic 7
We prefer department store plays 11
Company profiles 18
Hyundai Dept Store 19
Lotte Shopping 25
Shinsegae Co 31