Hana Securities noted on the 10th that the improvement in results for Hotel Shilla could be greater than expected. It maintained its investment recommendation of 'Buy' and raised the target price from 45,000 won to 60,000 won. Hotel Shilla's closing price on the previous trading day was 50,300 won.

View of the Seoul Shilla Hotel. (Courtesy of Hotel Shilla)

Seo Hyun-jung, a researcher at Hana Securities, explained, "It may be difficult to maintain a high long-term growth potential in the duty-free industry, so the upper limit of the valuation may be limited, but now is the time to focus on the strong profit improvement momentum on a quarterly basis."

The researcher predicted, "Hotel Shilla's consolidated operating profit, which recorded a deficit of 5 billion won last year, is expected to turn profitable with over 60 billion won this year," and added, "With the reduction of inefficient bulk purchases and the easing of competitive intensity, the margin rate for the city store is expected to maintain at around 4 to 5%."

Additionally, he said, "Although a continuous deficit is expected for domestic and international airports annually, the situation for overseas airports is optimistic as negotiations for rent reductions have been completed for the second and third quarters, leading to an expected reduction in quarterly deficits," adding that "Incheon Airport has even filed for mediation in court, indicating there is room for improvement."

Inbound tourism (foreign tourists visiting Korea) and the recovery of the Chinese economy are also cited as positive factors. The researcher analyzed, "Although the proportion has somewhat decreased, the share of Chinese tourists in duty-free sales is still close to 70%," further noting, "The hotel business, which accounts for 15% of consolidated revenue, is also expected to have solid performance due to the increase in tourists."

Previously, Hotel Shilla recorded an operating loss of 2.5 billion won in the first quarter, significantly exceeding expectations. Hana Securities forecasts that Hotel Shilla's consolidated operating profit for the second quarter will turn profitable compared to the previous quarter, and from the third quarter onward, the base effect from the previous year will further improve profits significantly.