The author is an analyst of NH Investment & Securities. She can be reached at — Ed.

We believe that Shinsegae Int’s S3Q22 earnings will come in significantly above market expectations, spurred by both strong sales growth for high-margin imported brands and increased OP contributions from TOMBOY and household goods. This brisk earnings momentum is primed to sustain going forward.

Imported brand effects standing out

We maintain a Buy rating and a TP of W42,000 on Shinsegae International (Shinsegae Int).

In 3Q22, Shinsegae Int introduced Korea to a new contemporary brand, ENFOLD, bringing up its total number of imported brands to about 50. We expect the firm’s fashion and cosmetics divisions to account for 59% and 77%, respectively, of its overall 1H22 sales. As most of the licensing rights holders for its import brands are concentrated in Europe and North America, the retailer protects its cost burden from dollar appreciation through keeping a minimum 3-month gap between its time of purchase and its time of selling. Shinsegae Int’s shares (Sep 28 share price: W26,750) are currently trading at a 12M FWD P/E of 7x, the low end of its historical valuation band. Assuming that the imported brand preference trend continues, our expectations for 2H22 earnings should grow rosier.

3Q22 preview: Sustainable margins improvement underway

We expect Shinsegae Int to display consolidated 3Q22 sales of W390.1bn (+11% y-y) and OP of W31bn (+119% y-y), with OP markedly topping consensus.

For the fashion division (non-consolidated basis), we see 3Q22 sales of W198.4bn (+13% y-y) and OP of W19.7bn (+69% y-y). We estimate that sales of overseas and domestic brands upped 20% y-y and 2% y-y, respectively, positively viewing the ongoing stable and robust top-line expansion for the firm’s overseas fashion offerings. Domestic fashion brands VoV and G-CUT are both to show mid-single digit sales growth (y-y) for the quarter. However, domestic brands OP has likely been sapped q-q by decreased sales volume to DAIZ. TOMBOY sales should prove around W22.2bn (+9% y-y), with accompanying OPM of 9%. Moving ahead, we believe that overall margins for TOMBOY will continue to strengthen thanks to both the cleanup of COMODO stores and brand efficiency efforts made in 1H21.

Turning to the cosmetics (non-consolidated basis) arm, we estimate 3Q22 sales of W96.7bn (+14% y-y) and OP of W8.2bn (+14% y-y). Overseas brand sales growth (y-y) is sized at 17%. Considering the response to actual demand, we estimate the quarterly sales of VIDIVICI to be around W20bn, remaining stable q-q. We believe that Swiss Perfection has accumulated sales of around W10bn as of near end-3Q22 (YTD), situating it well to achieve full-year sales of about W20bn thanks to the diversification of its B2C client base (including the opening of shops in global department stores in 2H22). Household goods (JAJU) sales should reach W70.5bn (+5% y-y), hitting BEP.




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