S.Korea's brokerages lower stock target prices for Shinsegae Int'l

South Korea's securities companies on Thursday lowered their target stock prices for retailer Shinsegae International given its sluggish first-quarter results.

The company on the previous day announced tentative operating profit for the first quarter of 10.3 billion won ($7.8 million) on a consolidated basis, down 69% from the same period last year. Sales declined 11.4% to 312.2 billion won and net profit plummeted 66.7% to 8.9 billion won.

Shinhan Securities lowered its target stock price for Shinsegae from 36,000 won to 23,000 won and downgraded its investment opinion from "buy" to "trading buy." A short buy means an estimated return of between minus 10% and 10% over the next six months.

A host of other brokerages also maintained their opinions at "buy" while lowering their target prices for Shinsegae: Kiwoom Securities (28,000 won to 25,000 won), Meritz Securities (30,000 won to 27,000 won), KB Securities (28,000 won to 26,000 won), NH Investment & Securities (26,000 won to 24,000 won), eBest Investment & Securities Co. (30,000 won to 27,000 won) and Samsung Securities Co. (29,000 won to 23,000 won).

"The company had one-time expenses of 5 billion won for first-quarter performance compensation and incentives, but excluding this, operating profit fell 54% year on year," Shinhan Securities analyst Park Hyun-jin said in a report on Shinsegae International. 

"Its sluggish performance was due to a 34% drop in overseas brand sales year on year given the exclusion of famous foreign labels like Celine," he added. "Plummeting sales of overseas brands, which contribute high margins, caused the operating profits of such brands to shrink 25%, while the operating profits of domestic brands and cosmetics were in the low single digits."

"On the whole, domestic fashion brands in April and May maintained the atmosphere of March, apparently showing limited year-on-year growth," he said. "Shinsegae International will also face limits in going against the market."

"A sales decline is inevitable in the second quarter due to the flight of brands," Samsung Securities analyst Choi Ji-ho said. "As a result, this year's forecast is for sales to dip 8% to 354 billion won and operating profit to fall 51% to 19 billion won."

Write to Jong-Kwan Park at pjk@hankyung.com