Korea's travel agency stocks overvalued, analysts say

The stock prices of South Korea’s two leading travel agencies, HanaTour Service Inc. and Modetour Network Inc., have skyrocketed in 2021 with respective year-to-date growth rates of 59.6% and 49.5%.

The share prices still look stable today. HanaTour’s stock price was down by 0.86% from the previous day and closed at 91,800 won ($82.41) a share on Jun. 3, while Modetour’s was up by 0.16% to 30,950 won ($27.78) a share.

HanaTour and Modetour, along with America’s Trip.com, are the only three companies in the world whose stock prices are above the pre-pandemic level.  

But the country’s travel and leisure industry analysts are saying that their shares may have been overvalued.

While the steady growth of Korea’s vaccination rate, now over 12% of the population, has fueled interest in the travel stocks, the market watchers warn that the agencies are likely to make a laggard recovery in sales.

Meritz Securities Co. has slashed the target price of HanaTour stock to 70,000 won ($62.84), which is 23.8% lower than the current price. The securities firm’s target price of Modetour stock is also 30,000 won ($26.93), about 3% lower than the current price.

Meritz highlights that group tours, the main revenue source of the agencies, are on the decline. Data shows that Korean people have started to prefer individual tours even prior to the pandemic.

The group tour portion had accounted for 43.9% of total travelers to overseas countries in 2017, while the figure went down rapidly to 29.5% in the first quarter of 2019.   

“The travel agencies are likely to post disappointing results even after the pandemic, as the portion of group tours within the whole travel industry is declining,” said a Meritz analyst Lee Hyo-jin.

The trend has made a direct impact on the financial statements of the two agencies.

The market leader HanaTour’s operating profit was 41.1 billion won ($36.9 million) in 2017, but went down to only 5.9 billion ($5.3 million) in 2019. Its stock price, which was as high as 128,000 won ($114.90) in early 2018, slumped to 51,100 won ($45.87) by the end of 2019.

The runner-up Modetour’s figures are not too different. The company’s operating profit went down from 32.1 billion won ($28.9 million) in 2017 to 3.2 billion won ($2.9 million) in 2019. It posted a net loss last year.

Meritz says that it is better to invest in casino or airline stocks than in travel agencies.

“Paradise Co. recorded an EBITDA profit in the first quarter of this year despite the ongoing pandemic. With the global vaccination rate on the rise, the company’s hotel business will recover to the pre-pandemic level,” added the Meritz analyst.

Write to Sung-mi Shim at smshim@hankyung.com
Daniel Cho edited this article.