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M&As

Investors revalue E-Mart after owning two-thirds of Starbucks Korea

The market is closely watching Starbucks Korea’s possible IPO as E-Mart turns into an e-commerce player

By Jul 29, 2021 (Gmt+09:00)

E-Mart is Korea's largest retailer
E-Mart is Korea's largest retailer

Shares of E-Mart Inc., South Korea’s largest retailer, are rallying after the company bought an extra stake in Starbucks Korea to control two-thirds of the coffee chain amid expectations its series of recent acquisitions will enhance its valuations.

The stock listed on the main Kospi market has risen for a fourth straight session to trade at a near four-month high of 172,000 won earlier Thursday.

E-Mart gained momentum following its announcement on July 27 that the supermarket chain under retail giant Shinsegae Group bought an additional 17.5% stake in the US coffee chain’s Korean branch for 473.3 billion won ($411 million), becoming Starbucks Korea’s largest shareholder with a 67.5% stake.

Singapore’s sovereign growth fund GIC Private Ltd. bought the remaining 32.5% of Starbucks Korea from Seattle-based Starbucks Corp.

Analysts said E-Mart’s control of profitable Starbucks Korea will significantly boost its sales and profitability.

E-Mart’s 2021 revenue and operating profit are forecast to rise 10% and 50%, respectively, as a result of the Starbucks Korea stake purchase, according to KB Securities.

Starbucks Korea
Starbucks Korea

The market consensus estimate of E-Mart’s operating profit plus that of Starbucks Korea is 634.7 billion won, up 168% from last year’s operating profit of 237.2 billion won for E-Mart alone.

“With the expected rise in its profit and earnings per share, investors will revalue E-Mart as a growth stock,” said HI Investment & Securities analyst Im Su-yeon.

Starbucks Korea, established in 1997 as a 50-50 joint venture between E-Mart and Starbucks Corp., opened its first branch in 1999 and has expanded to 1,503 branches as of December last year.

The extra stake purchase comes as Koreans' taste for coffee continues to grow at a brisk pace. In 2020, the country’s coffee imports surged to a record 176,648 tons, up 28% from the previous year.

Starbucks currently holds the highest coffee franchise market share in Korea.

STARBUCKS KOREA’S IPO UNDER MARKET WATCH

Shinsegae has been one of the most active players in Korea’s M&A market this year.

Its 2021 acquisitions include a baseball club from SK Group for 100 billion won and an online fashion platform for 265 billion won and an 80% stake in eBay Korea for 3.4 trillion won.

The market’s focus now is on whether Shinsegae will pursue an initial public offering of Starbucks Korea, although the retail giant has said nothing has been decided on an IPO yet.

“Starbucks Korea’s IPO is a possibility that could give Singapore’s GIC an opportunity to exit from its investment,” said Yuanta Securities analyst Lee Jin-hyeob.

Shinsegae's SSG.COM eyes synergy with the acquisition of W Concept, Korea's leading online fashion platform
Shinsegae's SSG.COM eyes synergy with the acquisition of W Concept, Korea's leading online fashion platform

HI Investment’s Im said E-Mart will need to raise further capital for investment as it strives to transform into an e-commerce player.

“A steady stream of revenue from Starbucks Korea will likely be used as a source for E-Mart’s investment,” she said.

Write to Hyung-gyo Seo at seogyo@hankyung.com

In-Soo Nam edited this article.

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