The author is an analyst of Shinhan Investment Corp. She can be reached at [email protected]. — Ed.


Shinsegae International, after enjoying solid growth alongside domestic apparel peers in 1H22, is expected to see notable growth in 2H22 as well thanks to strengths in luxury goods and cosmetics. Driven mainly by sales at department stores, the luxury goods category saw double-digit top-line growth continue in March and April. Growth in sales from imported brands should remain around 30% YoY in 2Q22, helping Shinsegae International maintain stronger earnings momentum than sector peers. With sales growth driving operating leverage, margin contribution of imported brands is expected to continue upwards for another quarter in 2Q22. Growth in sales through the company’s proprietary online shopping mall S.I.VILLAGE is remaining high at 25-30% YoY, and the increase in online sales of high-end brands is helping to fuel the uptrend in apparel business margins.

Expectations rising for cosmetics on lifting of lockdowns in China

Adding to growth in earnings from the apparel business, the cosmetics division is also projected to enjoy a recovery in sales led by the luxury cosmetics brand Swiss Perfection. We expect to see double-digit sales growth from imported cosmetics continue in 2022 as in 2021, with Swiss Perfection likely to account for an increasingly larger portion of cosmetics sales and profit going forward. The luxury cosmetics brand is set to open more stores in Korea in addition to the current five located in Shinsegae department stores, with further expansion into Europe projected in 2H22. Marketing efforts targeting Chinese consumers are expected to increase with the lifting of lockdown measures, but margin gains from the apparel business should more than offset the impact of larger marketing spend for cosmetics on company-wide margins. In addition, the company is expected to strengthen its golf apparel and other sportswear line-up going forward.

Favored among apparel peers; revise up target price to KRW45,000

Amid growing concerns that apparel markets at home and abroad are nearing a peak, Shinsegae International stands out on expectations for earnings growth led by luxury goods and driven further by cosmetics. With the outlook for cosmetics turning increasingly brighter on the lifting of lockdown measures in China, we upward adjust our earnings forecasts for imported brands and cosmetics. Our target price is revised up to KRW45,000 (2023F target PER unchanged at 12x) as a result. Expecting the company to enjoy stronger momentum vs. apparel sector peers, we retain our BUY rating on Shinsegae International.


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