Korea Discovery Forum
Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch View HSBC Global Research at: https://www.research.hsbc.com MiFIDII–ResearchIsyouraccessagreed?CONTACT us today HSBC’s eighth annual Korea Discovery Forum takes place on 15 and 16 June in HK and SG, respectively 20 companies are attending, represented by senior management This report includes profiles of most companies presenting We bring together leading business minds to help you find new opportunities. The Forum provides a platform for executives and senior management to communicate their business strategies and industry outlook to institutional investors. We look forward to your participation. 9 June 2017 Brian Cho* Head of Research, Korea The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch briancho@kr.hsbc.com +822 3706 8750 *Employed by a non-US affiliate of HSBC Securities (USA) Inc. and not registered/ qualified pursuant to FINRA regulations Korea Discovery Forum EQUITIES KOREA 15-16 June 2017 EQUITIES ● KOREA 9 June 2017 2 Stocks under coverage 3 BGF Retail (027410 KS) 4 Duksan Neolux (213420 KS) 6 Cuckoo Electronics (192400 KS) 8 Daelim Industrial Co (000210 KS) 10 DGB FGL (139130 KS) 12 Hyundai Department Store (069960 KS) 14 SK Materials (036490 KS) 16 Wonik IPS (240810 KS) 18 Stocks not under coverage 21 CJ Korea Express (000120 KS) 22 CJ Freshway (051500 KS) 23 Hyvision System (126700 KS) 24 i-Sens (099190 KS) 25 Innocean (214320 KS) 26 JS Corporation (194370 KS) 27 Jusung Engineering (036930 KS) 28 Kolon Corp (002020 KS) 29 Nutri Biotech (222040 KS) 30 Tera Semicon (123100 KS) 31 Viatron (141000 KS) 32 Disclosure appendix 36 Disclaimer 39 Contents 3 EQUITIES ● KOREA 9 June 2017 Stocks under coverage EQUITIES ● KOREA 9 June 2017 4 BGF Retail (027410 KS) Business description BGF Retail was established in 1994 and opened its first convenience store in 1990. The company began establishing a nationwide store network by opening its store in Jeju Island in 2001. In 2012, the company changed its brand identity to ‘CU’ (short for ‘CVS for YOU’) from ‘Family Mart’ and listed the company on the Korea stock market in 2014. Key points BGF Retail continues to post satisfactory earnings, thanks to strong fresh food and private brand sales. In particular, fresh food category sales were up 22% y-o-y in 1Q17 achieving 7% of the total revenue (vs. 5% of sales based in 2015) and its private brand sales contribution (excluding tobacco) recorded 25% of the sales, up 3ppt y-o-y. We also note there are more than 60,000 mom-and-pop stores that are engaged in selling food and beverages, which are likely to be converted to franchise stores in the future. As a market leader, the company is on track to capture industry growth, coming from demographic changes, including an increase in single person households, in our view. Valuation and risks We have a Buy rating on BGF Retail with a target price of KRW160,000 based on SOTP valuation. We use 16.5x 2017e EV/EBITDA target multiple for core operations – a 30% premium to the average target multiple for staples under our coverage. We think this is fair despite low margins, given the company’s growth outlook. Our target price implies 20% upside to current share price. We expect 1,500 net store openings to result in 12,259 stores by end-2017e and expect 2% same-store-sales growth. Downside risks to our view include (1) M&A activity with limited synergies, (2) weaker-than-anticipated same-store-sales, (3) inability to execute its new store opening plans and 4) fiercer-than-anticipated competition. BUY TARGET PRICE (KRW) 160,000.00 MARKET DATA SHARE PRICE (KRW) UPSIDE/DOWNSIDE Market cap (KRWb) 6,615 Free float 60% 133500.00 +19.9% Market cap (USDm) 5,911 BBG 027410 KS 3m ADTV (USDm) 11 RIC 027410.KS (as of 5 June 2017 ) FINANCIALS AND RATIOS (KRW) 52-WEEK PRICE (KRW) Year to 12/2016a 12/2017e 12/2018e 12/2019e HSBC EPS 3526.53 4624.29 5370.72 6084.22 Consensus EPS 3548.26 4559.39 5340.69 6186.60 PE (x) 37.9 28.9 24.9 21.9 Dividend yield (%) 0.6 0.7 0.9 1.0 EV/EBITDA (x) 17.1 13.1 11.4 10.3 ROE (%) 21.6 22.6 22.0 21.1 Source: HSBC estimates, Thomson Reuters Datastream, Bloomberg Source: HSBC estimates, ThomsonReuters IBES Karen Choi* Head of Consumer and Retail Research, Asia Pacific The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch karen.choi@kr.hsbc.com +822 3706 8781 *Employed by a non-US affiliate of HSBC Securities (USA) Inc. and not registered/ qualified pursuant to FINRA regulations 69 000.0 012 4500 .0018 0000 .0006 /1612 /1606 /17Targ et price: 16 0000 .00High : 139 500 .00 L ow: 7950 0.00 Curre nt: 1 3350 0.00 5 EQUITIES ● KOREA 9 June 201
