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
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Buy on both HHS and CJOS
2017 year-to-date: The home shopping names have had a good run so this year
(GSHS, HHS and CJOS shares up 23%, 6.7%, 19.4%, respectively, year-to-date vs.
KOSPI up 22.9% vs. KOSDAQ up 6%) mainly attributable to superior earnings
growth compared with other retail formats (refer to figure 5 for details). Although our
preference within the retail sector remains convenience store namesfor their
structural growth opportunities coming from demographic changeswe believe now
is good time to revisit the sector given the positive earnings growth outlook in 2018.
With the shares trading at the low-end of their trading band (10x 2018e PE vs. 5-year
historical trading average of 10-17x), we believe there is room for the shares to move
higher. We expect satisfactory 3Q17 earnings to be the next upcoming catalysts (due
early November).
2018 outlook: We forecast home shopping companies to post sales growth of 7-8%
in 2018 (previously 5-6%) mainly led by mobile and T-commerce. We expect home
shopping operators to maintain their focus on profits (vs. growth) and as such,
companies will try to come up with differentiated products and concentrate on cross-
channel sales and profitability in the mobile channel. The fact that HHS has
maintained relatively high margin while achieving a fast growth rate in mobile channel
stands out. We estimate home shopping operators to report satisfactory earnings in
3Q17 (refer to figure 1) with fewer promotions and no one-off costs.
Valuation and risks: We upgrade GSHS to Buy (from Hold) and raise our TP to
KRW270k (from KRW230k); reiterate Buy on HHS and CJOS with TP of KRW170k
(from KRW160k) and KRW270k (from KRW260k) respectively. Our SOTP valuation
methodologies are unchanged; we roll over our valuation to 2018e, and revise 2018e
EPS forecasts by 0.4-14% for the three names to reflect stronger-than-anticipated TV
channel growth (see page 5 for details of our valuations). Key industry downside
risks include 1) weaker-than-anticipated TV channel growth, 2) aggressive
competition, 3) higher-than-anticipated system operator fee increase and
4) regulatory risks.
Current_________ TP _________ ____ Rating _____Upside/ Market cap 3m ADTV
Company Ticker Currency price OldNewOld New downside(USDm)(USDm)
CJ O Shopping 03576
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