The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.

We raise our TP on Shinsegae from W310,000 to W330,000. Although high-base effects are to be in play, the firm is still set to deliver the strongest earnings momentum in the sector in 3Q22. Earnings to reach new heights We raise our TP on Shinsegae from W310,000 to W330,000. Despite concerns over slowing consumption, sales growth at the company’s department store has not been dampened. Accordingly, we raise our 2022 and 2023 EPS projections by 11.4% and 8.9%, respectively. Although department store players in general should enjoy earnings expansion in 3Q22, we believe that Shinsegae’s performance will stand out. Having rebounded slightly from their bottom point in response to rising earnings expectations, Shinsegae’s shares are still trading at an attractive 2022E P/E of just 5.9x, near the low end of the company’s historical valuation band. 3Q22 preview: No need for peak-out fears We now expect Shinsegae to post consolidated 3Q22 net sales of W1.9tn (+14% y-y) and consensus-beating OP of W200.7bn (+96% y-y). However, NP (excl minority interest) growth will likely look somewhat lackluster due to the booking of large one-off gains (W146.6bn in gains related to bargain purchase of Gwangju Shinsegae) last year. For the department store division, we see 3Q22 sales of W1.21tn (+18% y-y) and OP of W90.1bn (+64% y-y). Having exceeded 20% over July~August, SSSG at existing stores should continue to show double-digit growth in September, even when accounting for a likely y-y drop in food sales due to a difference in the timing of the Chuseok holidays. That is, robust overall (y-y) sales growth should sustain, not falling behind the pace seen in 2Q22. Profitability indicators are also set to improve, with growth being led by the high-margin fashion categories. The DFS division should display 3Q22 net sales of W815bn, staying stable q-q. Although sales were slow in July, business conditions for Shinsegae’s DFSs look to have recovered somewhat over August~September. Although unfavorable forex market conditions and high commission fees both present negatives, we believe that the division can easily maintain quarterly OP of W20bn in 3Q22 as the previous cost burden of lofty Incheon International Airport rental fees has now eased.