On Thursday, UBS issued a downgrade for E-Mart, a leading South Korean retailer, shifting its stock rating from Neutral to Sell. The firm also revised its price target for E-Mart shares from KRW78,000 to KRW65,000, signaling a more cautious stance towards the company's financial prospects.
The downgrade follows a recent surge in E-Mart's share price, which saw a 13% increase over the past month. The rise was attributed to investor optimism regarding a possible change in the company's shareholder return policy, spurred by the South Korean government's "Corporate Value-Up Program."
UBS analyst cited concerns that E-Mart does not have sufficient cash reserves and is unlikely to sell its properties to fund improvements in shareholder returns. This assessment casts doubt on the market's expectations for the retailer's financial strategies.
Additionally, UBS has identified potential risks to the consensus estimates for E-Mart's 2024 performance. The retailer's management has indicated a focus on the integration and restructuring of its offline platforms, which could lead to additional costs. Furthermore, the company's e-commerce, convenience store, and construction businesses may continue to incur losses amid ongoing business and macroeconomic uncertainties.
As a result of these factors, UBS has reduced its operating profit estimates for E-Mart for the years 2024 and 2025 by 68% and 32%, respectively. These revised projections are significantly lower than the market consensus, by 59% for 2024 and 24% for 2025, suggesting a more challenging financial outlook for the retailer than previously anticipated.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.