Lotte Shopping share in 52-week high on expectations for holding firm transform

2017.06.14 15:36:40 | 2017.06.14 15:37:05

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Lotte Mart

Lotte Shopping’s stock price is flying high on growing expectations for Lotte Group’s push to establish a holding company and a turnaround in key subsidiary Lotte Mart.

On Wednesday, its stock price briefly hit a fresh, intraday 52-week high of 322,000 won ($286.5) and ended 1.9 percent up at 319,000 won.

Lotte Shopping and three other Lotte Group firms -- Lotte Confectionery, Lotte Food and Lotte Chilsung Beverage -- separately held a board meeting in April to okay the group’s idea to set up a holding company by dividing each organization into business and investment entities and combining the investment entities into one under Lotte Confectionery.

Once set up, the new holding company would control an estimated 18.7 percent of Lotte Shopping, according to brokerage analysts on Tuesday. But under the fair trade act in South Korea, a holding company is required to own more than 20 percent of its subsidiary, which means the Lotte holding company must obtain an additional 2.3 percent stake or more in Lotte Shopping.

But due to a shortage in cash, Lotte Group will likely opt for an equity swap between holding and subsidiary companies to increase the holding firm’ stake holding in the units, market analysts expected. Such hopes of owning shares of the future holding firm that have more upside momentum have fanned appetite for Lotte Shopping stocks, sending its shares to fresh 52-week highs.

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Lotte Shopping’s recent decision to demerge its lucrative cinema operating business as a wholly owned subsidiary has also fed the bull run in its stock. The division to be named Lotte Cinema occupies one third of the domestic film market and if it goes public, it is expected to boost Lotte Shopping’s valuation, market experts forecast.

Investors are also betting on an improvement in the company’s earnings. Lotte Shopping’s operating profit in the first quarter ended March dropped 0.4 percent from a year ago to 207.4 billion won despite a 0.4 percent gain in sales to 7.49 trillion won. But from the second quarter, the earnings will rebound, driven by renewed stores and expanded private brands that would appeal to more consumers, according to market analysts.

Its unit Lotte Mart renovated more than 40 percent of its stores across the country last year alone. It also aims to up sales from PB products to 40 percent in the future from the current 26 percent. The retail chain was in the red in the second quarter last year, losing 30 billion won, but it is expected to swing to profits in the same period this year, analysts said.

By Moon Il-ho

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