Emart stock rating cut to sell by UBS, price target raised

On Wednesday, UBS analysts downgraded E-Mart (139480:KS) stock from Neutral to Sell, despite raising the price target to KRW78,800.00 from the previous KRW73,500.00. The downgrade follows the first quarter results of 2025, which have led analysts to anticipate a 19% to 24% downside to the consensus operating profit (OP) for 2025 and 2026.

The decision to downgrade comes after E-Mart’s stock price experienced a significant increase of 33.8% year-to-date (YTD). This surge was attributed to the company’s optimistic guidance for 2025 after Chairman YJ Chung solidified his succession with an additional 10% share acquisition and following news of a key competitor, Homeplus, entering corporate rehabilitation.

Despite these factors, UBS analysts have concerns about E-Mart’s future performance. They noted that same-store-sales growth (SSSG) for the hypermarket segment in the first quarter of 2025 was weak at -0.6% year-over-year, which contrasts with the company’s own guidance of +2.9% for 2025. Additionally, E-Mart’s gross profit margin (GPM) improved by only 0.2 percentage points year-over-year in the first quarter, which was below market expectations. This marginal improvement was a result of the company’s decision to use savings from integrated raw material sourcing to offer lower prices.

Management also expressed uncertainty about the outlook for Shinsegae (KS:004170) E&C in 2025 due to a weak construction market sentiment. Furthermore, the recovery of earnings in other divisions has been slower than expected. Although E-Mart reported solid operating profit in the first quarter of 2025, UBS estimates that sales growth from 2025 to 2028 will only be between 1.4% and 2.6% year-over-year, pointing to a lack of organic earnings growth catalysts.

UBS analysts concluded that they would need to observe signs of a recovery in consumption sentiment or sustainable earnings growth for the years 2025 and 2026 before reconsidering a more positive stance on the retailer.

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