Hotel Shilla Robust hotel, stabilizing TR; Upgrade to Neutral

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Hotel Shilla

Robust hotel, stabilizing TR; Upgrade to

Neutral

Rating Change: NEUTRAL | PO: 51,000 KRW | Price: 43,500 KRW

Upgrade to Neutral from Underperform

03 August 2026

We upgrade Hotel Shilla to Neutral rating with W51k PO on 1) more stable profitability

outlook, post the TR business restructuring given the company's continued focus on

profitability. Hence we expect OPM could remain more stable at a mid-single-digit level

(vs previously expected LSD OPM). 2) The hotel business could post better earnings on

robust inbound tourism trends amid tighter hotel industry. 3) Its balance sheet could

rapidly deleverage (77% net debt/equity as of 1Q26) on healthier cash flow. That said,

despite a stable profitability, top line growth at travel retail (80% of revenue) could

remain muted on softer demand, hence our Neutral rating.

Equity

W51k PO based on 13x FY27E P/E

We raise our FY26E-28E EPS estimates by 30/33/9% reflecting better profits from TR

and hotel businesses. Accordingly, we raise our target price to W51,000, based on 13x

fwd P/E (weighted average of travel retail and hotel peers) vs previous 16x (Shilla’s

historical average). We project TR OP contribution to be ~70% and its peers trade at 14x

FY27E. Its hotel peer GS P&L trades at 11x FY27E. We view the weighted average of TR

and hotel peers multiple makes more sense given the changing TR industry dynamics vs

history, and the healthier momentum of the hotel business.

Stabilization post TR business rebalancing

2Q result was good evidence that its earnings visibility has improved post its TR

business rebalancing to reduce low-margin wholesale business and loss-making Incheon

operation. 2Q26 revenue fell YoY due to the reduced Incheon Airport concession. OP

exceeded our estimate, driven by a meaningful improvement in TR profitability as it

withdrew from the loss-making Incheon Airport concession. While inbound tourism

remains supportive, TR business growth is likely to remain muted given 1) the changes

in travelers’ preference for local brands, and the shift toward department stores and

beauty specialty retailers, and 2) reliance on the reseller business still remains high. 2Q

…