Retail:Impact from real-estate rules to be short-lived

New real-estate regulations to weigh on consumption? The government on Jun19 unveiled measures to curb speculation in overheated areas of the real-estate market.

    Price hikes in that market have lost some steam since the announcement, negative in thatconsumption is influenced by changes in asset prices.

    That said, the government is targeting bringing the housing market under control, notputting a chill on consumption. Moreover, the measures are also aimed at keepinghousehold debt in check and from going bad—a possibility if overheating is notaddressed—which, of course, would be highly negative to consumption in the long run.

    Retail shares to bounce back: Following a steady rally since early this year, retailshares are pulling back due to the new real-estate measures. Yet, we expect shares tobounce back, believing: 1) the new regulations will not affect consumption much; 2) retailshares are still undervalued, with a sector staying around 10.2x P/E; and 3) earnings willkeep enjoying solid momentum into 2018. The correction should be a modest one andretail shares should return to an uptrend from late this month or early next month onprospects of solid performances in 2Q.

    Among large players, we like Lotte Shopping for likely benefits from its transformationinto a holding company and Shinsegae for prospects of growth at its duty-free businessand a recovery of earnings. Among small caps, Lotte Himart has the most appeal for itsrobustly growing online sales, normalizing handset sales, and remarkable homeelectronicssales. Among home shopping players, we recommend CJ O Shopping basedon the firm’s improving earnings and stake in CJ HelloVision, noting the subsidiary issharply undervalued.