Shilla Duty Free delivered yet another quarter of growth in the three months to September, with revenue reaching KRW 700bn ($648m) – a new quarterly record – up by +14.5% and driven principally by the downtown business (see table below and click to enlarge).

 

According to data from KDB Daewoo Securities, Shilla DF generated an operating profit of KRW 56.2bn ($52m), up by +41.3% year-on-year (yoy).

 

In a note to investors the securities market analyst said: “As we expected, downtown duty-free shop revenue outpaced overall inbound traffic growth (+19% yoy), despite a high base of comparison, expanding +24% yoy in dollar terms thanks to an increased contribution from Chinese shoppers.

 

The Chinese influence has helped Shilla’s downtown business shine in the past two years. In the first quarter of 2012 revenue from downtown was marginally below that of airports at KRW 206bn and KRW 214bn respectively. However by the end of 2012 the downtown business had edged ahead marginally [KRW 242bn vs KRW 234bn] and by the third quarter of this year the gap was almost KRW200bn [KRW 447bn vs 253bn].

 

Quarterly airport revenue this year has been growing yoy in single digits [+2.3%, +6.6% and +9.9%] whereas the downtown business has rocketed by high double digits [+32.7%, +42.0% and +17.3%] – a scenario that KDB Daewoo expects to stay the same in the current final quarter of the year.

 

The analyst forecasts Shilla Duty Free sales in this quarter to reach KRW 610bn, with downtown growth of +25.3% and airport growth of +8.7%.

 

AIRPORT SLUMP

Shilla’s airport revenue has come out of a 2013 hiatus when the final three quarters of the year showed negative or zero growth. KDB Daewoo says: “Incheon International Airport (IIA) duty-free revenue fell into a long slump in 2013 due to the plunge in Japanese travellers and sluggish domestic consumption. However, after six sluggish quarters, growth resumed in 2Q14 driven by Chinese travellers. This has helped the company gradually realise long-anticipated operating leverage effects from the IIA rent freeze.”

 

Shilla’s airport business is also set to get a big boost in the coming quarter with the start of its beauty operations at Changi earlier this month.