汇丰银行-韩国国内消费-korea consumer：our thoughts on minimum wage increase-20170718-hsbc

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1、18July2017KoreaConsumerEQUITIESCONSUMEROurthoughtsonminimumwageincreaseKorea2018minimumwagesettoincreaseby16.4%toKRW7,530KarenChoi*HeadofConsumerandRetailResearch,Asia-PacificWethinkthisismorenegativeforSMEsthanlargeretailersTheHongkongandShanghaiBankingCorporationLimited,S

2、eoulSecuritiesBranchkaren.choi@kr.hsbc.comKeyBuysremainGS:TPKRW77kandBGFRetail:TP+82237068781KRW150konstructuralgrowthopportunities*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsWhat’snew?AccordingtotheMinimumWageCommitt

3、ee,the2018minimumwagehasbeensetatKRW7,530(upKRW1,060,equivalenttoa16.4%y-o-yincrease)on15July.GivenPresidentMoonpledgedaminimumwagetargetofKRW10,000by2020,thisseemsin-linewithhiscommitment.Thepurposeofthisistoincreasedisposableincomeandhenceimprovedomesticconsumption.Accordingtot

4、heBankofKorea,14.6%oftotalemployeesworkbelowtheminimumwage(2016)and70%ofthemworkunderSMEswithlessthan10workers(mainlyinrestaurantsandsmallretailers).Assuch,webelieveSMEswillfacemoreofaburdenthanlargeretailers.Continuetolikeconveniencestorenames:On17July,BGFRetailandGSRetailshares

5、fell3-6%afterthenewsontheminimumwagehike.However,wedonotexpectthistonecessarilycauseadditionalexpenseforfranchiseesandbelievetherecentpullbackprovidesagoodbuyingopportunity.Assumingafranchiseehiresoneparttimeemployeefor16hoursperday,thiswouldincuranadditionalKRW509kmonthlylabourc

6、ost.However,ifweassumethefranchiseeworksanadditionalthreehoursperdayandreducesemployeehoursbythesameamount,thiswouldmorethanoffsettheincreaseinlabourcostincrease(seefig4onpage3fordetails).Separately,theearningsimpactonE-MartwillbelessthanKRW20bn(2.9%of2018eoperatingprofit)givenmo

7、stparttimeemployeeshavealreadybeenconvertedtofulltimein2013.Inaddition,webelievereallocationofresourceswillresultinnoaggressivenewhires(flatnumber-of-employeegrowthduring2013-2016).Valuationandrisks:Therearenochangestoourvaluationmethodology;wemaintainourtargetpriceofKRW77,000for

8、GSRetailandKRW150,000forBGFRetail.Keydow