High tide is here, time to sail

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The author is an analyst of NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com — Ed.

Global Tax Free is the domestic leader in the domestic refund agency market. It improved its P/L structure during the Covid-19 crisis by slimming workforce. An earnings turnaround is expected this year in line with a rapid recovery of foreign tourist numbers, a key factor for the firm’s earnings.

Number-one tax refund agency in Korea

Global Tax Free is Korea’s leading domestic tax refund agency, with a market share of around 60%. We note that when refunding value-added tax (10%) of foreign tourists’ domestic consumption, a certain portion of the refund (approximately 30% of the value-added tax, approximately 3% of value of supply) is received as commission and recognized as sales. The agency’s partnering stores include Shinsegae (main store and Gangnam store), Lotte Department Store (main store and Jamsil store), Hyundai Department Store (main store and The Hyundai), and Olive Young, all of which are major shopping spots for foreigners.

P/L structure improvement + expected return of Chinese tourists

On a quarterly basis, Global Tax Free’s earnings started to turn around in 4Q22, helped both by a strengthening in foreign tourist traffic and an improved P/L structure. Since 4Q22, the number of inbound travelers and the firm’s average monthly commission sales have increased, led by non-Chinese tourists. In addition, the company has improved its P/L structure by slimming down its workforce during the Covid-19 crisis (end-2019: 184 employees → end-2022: 91 employees). Significant earnings growth is expected this year as the agency’s earnings are correlated with the number of inbound foreign tourists and the accompanying amount of their consumption. Compared to 2019, the average number of monthly arrivals in 2022 was only 3.8% for Chinese travelers and 25.8% for non-Chinese travelers, providing ample room for additional earnings growth.

On Mar 29, the government announced new policy measures for promoting tourism to Korea. Moving ahead, foreign tourist numbers are expected to be revitalized via both improvements to the visa system (expansion of K-ETA accessibility, allowance of visa-free transit) and the expansion of major flight routes (China route: 63 times a week in Feb 2023 → 954 times a week in Sep 2023), among other changes. In particular, the recovery of Chinese tourists is anticipated as short-term visa issuance for Chinese resumed and as PCR test obligations have been removed (since February). Also, number of flight routes of China is to expand from end-March.

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