South Korea’s SK Networks Co. is expected to see a 45 percent on-year gain in its operating profit next year thanks to its diversified business portfolio with much focus on the burgeoning rental market.

Broad recovery across most sectors is expected to offset losses from its exit from the duty-free market, which had been the company’s core revenue source until it was denied of renewal in its business license to run tax-exemption outlets last year.

Samsung Securities Co. projected in a recent report that the company’s failure to obtain duty-free business license would continue to dent the company’s income statement this year with operating loss from the refurbishment of its duty-free shops reaching 121 billion won ($107 million) last year and 128.5 billion won this year.

Excepting its now-defunct duty-free business, the company is expected to see solid performance across its diverse businesses. In particular, its rental business including car rental and home appliance rental services has been showing brisk performance thanks to the consumers’ increasing preference to rent out instead of making purchase.

The company has reinforced its rental business following the failure to win approval for the duty-free business. Operating profit at car rental business is projected to rise to 42.2 billion won this year from 36.8 billion won last year, contributing to a 9 percent gain in the firm’s overall operating profit to 160.8 billion won this year from 147.7 billion won in 2016. Next year, the company’s total operating profit is expected to surge 45 percent to 233.1 billion won, according to market analysts.

Its appliance rental business is also expected to post a gain in operating profit from estimated 29.5 billion won this year to 39.0 billion won next year. The company runs an appliance rental business through SK Magic Co., former Tongyang Magic that the company acquired last year to foster rental business. And the business outlook is bright. According to KT Economic Research Institute, the Korean appliance rental market is projected to exceed 10 trillion won by 2020 from 5.5 trillion won last year.

According to a survey of market analysts, the operating profit of its handset retailing business is also forecast to recover to 93.3 billion won next year from this year’s 91.1 billion won estimate, which is a slightly lower than 91.6 billion won last year.

The brisk sales of newly-released smartphones such as Samsung Electronics’ Galaxy Note 8 have boosted the business that recorded 28.8 billion won in net profit on sales of 2.28 trillion won in the first half of this year. Market experts, however, cited the planned introduction of a new policy that separates handset sales in retail stores and phone activation in stores of mobile carriers as a possible negative factor that could discourage investors from snapping up its stocks.

The firm’s trading business has also been picking up with its operating profit expected to reach 55.5 billion won this year, up 20.9 percent from 45.9 billion won last year. According to Samsung Securities, the brisk steel exports to Iran have boosted the business and its earnings would significantly improve from the latter half of this year as restructuring costs were almost reflected to the income statement by the second quarter.

In addition, its financial soundness has been improving as the short-term loan significantly shrank from 1 trillion won at the end of last year to 351.4 billion won as of end-June this year. An official from SK Networks said that the company will work hard to reduce its debt ratio to around 100 percent by 2020 from current 200 percent and increase operating profit to above 200 billion won.

Despite its rosy earnings outlook, shares of SK Networks have dropped 1.4 percent so far this year, according to the nation’s stock operator Korea Exchange (KRX).

Shares of SK Networks ended Wednesday 0.9 percent down at 6,680 won.

By Moon-Il-ho and Choi Mira

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]