Analysts on Monday raised their target prices on shares of high-profile bid winners who will operate duty-free stores in downtown Seoul, citing that the retail giants secured a new growth engine amid sluggish domestic demand and rising competition.

The upgrades in the target prices of the retail firms reflects expectations that the new stores will give a boost to the world‘s largest duty-free market, accounting for 13 percent of global revenues from duty-free shops in 2014.

“The urban duty-free business will help accelerate the market’s growth after strengthening its momentum with the expansion of duty-free operations at Jeju International Airport last year,” said Hong Sung-soo, an analyst at NH Securities.

On July 10, Korea Customs Service announced that HDC Shilla Duty Free -- a joint venture formed by Hotel Shilla and Hyundai Development -- and Hanwha Galleria Timeworld clinched licenses to operate downtown duty-free stores, adding fresh forces to the country’s 8.3 trillion won ($7.3 billion) duty-free market.

Yuanta Securities Korea raised its price target on Hotel Shilla shares to 210,000 won from 172,000 won while IBK Securities increased it to 187,000 won, saying that the No. 6 global duty-free operator will increase its market share with the upcoming launch of the duty-free store.

“For Hotel Shilla, which has been running a duty-free business in Seoul, another store is more akin to it defending itself against other retail players, but it will also expand its market share,” an analyst at IBK Securities.

The joint venture had announced plans to develop what it calls the world‘s biggest downtown duty-free complex in Yongsan, the railway hub nestled between key tourist spots scattered north and south of the Hangang River.

NH Securities upgraded its rating on Hanwha Galleria Timeworld to “buy” with a price target of 115,000 won, up from 61,000 won.

“Hanwha is expected to post 263 billion won in sales and an operating profit of 1.6 billion won next year from the urban duty-free store to be located in Hanwha 63 City building,” NH Securities’ researcher Hong said.

The retailers’ stock rallied on Monday with Hanwha Galleria Timeworld soaring by the daily stock price limit of 30 percent while Hotel Shilla jumped by 2.34 percent.

By Park Han-na (hnpark@heraldcorp.com)