Despite Efforts in Beverages, Lotte Chilsung Stumbles Amid Alcohol Deficit...

Securities Firms Maintain Target Price at 170,000 Won
Alcohol Sales Continue to Slump... Soju Boycott Impact Expected to Calm Down in Second Half of This Year

[Asia Economy Reporter Minwoo Lee] An analysis suggests that Lotte Chilsung's performance last year will fall short of market expectations. While the beverage sector remains robust, the alcoholic beverage sector continues to face a downturn. This trend is expected to persist this year, highlighting the need for a more segmented strategy by product.

According to DB Financial Investment on the 26th, Lotte Chilsung is projected to record sales of 2.4585 trillion KRW and an operating profit of 120.6 billion KRW last year. Sales increased by 4.7% and operating profit by 41.9% compared to the previous year. Although these appear to be solid results, the underlying situation is different due to continued sluggishness in the alcoholic beverage sector, one of the company's two main business pillars.

Last year, Lotte Chilsung's alcoholic beverage division is estimated to have posted sales of 734.8 billion KRW and an operating loss of 52.5 billion KRW. Sales declined by 3% compared to the previous year, and losses continued following the prior year's operating loss of 59 billion KRW. In particular, soju sales, which account for 30% of total alcoholic beverage sales, dropped by about 40% during the boycott movement in July and August last year. Although the decline has recently narrowed to the 20% range, it is expected that sales recovery to normal levels will only be possible in the second half of this year.

The integration of the previously dual structure of Lotte Chilsung and Lotte Liquor into a unified representative system at the end of last year is also seen as a response to this sense of crisis. Jaeheon Cha, a researcher at DB Financial Investment, stated, "Restructuring of the alcoholic beverage stock-keeping unit (KSU) and a segmented strategy by product will be pursued," adding, "We expect a reduction in push sales centered on wholesalers and a shift to a sales strategy focused on product strength."

On the other hand, the beverage sector steadily grew. As of last year, beverage sales increased by 5% and operating profit by 20% compared to the previous year. By product, carbonated drinks grew by 4%, coffee by 6%, bottled water by 6%, and sparkling water by 11%. This year, growth is expected to be 2% in volume and 4% in sales. Researcher Cha explained, "Thanks to a 5.8% price increase of Coca-Cola, carbonated beverage sales grew by 4-5% this month as well, and profitability in the beverage sector is expected to continue improving this year," adding, "Alcoholic beverage sales may decline due to reduced promotions, and the operating loss could widen beyond estimates."

Meanwhile, DB Financial Investment forecasts Lotte Chilsung's sales this year at 2.516 trillion KRW and operating profit at 141 billion KRW, representing increases of 1.9% and 7.3%, respectively, compared to last year's estimates. While recommending a 'buy' rating for Lotte Chilsung, DB Financial Investment maintained a target stock price of 174,000 KRW, citing limited short-term growth momentum.