[Click eStock] "Lotte Food, Q1 Operating Profit Exceeds Expectations"

[Asia Economy Reporter Oh Ju-yeon] Daishin Securities raised its investment opinion on Lotte Food to 'Buy' on the 31st, stating, "Although there is no short-term momentum, the valuation burden has eased due to consecutive stock price declines," while lowering the target price to 400,000 KRW.

Researcher Han Yoo-jung forecasted that Lotte Food's standalone sales for Q1 this year will be 440 billion KRW, and operating profit will be 9.7 billion KRW, exceeding the market consensus (operating profit of 9.1 billion KRW). These figures represent increases of 4% and 14% year-on-year, respectively.

By business segment, in the case of edible oils and fats, the impact of COVID-19 began to be fully reflected from March, making a slump in B2B food ingredient distribution inevitable. However, this is expected to be offset by the expansion of corporate B2B sales of processed food materials and oil products due to a surge in home meal demand, as well as the effect of price increases on some products in Q4 last year.

The ice cream business is expected to benefit positively from profitability improvement strategies and the base effect of powdered milk exports, but the processed meat business is anticipated to incur losses due to expenses related to activating sales of home meal replacement products.

Fixed cost expenditures, which could have been a burden this year, are expected to ease.

Researcher Han said, "The investment period for the Gimcheon plant, which was scheduled to be completed in April this year, has been extended to April 2021, temporarily alleviating fixed cost burdens this year. Additionally, the burden of rising raw material prices in the edible oils and fats and processed meat sectors in Q4 last year was partially passed on through price increases on some products." She added, "The base effect from last year in the ice cream sector and the overall industry's trend toward profitability improvement are also positive factors."

Researcher Han assessed, "From a long-term perspective, it is necessary to verify the results of product expansion strategies into infant weaning foods and frozen foods, where competition is expected to intensify gradually."

Meanwhile, Lotte Food's dividend yield for this year is estimated at 5.5%.

Researcher Han mentioned, "Regarding the one-time gain from the sale of corporate rental housing assets in Mullae-dong in 2020, the 2020 DPS is estimated at 16,000 KRW, with a payout ratio of 29.3% and a dividend yield of 5.5%."