[Click eStock] "Lotte Chilsung, Recovery of Alcohol Sales Is Crucial"

Hana Financial Investment Issues 'Buy' Rating and 120,000 KRW Target Price... Closing Price 100,000 KRW on 24th

Chilsung Cider by Lotte Chilsung (Photo by Asia Economy DB)

[Asia Economy Reporter Geum Bo-ryeong] It has been analyzed that the most important factor for Lotte Chilsung is whether 'alcohol sales recovery' occurs.

According to Hana Financial Investment on the 25th, Lotte Chilsung's consolidated sales for the third quarter were 645.2 billion KRW, and operating profit was 58.4 billion KRW. Compared to the previous year, sales decreased by 1.8%, while operating profit increased by 19%.

Shim Eun-joo, a researcher at Hana Financial Investment, explained, "The profit and loss improved significantly compared to the previous year, due to the base effect from the boycott of Japanese products in the third quarter of last year and a reduction in alcohol-related advertising and promotional expenses (about 30 billion KRW). Beverage sales decreased by 4.1% year-on-year. Due to restrictions on outdoor activities caused by COVID-19, sales of juice, coffee, and cider were somewhat sluggish. Alcohol sales increased by 5.0% compared to the previous year. By significantly reducing promotional expenses, an operating profit of 900 million KRW was achieved." In the case of alcohol, an operating loss of 20.5 billion KRW was recorded in the third quarter of last year.

The turnaround to operating profit in alcohol sales in the third quarter was found to be thanks to cost reduction. Alcohol-related advertising and promotional expenses are estimated to have been reduced by about 90 billion KRW cumulatively in the third quarter. As of the third quarter, soju and beer sales are about 70% and 75%, respectively, compared to the third quarter of 2018, before the boycott of Japanese products began. Researcher Shim said, "Considering that the boycott movement intensified from the third quarter of last year, sales growth compared to the previous year is also possible in the fourth quarter," and added, "If sales recovery becomes visible in the first half of next year, meaningful performance recovery can be expected."

Hana Financial Investment gave Lotte Chilsung a 'Buy' investment rating with a target price of 120,000 KRW. The closing price on the 24th was 100,000 KRW. Researcher Shim said, "The important thing is whether alcohol sales recover. Especially since the decrease in soju sales somewhat limits overall margin improvement, recovering soju market share is urgent," and added, "For a sustained stock price increase, it is judged that at least an 80% sales recovery in the first half of next year must be assumed."