HiteJinro, COVID-19 Impact... Significant Improvement in Performance Expected Next Year

KB Securities Report

[Asia Economy Reporter Minji Lee] HiteJinro is expected to report weaker results in the fourth quarter due to strengthened social distancing measures compared to last year, but opinions suggest a strong performance improvement next year. This is based on the judgment that suppressed entertainment demand will rapidly recover following COVID-19 vaccination.

According to KB Securities on the 25th, HiteJinro's fourth-quarter sales are expected to reach 504.2 billion KRW, down 9.7% from the same period last year. Operating profit is expected to decrease by 7.3% to 30.3 billion KRW.

Researcher Seonhwa Lee of KB Securities said, “With the implementation of social distancing level 2.5 in the metropolitan area, the entertainment market has shrunk, and the overall liquor market sales volume in the fourth quarter is expected to contract by 15% compared to the same period last year. However, based on the expanded market share of Terra and Chamisul and increased demand for home-use liquor, the sales decline is expected to be limited to around 10% compared to last year.” Operating profit is estimated to decline by about 7% compared to last year, as the beer segment turned profitable with increased brewery operating rates.

Next year, HiteJinro's expected sales are 2.427 trillion KRW, and operating profit is 230 billion KRW. The forecast for 2022 sales is 2.604 trillion KRW, with operating profit of 254 billion KRW. The liquor industry is a capital-intensive industry with a high fixed cost ratio, resulting in significant operating leverage. Despite Terra's market share expansion, the operating leverage effect was not maximized this year due to the sluggish upstream market caused by COVID-19. Next year, with the recovery of the upstream market, the expansion of Terra's beer market share, and increased operating rates of the expanded soju factory, a solid performance improvement trend is expected to continue.

Researcher Lee explained, “Despite the challenging external environment in the fourth quarter, favorable results compared to the market are expected based on market share expansion. HiteJinro is expected to benefit from the recovery of entertainment demand and the expansion of Terra's beer market share mainly from next year onward, following the COVID-19 impact.”