[Click eStock] "Lotte Chilsung, Steep Improvement Expected... Craft Beer OEM Anticipated"

Daishin Securities Issues 'Buy' Investment Opinion and Sets Target Price at 160,000 Won... Closing Price on the 8th at 109,000 Won

Warm beverages by Lotte Chilsung (Photo by Asia Economy DB)

[Asia Economy Reporter Geum Bo-ryeong] An analysis has emerged expecting a sharp improvement in Lotte Chilsung.

On the 11th, Daishin Securities gave Lotte Chilsung a 'Buy' rating with a target price of 160,000 KRW, up from the previous 130,000 KRW. The closing price on the 8th was 109,000 KRW.

According to Daishin Securities, Lotte Chilsung's consolidated sales for the fourth quarter of last year are estimated at 508.7 billion KRW, with an operating profit of 16.4 billion KRW. Sales decreased by 2% year-on-year, but operating profit turned positive.

Researcher Noh Hee-jae of Daishin Securities stated, "Due to the nationwide resurgence of COVID-19 and the escalation of social distancing measures, outdoor activity frequency decreased, leading to a wider year-on-year decline in sales of non-carbonated beverages such as juice and coffee compared to the third quarter. Beverage sales and operating profit fell by 7% and 14% year-on-year, respectively. However, beer and soju sales for commercial use significantly declined due to social distancing and the ban on dining in after 9 PM, but strong sales of home-use products, new products like 'Cloud Saeng Draft' and 'Cheoeumcheoreom FLEX,' and robust wine sales at large supermarkets and convenience stores led to a 10% increase in liquor sales year-on-year and an operating profit turning positive at 400 million KRW, expecting strong fourth-quarter results," he explained.

There is anticipation for the start of contract manufacturing (OEM) of craft beer in the first half of this year. Researcher Noh added, "There have been sufficient institutional changes such as revisions to the liquor tax law and shortened approval and quality inspection procedures for liquor manufacturing methods, enabling the birth of various craft beer brands. Since beer production requires large-scale initial facility investment, contract manufacturing lowers the entry barriers for new brands and is likely to gain attention gradually. Lotte Chilsung's beer plant utilization rate is estimated to be below 30%. It is expected that quick responses will be possible by producing craft beer under contract at the Chungju Plant 1 and producing in-house brands at Plant 2, which should alleviate fixed cost burdens due to increased utilization," he analyzed.

Researcher Noh also added, "While Lotte Chilsung last raised carbonated beverage prices in 2017, competitors have continued price increases in 2017, 2018, 2019, and this month, so the competitive environment for carbonated beverages is expected to be favorable," he concluded.