Liquor Stocks Stretch Out After Enduring Social Distancing with 'Homsul'

[Asia Economy Reporter Eunmo Koo] The liquor industry, facing the worst business environment due to strengthened social distancing measures, is enduring the crisis through so-called ‘home drinking’ sales. Recently, as the COVID-19 vaccination rollout becomes more visible and expectations for gradual business improvement expand, stock prices are also showing signs of recovery.

According to the Korea Exchange on the 15th, Lotte Chilsung’s stock price closed at 128,000 KRW, up 5.79% (7,000 KRW) from the previous trading day. Lotte Chilsung’s stock price has risen for seven consecutive trading days through the previous day and has increased by 18.0% this year alone, nearly double the KOSPI return of 9.6% during the same period. HiteJinro, another liquor stock, also closed at 36,000 KRW, up 3.10% (1,100 KRW) from the previous day, marking a 14.9% increase since the beginning of the year.

Liquor companies saw a decline in sales to businesses due to social distancing in the fourth quarter of last year, but succeeded in defending their performance through increased sales of home-use products. In the fourth quarter of last year, despite sluggish beverage sales caused by the resurgence of COVID-19 and cold waves, Lotte Chilsung’s liquor sales increased by 11.6% year-on-year, driven by strong growth in beer and increased wine sales.

Lotte Chilsung is expected to enter a structural growth phase by increasing the operating rate of its beer division. The Ministry of Economy and Finance and the National Tax Service allowed contract manufacturing (OEM) of liquor through regulatory improvements announced at the end of May last year, and detailed enforcement ordinances are expected to be announced as early as this month. Eunju Shim, a researcher at Hana Financial Investment, said, "Lotte Chilsung will actively utilize the liquor regulation relaxation to increase beer operating rates," adding, "With OEM production of GomPyo beer, the beer operating rate is expected to rise from 18% last year to around 26% this year."

Performance improvement is also expected to accompany this. According to financial information provider FnGuide, Lotte Chilsung’s operating profit turned positive to 6.7 billion KRW in the fourth quarter of last year compared to the same period the previous year, and is estimated to increase by 171.4% to 17.1 billion KRW in the first quarter of this year.

HiteJinro is also evaluated positively as its market share continues to rise due to strong sales of home-use products despite sluggish sales of business-use products. Sanghoon Jo, a researcher at Samsung Securities, advised, "The current rise in HiteJinro’s beer market share is likely to continue this year, supported by the high preference for Terra."

However, unlike the current increase in the proportion of home-use sales with relatively low promotional expenses, there is concern that overall competition costs may rise if the COVID-19 pandemic ends or eases and the business environment recovers.