Expecting Benefits from Eased Social Distancing Due to Vaccination
Stock Prices Slightly Decline... "Time to Buy Again"
[Asia Economy Reporter Minji Lee] It is forecasted that if social distancing measures are eased following COVID-19 vaccinations, explosive alcohol consumption will lead to both improved performance and rising stock prices for related companies.
As of 10 a.m. on the 22nd, HiteJinro recorded 37,500 KRW, down 1.7% from the previous trading day. At the same time, Lotte Chilsung traded at 121,000 KRW, unchanged from the previous day. HiteJinro surged to a yearly high of 38,000 KRW on the 18th, marking about a 20% increase since the beginning of the year, but it is currently undergoing a slight correction.
However, expectations for performance improvement remain valid. Since vaccinations are underway, alcohol consumption is expected to increase significantly. In fact, alcohol consumption has risen sharply following the easing of social distancing after the Lunar New Year holiday. Mi-jin Cho, a researcher at NH Investment & Securities, explained, "For major businesses in key commercial districts, the average daily sales were about 20% lower compared to pre-COVID-19 levels in December last year, but after the Lunar New Year holiday, sales have recovered to levels similar to those before COVID-19." It is understood that the alcohol market will show a recovery comparable to pre-COVID-19 levels around the third quarter as vaccine distribution expands.
In the case of HiteJinro, first-quarter performance is expected to be sluggish, but gradual improvement is anticipated from this low point. According to first-quarter earnings estimates compiled by financial information provider FnGuide, operating profit is projected at 45.6 billion KRW, down 18% year-on-year. Despite strong performance in the home-use market, the impact of a sluggish entertainment-use market is expected to be greater.
The target price for HiteJinro estimated by securities firms is around 50,000 KRW, indicating a potential increase of about 30% from the current stock price. As market share has significantly expanded, profit growth is expected. Jung-seop Kim, a researcher at ShinYoung Securities, said, "Due to the nature of the alcohol market, once market share is established, it is difficult to change in the short term. Therefore, in the phase of COVID-19 easing, explosive consumption benefits are expected." He added, "Although there are concerns about increased marketing costs due to intensified promotional activities, the current stock price does not carry a heavy valuation burden, making it a good time to repurchase."
Lotte Chilsung is expected to see significant performance growth due to price increases in beer contract manufacturing and the beverage sector. Since last month, Lotte Chilsung has raised the wholesale prices of 14 beverage brands by an average of about 7%, which is expected to be gradually reflected from the second quarter. The highest target price estimated by securities firms is 180,000 KRW, and first-quarter operating profit is expected to grow 196% year-on-year. Yu-jeong Han, a researcher at Daishin Securities, explained, "The increase in operating rate due to beer contract manufacturing will ease fixed cost burdens," adding, "If both beverage and alcohol sectors recover from the impact of COVID-19, profits will increase even more."
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