[Click eStock] "Lotte Chilsung, Turnaround Continues... Target Price Up"

[Asia Economy Reporter Song Hwajeong] Daishin Securities raised the target price for Lotte Chilsung from 170,000 KRW to 200,000 KRW on the 30th, citing that the company's Q1 earnings exceeded expectations and the turnaround is expected to continue. The investment rating was maintained as 'Buy.'

Han Yujeong, a researcher at Daishin Securities, explained, "We raised the target price by revising upward the earnings estimates for 2021 and 2022." Daishin Securities revised Lotte Chilsung's annual operating profit for this year from 148 billion KRW to 161 billion KRW, and next year's operating profit from 166 billion KRW to 185 billion KRW.

Lotte Chilsung recorded earnings in Q1 that surpassed market expectations. Consolidated sales for Q1 reached 538.8 billion KRW, a 6% increase compared to the same period last year, and operating profit surged 416% to 32.3 billion KRW. The operating profit exceeded the market consensus of 23.7 billion KRW. Researcher Han analyzed, "Despite the relatively low impact of COVID-19 in January and February last year, monthly sales trends showed improvement with January down 14% year-on-year, February at a similar level, and March up 13%. Accordingly, beverage sales decreased by 1%, and operating profit decreased by 11%, showing resilience."

While the soju and beer markets in Q1 this year are estimated to have declined by 7% and 5% respectively compared to the same period last year, Lotte Chilsung's Q1 soju sales decreased by 1% to 55.6 billion KRW, recording a market share of 14.3%. Beer sales increased by 67% to 20.6 billion KRW, driven by strong sales of Cloud Saeng Draft, with a market share of 3.6%. Consequently, liquor sales rose 16% to 160.3 billion KRW, and operating profit reached 9.3 billion KRW, achieving a turnaround due to fixed cost reductions from increased sales volume and workforce efficiency.

The earnings improvement trend is expected to continue. Researcher Han stated, "OEM production of beer is expected to be in full swing from Q2, and hybrid production from Q3, so the year-on-year improvement trend will continue. For beverages, the turnaround is expected to persist due to SKU optimization, sales expansion of healthcare products launched in March-April this year, and the effect of carbonated beverage price increases."