[Click eStock] Lotte Information & Communication Sailing Toward 1 Trillion Won in Sales

1Q 'Surprise Performance' Achieved... Operating Profit 11.2 Billion KRW, Up 87% YoY
Growth in All Sectors... Speed and Scale UP This Year

[Asia Economy Reporter Minwoo Lee] Lotte Information & Communication is being evaluated as steadily progressing toward achieving annual sales of 1 trillion won after posting strong performance in the first quarter of this year.

On the 11th, IBK Investment & Securities maintained its 'Buy' rating and target price of 50,000 won for Lotte Information & Communication against this backdrop. The closing price on the previous day was 39,650 won.

Lotte Information & Communication posted better-than-expected results for the first quarter market consensus. Consolidated sales for the first quarter reached 217.9 billion won, and operating profit was 11.2 billion won, up 10.3% and 86.8% respectively compared to the same period last year. The operating profit exceeded market expectations by about 57.92%.

All business sectors showed growth. The SI (System Integration) business saw sales increase by 12.1% year-on-year as smart factory and logistics projects, which were delayed last year due to COVID-19, normalized. The System Management (SM) business grew 2.7% during the same period as the contract signing rate and unit price for group company services increased.

Profitability also improved. With a significant increase in SI business sales, the operating profit margin improved by 2.1 percentage points compared to the first quarter of last year. The SI business recorded an operating profit of 6.8 billion won, a 268.6% increase compared to the first quarter of last year. By transferring the mobile gift certificate business to Lotte Shopping, non-operating other income was reflected, and net profit attributable to controlling shareholders rose 154.8% year-on-year to 12.5 billion won.

As the group's digital transformation accelerates, performance improvement through mergers and acquisitions (M&A) is expected. IBK Investment & Securities analyst Seunghoon Lee said, "The number of related project orders will increase due to improved profitability of affiliates building smart factories, and additional business profitability will further improve." He added, "The Lotte Group's cloud transition is accelerating, and with the establishment of the fourth data center, cloud sales growth is expected to accelerate from the second quarter." Recently, through equity investment in logistics automation equipment company JNDK, cost efficiency for logistics and smart factory projects is also expected. Since M&A is expected to continue, both scale and profitability are projected to grow.

IBK Investment & Securities forecast that Lotte Information & Communication will record sales of 1 trillion won and operating profit of 50.1 billion won this year, representing increases of 17.8% and 29.3% respectively compared to the previous year. The analyst explained, "Despite the overall poor performance of group companies due to COVID-19 last year, investments for digital transformation continued, and this year the speed and scale will increase further." He also noted, "Achieving an ESG (Environmental, Social, and Governance) rating of A and AA from the Korea Corporate Governance Service and Sustainvest, respectively, placing it among the top ranks in the information and communication technology sector, is also positive."