[Click eStock] "Lotte Jiju Falls Short of Q1 Earnings Expectations"

KB Securities "Lotte Jiju Target Price Raised from 35,000 Won to 40,000 Won"
Investment Opinion Maintained as 'Neutral'... "Limited Upside Potential of 6.4% Compared to Closing Price"

[Asia Economy Reporter Gong Byung-sun] Lotte Holdings' first-quarter earnings this year fell short of market expectations (consensus). However, pre-tax profit successfully turned positive, and the earnings improvements of Lotte Confectionery and Lotte Data Communication stood out. Accordingly, KB Securities raised the target price for Lotte Holdings from the previous 35,000 KRW to 40,000 KRW. Considering the limited upside potential of 6.4% compared to the closing price, the investment rating was maintained at 'Hold.'

According to KB Securities on the 20th, Lotte Holdings' first-quarter earnings this year fell short of consensus. Lotte Holdings' sales amounted to 2.3387 trillion KRW, a 17.2% increase compared to the same period last year. Operating profit was 42.5 billion KRW, up 363.7%. KB Securities analyst Jeong Dong-ik explained, "Sales increased significantly due to the inclusion of Lotte Food's consolidated results, and operating profit nearly quadrupled due to the base effect. However, it was less than half of the consensus." Pre-tax profit turned positive thanks to increased equity-method gains from Lotte Chemical and others, as well as gains from the disposal of assets held for sale.

The earnings improvements of Lotte Confectionery and Lotte Data Communication were relatively outstanding. Lotte Confectionery's operating profit in the first quarter of this year increased by 41% compared to the same period last year, due to the expansion of ice cream sales channels and successful cost reduction in overseas markets. Lotte Data Communication's operating profit rose 86.8% year-on-year. The background for the increase in operating profit is the expansion of cloud investments by affiliates and sales growth of highly profitable data centers.

However, Korea Seven and GRS underperformed. Korea Seven and GRS, which operate convenience stores and Lotteria respectively, continued to incur losses, burdening the consolidated results. Dividend income decreased by 33.2% from 154.6 billion KRW last year to 103.2 billion KRW this year, causing separate basis operating profit to decline 34.3% year-on-year.