[Click eStock] "HiteJinro, Delayed Business Recovery... Weak Performance Expected in Q2"

Meritz Securities Report

On the first day of Level 4 social distancing in the Seoul metropolitan area on the 12th, the streets of Hongdae in Mapo-gu, Seoul, are quieter than usual. Under the Level 4 measures, gatherings of up to 4 people are allowed before 6 p.m., and only up to 2 people are allowed afterward. Photo by Moon Honam munonam@

[Asia Economy Reporter Minji Lee] Meritz Securities maintained a buy rating and a target price of 48,000 KRW for HiteJinro on the 28th. This is based on the expectation that despite prolonged sluggishness in the liquor industry due to COVID-19, market share expansion is anticipated with the recovery of the B2B market.

HiteJinro's estimated sales for the second quarter are 565.7 billion KRW, and operating profit is expected to be 47 billion KRW, representing decreases of 2.7% and 13% respectively compared to the same period last year. This is attributed to the prolonged impact of COVID-19 and a high base effect from the second quarter of last year.

Researcher Jungwook Kim of Meritz Securities stated, "The strengthened social distancing regulations, including the ban on operations after 10 PM and restrictions on gatherings of five or more people, acted as factors reducing sales compared to last year," adding, "Due to intensified competition in the liquor market, there was a decline in sales accompanied by deteriorating profitability."

Regarding market share, HiteJinro showed a trend of maintaining its position with limited growth due to competitors' price promotions and increased speculative demand from wholesalers. While the entertainment market recovery has been slow, beer market share remained at around 40% in a close contest, and soju maintained a high level in the mid-60% range. Researcher Kim analyzed, "Beer market share is expected to be influenced by the recovery of the metropolitan area's entertainment market in the second half of the year," and "Soju's market share has stabilized due to Jinro's successful establishment and securing of peak demand."

As the fourth wave of COVID-19 continues, the sluggishness in the liquor industry is prolonged. With the focus shifting back to the home-use beer market, price reduction strategies for B2C products are expected to be positive in terms of expanding market share. Researcher Kim explained, "The second quarter's poor performance is not expected to deviate significantly from projections," and "The investment point that market share expansion will resume with the recovery of the B2B market remains valid."