[Click eStock] "HiteJinro, 3Q Performance Likely to Fall Short Due to Prolonged Social Distancing"

Uncertain Market Outlook for the Second Half Amid Prolonged Social Distancing Measures

HiteJinro Product Line (Provided by HiteJinro)

[Asia Economy Reporter Minwoo Lee] As the government’s social distancing measures due to the COVID-19 situation have been prolonged, HiteJinro is expected to post results below market expectations in the third quarter of this year as well.

On the 17th, IBK Investment & Securities lowered HiteJinro’s target stock price by 15.7% to 43,000 KRW against this backdrop. The closing price the previous day was 34,700 KRW. The investment opinion of 'Buy' was maintained.

With social distancing continuing to be implemented, the third-quarter performance is expected to be somewhat sluggish. IBK Investment & Securities forecast that HiteJinro will record consolidated sales of 601.5 billion KRW and operating profit of 42.7 billion KRW in the third quarter of this year. This represents decreases of 3.6% and 33.7%, respectively, compared to the same period last year. It is also expected to fall short of the market consensus forecast of sales of 622 billion KRW and operating profit of 59.7 billion KRW.

Researcher Kim Taehyun of IBK Investment & Securities explained, "Due to the continued impact of social distancing regulations, liquor sales have declined, and considering the recently intensified competition in the beer market, profitability is expected to deteriorate due to increased selling and administrative expenses such as advertising costs."

Both beer and soju sales are expected to be sluggish. For the beer segment, sales are estimated at 222.8 billion KRW with an operating profit of 5.8 billion KRW. Compared to the third quarter of last year, sales are expected to decrease by 8.7% and operating profit by 69.4%. Researcher Kim said, "Due to the impact of social distancing, the domestic beer market shrank by about 10% in the second quarter, and it appears that the market contraction trend continues into the third quarter. Moreover, in the home-use channel, major competitors are strengthening regular beer marketing and increasing new craft beer product launches, which is expected to inevitably impact HiteJinro’s regular beer and sparkling beer (Filite) sales."

However, in the shrinking imported beer market, HiteJinro’s Paulaner has shown strong sales performance, maintaining steady growth in the third quarter following the second quarter, which was positively evaluated.

The soju segment was also not spared from the impact of social distancing. The soju market size is expected to decrease by about 5% in the third quarter. HiteJinro’s soju segment sales and operating profit are projected to be 330.3 billion KRW and 41.3 billion KRW, respectively, down 1.4% and 7.9% compared to the same period last year. Researcher Kim analyzed, "However, the effect of expanding sales outside the metropolitan area led to a slight increase in market share to 67% in the second quarter, and this level is maintained in the current quarter, which is positive. Also, exports of liqueur (fruit-flavored soju) to Japan, China, and Southeast Asia are continuing to show strong growth."

Due to the prolonged social distancing, expectations for performance in the second half of this year have diminished. Researcher Kim forecasted, "Although high-intensity social distancing measures have been in place for a long time, the spread of COVID-19 remains, so meaningful sales recovery in the dining and entertainment markets for the rest of this year is expected to be limited."