Prolonged Social Distancing... HiteJinro Faces Growing Concerns

Maintaining Social Distancing Amid COVID-19 Resurgence
Pressure from Competitors' Moves in the Beer Sector

[Asia Economy Reporter Gong Byung-sun] As social distancing continues, there are forecasts that HiteJinro's third-quarter performance this year will fall short of market expectations (consensus).

On the 18th, IBK Investment & Securities estimated HiteJinro's third-quarter sales to be 601.5 billion KRW, down 3.6% from the same period last year, and operating profit to be 42.7 billion KRW, down 33.7% during the same period. This is approximately 3.30% and 28.48% below the respective consensus figures of 622 billion KRW and 59.7 billion KRW.

Due to the resurgence of COVID-19 and the continuation of social distancing, the beer segment is expected to perform poorly. Sales in the beer segment are estimated to have decreased by 8.7% year-on-year to 222.8 billion KRW, and operating profit is expected to have dropped by 69.4%. Although the domestic beer market size shrank by about 10% in the second quarter, the downward trend is continuing into the third quarter.

The movements of major competitors are also a burdensome factor. In the home-use channel, major competitors are strengthening marketing for regular beer and increasing the launch of new craft beer products. This is expected to impact sales of HiteJinro's regular beer and the sparkling beer Pilate. However, the strong sales of Paulaner led to a 25% increase in imported beer sales in the second quarter compared to the same period last year, and the upward trend is continuing into the third quarter, which is positive.

With the strengthening of social distancing expected to reduce the soju market size by about 5%, the soju segment's performance is also forecasted to decline. IBK Investment & Securities estimated soju segment sales to have decreased by 1.4% year-on-year to 330.3 billion KRW, and operating profit to have dropped by 7.9% to 41.3 billion KRW during the same period. However, Kim Tae-hyun, a researcher at IBK Investment & Securities, explained, "Due to the effect of expanding sales outside the metropolitan area, market share slightly increased to 67% in the second quarter and is maintaining around 67% in the third quarter. Also, the strong export performance of fruit-flavored soju to Japan, China, and Southeast Asia is positive."

Accordingly, IBK Investment & Securities maintained a 'Buy' rating on HiteJinro but lowered the target price from 51,000 KRW to 43,000 KRW. The closing price as of the 17th was 34,050 KRW.