[Click eStock] "Lotte Chilsung Reflects Reopening Optimism"

[Asia Economy Reporter Gong Byung-sun] Lotte Chilsung is expected to report third-quarter results in line with market consensus due to somewhat hot weather and base effects from July to September this year. Additionally, reopening (resumption of economic activities) expectations are also reflected in the stock.

On the 18th, KB Securities estimated Lotte Chilsung's Q3 sales to increase by 7.6% year-on-year to 694.1 billion KRW, and operating profit to rise by 25.2% to 73.1 billion KRW. These figures are in line with the consensus of 699.6 billion KRW and 71.3 billion KRW, respectively.

The hotter-than-usual Q3 is expected to boost the beverage segment's performance. The sports and energy drinks and bottled water sectors are showing double-digit sales growth, and the new product ‘Pepsi Zero Sugar Lime’ is anticipated to capture market share from competitors. KB Securities forecasts that Lotte Chilsung's beverage segment sales will increase by 8.7% year-on-year, with operating profit rising by 15.1% during the same period.

Although social distancing was strengthened due to the spread of the COVID-19 Delta variant, the liquor segment is expected to show favorable results due to base effects. Soju sales, which have a high share in the entertainment market, are declining in double digits, but the beer brand Kloud Fresh Drift continues to grow in double digits. Consequently, the number of beer OEM (Original Equipment Manufacturer) contract companies increased from two in Q2 to five in Q3. KB Securities estimates that liquor segment sales will increase by 3.7% year-on-year, with operating profit soaring by 256.4%.

Reopening is expected to further boost Lotte Chilsung's performance. KB Securities analyst Lee Seon-hwa explained, “From the 18th, private gathering limits have increased to a maximum of 8 people in the metropolitan area and 10 people in non-metropolitan areas, spreading reopening expectations,” adding, “Recovery in the liquor segment within the entertainment market is also anticipated.”

Accordingly, KB Securities maintained a ‘Buy’ rating on Lotte Chilsung. The target price was raised from the previous 165,000 KRW to 195,000 KRW. The closing price on the previous day was 157,000 KRW.