[Click eStock] "Lotte Chilsung to Meet Market Expectations for Q3 Earnings"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating and a target price of 200,000 KRW for Lotte Chilsung on the 19th, expecting the company to deliver results in line with market expectations for the third quarter.

Consolidated sales and operating profit for the third quarter are estimated to increase by 15% and 25% year-on-year, reaching 742.6 billion KRW and 73.2 billion KRW, respectively. Favorable weather in July and August is expected to contribute to strong performance in the beverage sector. Beverage sales are projected to grow by 5.5% compared to a year ago, driven by favorable weather and price increases. The profit and loss for the two months of July and August are understood to have improved significantly compared to the same period last year.

The liquor sector inevitably faces negative impacts from social distancing measures that continued throughout the third quarter. However, due to last year's base effect and new product launches, growth in the 4% range is expected. The beer OEM sector is showing steady sales growth compared to the previous quarter. Hana Financial Investment predicts that related sales will exceed approximately 10 billion KRW through additional client acquisitions in the third quarter. Annually, about 35 billion KRW in sales contribution is expected, with a slight profit anticipated in the liquor sector due to increased beer operating rates.

Lotte Chilsung is expected to continue its performance improvement trend next year. Liquor sales sharply declined due to the boycott of Japanese products in the second half of 2019, and considering that sales peaked at 140 billion KRW in 2018, beer sales (Cloud + Fitz) are analyzed to have decreased to the 80 billion KRW range last year.

Researcher Eunju Shim of Hana Financial Investment explained, “This year’s beer sales are estimated to increase by 40% compared to a year ago due to last year’s base effect and the launch of ‘Cloud Saeng’.” She added, “While the recovery of demand for the company’s own brand beer is positive, attention should also be paid to the expansion of craft beer OEM sales.”

Considering the recent encouraging increase in craft beer awareness and the growing number of clients, related sales are estimated to rise to 35 billion KRW this year and 80 billion KRW next year. The combined sales of Lotte Chilsung’s beer brands and OEM are expected to surge by about 36%, from 150 billion KRW this year to 204 billion KRW next year. Researcher Eunju Shim said, “If the With Corona policy is fully implemented from next month, performance improvement driven by the recovery of total liquor demand will accelerate.”