[Click eStock] Lotte Chilsung 'The First Year of Performance Recovery, Next Year Will Be Better'

[Asia Economy Reporter Hwang Junho] Shinhan Financial Investment raised the target price of Lotte Chilsung to 180,000 KRW on the 11th.

Lotte Chilsung's operating profit for the third quarter of this year was 85.4 billion KRW, a 46.3% increase compared to the previous year. Sales amounted to 698.8 billion KRW, up 8.3%. These results exceeded market expectations.

Beverages (separate) saw an 8% increase in sales due to strong performance of zero-calorie carbonated drinks and the effect of price hikes. Operating profit also rose by 25% thanks to product mix improvement and cost reduction efforts. Despite the impact of social distancing, liquor sales increased by 1%. Operating profit also grew significantly due to the integration of soju factories.

Despite the favorable performance, the stock price plunged, seemingly influenced by concerns over a peak-out. Factors included a downward revision of the annual operating profit guidance (by 10 billion KRW), slow recovery in the beer segment, and raw material burdens in beverages.

Joo Sang-hoon, Senior Researcher at Shinhan Financial Investment, analyzed, "The downward revision of operating profit guidance is due to one-time costs, and the beer segment, which had been sluggish due to base effects, has been increasing since last month. The raw material burden in beverages can be sufficiently offset by product mix improvements, so the market's concerns are excessive."

He added, "We expect the beer business, which cannot avoid losses until this year, to turn profitable next year. Reflecting faster-than-expected performance improvement and a rise in global peer valuations, we are raising the target price to 180,000 KRW."