Liquor Stocks 'Stumble' Amid Strengthened Social Distancing Measures

Impact of Raw Material Price Increases on With-Corona Suspension
HiteJinro Down 13% and Lotte Chilsung Down 5% in the Past Month

[Asia Economy Reporter Minji Lee] As social distancing measures are reinforced again, liquor companies that had expected explosive sales growth appear disappointed.

As of 9:40 a.m. on the 6th, HiteJinro recorded 30,050 KRW, which is a 13.65% drop over the past month. Compared to June, when attention was focused on essential consumer goods and 'post-COVID' beneficiary stocks, it has plummeted about 24.2%. At the same time, Lotte Chilsung also fell 5% over the past month and 18% over six months. These companies significantly underperformed the KOSPI's one-month rise of 0.27%, which is analyzed to be due to lowered expectations for earnings recovery.

Fourth-quarter earnings estimates for both companies have been sharply revised downward since the beginning of this month. According to FnGuide, securities firms' fourth-quarter earnings forecasts for HiteJinro have decreased by 10% from three months ago (37.6 billion KRW) to 33.7 billion KRW. Lotte Chilsung's estimate also dropped about 33% from 17.8 billion KRW to 11.8 billion KRW. Although expectations for liquor demand recovery rose with last month's phased transition to daily recovery (With COVID), the rapid increase in domestic COVID-19 cases and rising raw material prices combined to lower expectations for earnings.

Social distancing has been identified as a factor hindering liquor stocks' price increases. Following the quarantine authorities' announcement last month of the transition to With COVID, they declared that from today, social distancing measures will be reinstated for four weeks, reducing the allowed number of private gatherings, thereby increasing stock price uncertainty. Kim Taehyun, a researcher at IBK Investment & Securities, said, "As the number of new COVID-19 cases rapidly increases, social distancing measures ahead of the year-end when gatherings such as year-end parties increase will be a variable for fourth-quarter earnings."

Meanwhile, total liquor demand this year shrank about 10% compared to the previous year due to the implementation of high-intensity social distancing. The market had predicted that the liquor market would show gradual recovery starting from the fourth quarter through daily life recovery, but next year's sales are likely to fall short of existing forecasts. Furthermore, due to the impact of the Omicron variant and shutdowns in Southeast Asian regions such as Vietnam, expectations for the recovery of export volumes, which had decreased, are also expected to be lowered.