[Click eStock] "HiteJinro, Social Distancing & Beer Market Share Decline... Target Price Down 20%"

DB Financial Investment Report

[Asia Economy Reporter Minji Lee] DB Financial Investment on the 17th lowered the target price for Hite Jinro by 20% from the previous level to 38,000 KRW, stating that earnings expectations should be lowered considering the strengthening of social distancing measures and the beer market share being weaker than expected. However, the investment opinion was maintained as a buy, reflecting the potential for a flexible recovery of the entertainment market once COVID-19 is resolved.

In the fourth quarter, Hite Jinro is estimated to record consolidated sales of 500.4 billion KRW, a 3.1% decrease compared to the same period last year. Operating profit is expected to increase by 30.2% to 31.1 billion KRW, reflecting a base effect. Although the fourth-quarter operating profit is expected to show a favorable increase compared to the previous year, it is projected to fall short of the market consensus level (33.7 billion KRW), which does not reflect the resurgence of COVID-19, due to weak beer sales and increased competition costs.

Jaehun Cha, a researcher at DB Financial Investment, said, “The liquor market, which showed a slight recovery in November, is entering a difficult phase again this month due to the resurgence of COVID-19 and the government’s strengthened distancing measures.” He added, “Beer sales for Hite Jinro in the fourth quarter are expected to continue declining by about 6.3% compared to the previous year.” Soju sales are expected to show positive growth due to increased market share and the peak season effect, but the overall market deterioration is expected to result in an uncertain trend next year as well.

Currently, the beer market share is in the high 30% range, maintaining the previous year’s level after a peak and subsequent decline, while the soju market share is 67%, showing a slight increase compared to the previous year. The beer market’s weakness is attributed to COVID-19 and the growth of the small-scale craft beer market. Additionally, rising costs, selling and administrative expenses, and intensifying competition are expected to increase the company’s burden.

Researcher Cha analyzed, “Although a positive environment is expected for next year’s sales and operating profit due to the stabilization of COVID-19, forecasts that anticipated a dramatic turnaround in beer market share will need to be revised.”