[Click eStock] "Lotte Chilsung, Booster Shot Vaccination... Expecting Performance Improvement Next Year"

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 23rd, expecting favorable fourth-quarter earnings.

The consolidated sales and operating profit for the fourth quarter are estimated to grow by 13.7% and 284.5% year-on-year to 577 billion KRW and 12.8 billion KRW, respectively. Beverage sales are expected to achieve double-digit growth. This is because sales of Zero Cider and Cola are showing a favorable trend, while bottled water is also experiencing double-digit sales growth compared to a year ago. Despite the burden of raw material costs, operating margin is also expected to improve by 1.1 percentage points year-on-year due to the effects of price increases and mix improvement.

Sales in the liquor segment are estimated to grow by 9.3%. This is because total market demand recovered in October and November due to the easing of social distancing measures. During the same period, Lotte Chilsung soju sales are understood to have grown by double digits compared to a year ago. Beer sales are also estimated to have increased significantly year-on-year due to the expansion of OEM sales. Although social distancing measures were strengthened again from December, considering the low base last year, the trend in October and November is not expected to change significantly.

Sim Eunju, a researcher at Hana Financial Investment, explained, “With the emergence of the Omicron variant at the end of the year, total demand for liquor, which was showing signs of recovery, has stalled again,” adding, “Although investment sentiment among liquor companies has declined, considering that booster shot vaccinations are being actively administered, the performance leverage during next year’s peak season will definitely be meaningful.”

Next year, the company’s sales and operating profit are estimated to increase by 10.2% and 21.4%, respectively. The beer market has declined by more than 20% over the past two years but is expected to grow by 8-13% next year. The expansion of OEM sales is also noteworthy. This year, OEM sales are expected to be 33 billion KRW and increase to 80 billion KRW next year. Researcher Sim Eunju said, “Beer sales will naturally increase as total demand in the beer market recovers,” adding, “Next year, beer operating rates will approach 50%.”

The beverage segment is expected to continue margin improvement due to mix enhancement. Following a competitor’s price increase for carbonated drinks after one year, Lotte Chilsung has also made an unavoidable decision, so consolidated operating profit is expected to improve by around 20 billion KRW compared to previous estimates.