[Click eStock] "Lotte Chilsung, Expecting Market Share Expansion in Beverage and Alcohol Sectors"

Hana Securities Report

[Asia Economy Reporter Minji Lee] Hana Securities maintained its buy rating and target price of 240,000 KRW for Lotte Chilsung on the 2nd, stating that the performance improvement trend is expected to continue in the second half of the year.

In the second quarter, Lotte Chilsung recorded consolidated sales and operating profit of 762.2 billion KRW and 63.8 billion KRW, respectively, representing growth of approximately 14% and 40% compared to the same period last year. This level met market expectations. Considering a one-time expense of 5 billion KRW in the beverage division, the results exceeded market expectations.

By business segment, beverage sales increased by 13% year-on-year, and operating profit rose by 6.7% to 44.9 billion KRW. Carbonated beverage sales grew significantly by 22.6%. It is estimated that the sales contribution of the ‘Zero’ series expanded to 50 billion KRW in the second quarter. Eunju Shim, a researcher at Hana Securities, said, “The market share of carbonated beverages rose from 38.4% last year to 39% in the first half of this year,” adding, “Due to the hot weather, water and coffee also showed double-digit growth compared to last year.”

Alcohol sales also grew about 15% during the same period. Operating profit turned positive, reaching 9.6 billion KRW. This was due to a low base last year, price increases, and mix improvement effects. Soju and beer sales increased by 15.8% and 4.9%, respectively, compared to a year ago. Wine showed significant growth, increasing by 30.9% during the same period. Beer OEM sales slightly declined compared to the previous quarter, attributed to a decrease in craft beer sales.

Last year, consolidated sales and operating profit are estimated to have grown 12.2% and 39.9% year-on-year to 2.8119 trillion KRW and 241.1 billion KRW, respectively. The company’s profit forecast is around 240 billion KRW. The beverage segment is expected to continue benefiting from price increases and mix improvement effects driven by steady sales of new products. The alcohol segment is expected to see meaningful performance improvements due to new product launches for soju and beer and the recovery of the entertainment market.

Researcher Eunju Shim explained, “If costs such as raw sugar, fructose, and exchange rates, which burdened costs in the first half, stabilize in the second half, there is room for upward revision,” adding, “Since the mid- to long-term market share expansion story for both beverage and alcohol segments remains valid, buying at low prices is effective.”