[Click eStock] "Lotte Chilsung Performs Well Despite Bad Weather, Positive Outlook for Next Year... Recommended for Bargain Buying"

[Asia Economy Reporter Myunghwan Lee] Hana Securities announced on the 30th that it maintains a buy rating and a target price of 240,000 KRW for Lotte Chilsung. The company also forecasted that Lotte Chilsung will deliver results in line with market expectations for the third quarter of this year.

Hana Securities projected Lotte Chilsung's consolidated sales for the third quarter of this year to grow 11.4% year-on-year to 778.6 billion KRW, and operating profit to increase by 8.9% to 93 billion KRW. Despite unfavorable weather in the third quarter, Hana Securities analyzed that solid growth momentum will continue, resulting in performance meeting market expectations.

By business segment, beverage sales are expected to increase by 10% compared to the same period last year. This is due to the continued strong sales of carbonated drinks centered on the zero-calorie beverage 'Zero' series. Hana Securities estimated the sales contribution of the Zero series in the third quarter to be 50 billion KRW, similar to the second quarter.

Alcohol sales are also expected to increase by 13% year-on-year, supported by last year's base effect and high growth in wine. Lotte Chilsung launched a new soju product after Chuseok, and since soju market share has already bottomed out, Hana Securities noted that sales growth could exceed expectations depending on the speed of market acceptance of the new product. Although cost pressures such as sugar will continue in the third quarter, Hana Securities expects the profit growth trend to continue through production facility efficiency improvements and product mix enhancements.

Hana Securities forecasted that Lotte Chilsung will maintain solid performance next year as well. It estimated Lotte Chilsung's consolidated sales and operating profit for next year to reach 3.0269 trillion KRW and 270.3 billion KRW, respectively, representing increases of 7.5% and 13.2% year-on-year. Hana Securities expects high growth next year as this year's price increase effects are reflected. Although the price increase effect will disappear in 2023, the possibility of expanding market share for zero-calorie carbonated drinks still appears valid.

Beverage segment sales are expected to increase by 9.9% and 5.0% year-on-year this year and next year, respectively. Alcohol sales are estimated to grow by 15.8% and 11.8% in the same periods. Hana Securities noted that since the alcohol segment's market share has bottomed out, sales contributions from new products are anticipated. High growth in wine and whiskey is also expected to continue.

Sim Eunju, a researcher at Hana Securities, said, "Due to the recent stock price adjustment, the current stock price is trading at a 12-month forward price-to-earnings ratio (PER) of 11 times," adding, "The mid- to long-term market share expansion story for the beverage and alcohol segments remains valid, so buying at a low price is effective."