[Click eStock] "Lotte JiJu, Corporate Value Expected to Increase Further... Coverage Initiated"

Investment Opinion 'Buy' and Target Price Set at 47,000 Won

On the 5th, IBK Investment & Securities initiated coverage on Lotte Holdings, expressing a 'Buy' investment opinion and setting a target price of 47,000 KRW, anticipating that the company's corporate value could increase further.

Nam Seong-hyun, a researcher at IBK Investment & Securities, stated, "The values of listed and unlisted companies were discounted by 50% based on market and book values, and the operating value was calculated by applying a price-earnings ratio (PER) of 10 times to the separate basis operating performance." He added, "The target price presented is considered conservative since a 50% discount rate was applied; nevertheless, Lotte Holdings still has ample upside potential. Considering the overall improvement across the group, the corporate value is expected to rise further."

Researcher Nam identified the investment points for Lotte Holdings as ▲ the full-scale effects of structural improvement ▲ securing growth potential through new businesses ▲ the possibility of improving operating performance through increased shareholding. He explained, "Since 2019, Lotte Group has implemented intensive restructuring to improve its structure. Starting with Lotte Mart, they sought offline efficiency in supermarkets, Lotte Hi-Mart, Lotte Cinema, GRS, and others, and it is evaluated that they successfully stabilized the business units while overcoming the COVID-19 crisis." Although some business units such as chemicals continue to show poor operating performance, the rebound in results of distribution and food-related companies indicates that the structural improvement effects across the group are becoming more pronounced.

The profit contribution from the bio business division is becoming substantial, and in the case of Lotte Information & Communication, rapid growth is occurring due to increased group volume and expansion of new businesses, highlighting the growth potential of new business divisions. The increase in corporate value through shareholding expansion is also ongoing. Since transitioning to a holding company, Lotte Group has focused on managing core businesses of affiliates and strengthening control, changing Lotte Food and Lotte Chilsung into subsidiaries and continuously acquiring shares of Lotte Chemical.

Operating performance growth is expected to continue this year. Researcher Nam estimated, "Consolidated sales for 2024 are projected to increase by 11.7% year-on-year to 17.014 trillion KRW, and operating profit is expected to rise by 28.4% to 628.1 billion KRW." He explained, "The positive outlook is due to the acquisition of Lotte Chilsung PCPPI (Philippine Pepsi) corporation and the effects of new beer launches, cost stabilization of major food subsidiaries, expansion of Lotte GRS orders and efficiency of key brands, and the high possibility of profit improvement through the completion of Korea Seven PMI (post-merger integration)." An increase in royalty income is also anticipated due to the recovery of major subsidiaries' performance.