[Click eStock] "Lotte Chilsung Target Price Downgraded by 10%"

IBK Investment & Securities Lowers Lotte Chilsung Target Price
Revised Down from 200,000 KRW to 180,000 KRW
Cost Burden and High Exchange Rate Expected to Persist for a While

IBK Investment & Securities lowered the target price of Lotte Chilsung by 10%, from 200,000 KRW to 180,000 KRW on the 3rd.

Lotte Chilsung recorded consolidated sales and operating profit of 936.9 billion KRW and 42.4 billion KRW respectively in the first quarter. While sales generally met estimates, operating profit fell short. The strong sales growth continued due to the inclusion of the Philippine subsidiary's performance, but profitability deteriorated due to beverage cost burdens, decreased operating rates, and operating losses at the Philippine subsidiary.

By segment, beverage sales reached 431.3 billion KRW with an operating profit of 23.9 billion KRW. Energy drink sales increased by 31.3% thanks to strong sales of Hot6 The King, and exports mainly to North America, Europe, and Russia improved by 14.4%. On the other hand, unfavorable weather conditions led to decreased sales of bottled water and carbonated water, and carbonated coffee juice remained at last year's level, limiting segment growth. Additionally, profit declines were significant due to rising prices of key raw materials such as sugar and orange concentrate, as well as the impact of a higher USD-KRW exchange rate.

The alcoholic beverage segment posted sales of 214.8 billion KRW and operating profit of 18.3 billion KRW. Cheongju, wine, and whiskey showed weak performance. However, soju sales increased by 6.6% as monthly sales expanded to around 12 to 13 billion KRW. Beer sales also rose by 25.7%, with Crush's monthly sales reaching the 5 billion KRW level since the launch of canned beer in February.

Researchers Kim Taehyun and Baek Jongmin stated, "We are lowering earnings estimates as the beverage segment's cost burden and high exchange rate situation are expected to continue for some time. However, we maintain a buy rating as the current stock price implies a 7.8x forward PER for this year, which we judge does not pose a significant valuation burden."