[Click eStock] "Lotte Chilsung Target Price Maintained at 180,000 Won"

Korea Investment & Securities maintained a target price of 180,000 KRW and a buy rating for Lotte Chilsung on the 22nd.

Lotte Chilsung's third-quarter earnings are expected to record sales of 1.0984 trillion KRW and operating profit of 83.1 billion KRW, falling short of consensus by 2.1% and 8.4%, respectively. Excluding PCPPI (Philippine Pepsi), the estimated sales and operating profit are 808.4 billion KRW and 79.6 billion KRW, respectively. The main reason for the weak performance is that despite the effect of beverage price increases being reflected, domestic consumption slowdown and unfavorable weather conditions led to a decrease in beverage shipments, and marketing activities were conducted to expand liquor sales during the peak season.

Since the dining-out market continues to stagnate, the possibility of intensified competition within the liquor market is considered limited for the time being. Major competitors are also continuing to improve profitability through recent cost reductions. Lotte Chilsung is efficiently securing market share in the local soju market through pop-up events rather than large-scale promotional events, and it is expected that beer sales will gradually increase while avoiding excessive price competition. Regarding beverages, since Lotte Chilsung raised prices in June and competitors followed with price increases in September, Lotte Chilsung's price competitiveness is expected to be highlighted again. It is also positive that the cost of raw sugar input has been declining since the second half of the year.

Although the turnaround in domestic beverage business performance is delayed due to the slowdown in domestic consumption, the margin spread is expected to expand due to price increases and the decline in raw sugar input costs. Meanwhile, unlike the overall beverage business downturn, zero-calorie beverages continue to grow. Eunji Kang, a researcher at Korea Investment & Securities, said, "Improvement in the performance of the Philippine subsidiary and an increase in overseas sales proportion through CAPA expansion in Myanmar are also expected," adding, "The recent announcement of a corporate value enhancement plan once again confirmed the medium- to long-term growth direction."