[Click e-Stock] "Lotte Corporation Shows Slower-Than-Expected Earnings Improvement... Target Price Maintained"

On May 23, IBK Investment & Securities maintained its "Buy" rating and 40,000 won target price for Lotte Corporation, stating, "Although first-quarter results improved more slowly than expected, there is potential for improvement in the second half of the year."

On this day, Nam Sung-hyun, a researcher at IBK Investment & Securities, said, "It does not seem easy for results to improve in the second quarter either. However, in the second half, growth in new business divisions and the effects of certain restructuring efforts are anticipated."

For the first quarter of this year, Lotte Corporation recorded consolidated sales of 3.5853 trillion won and an operating profit of 18 billion won. These figures represent a 4.1% decrease and a 74.1% decrease, respectively, compared to the same period last year. Nam pointed out, "The performance of major business divisions was sluggish, and as a result, royalty income and dividend revenue also declined, leading to a deterioration in separate results compared to the previous year."

Regarding the reasons for the weak first-quarter results, Nam explained, "In the food business division, despite global business expansion, weak domestic sales and cost pressures led to decreased performance at Wellfood and Chilsung. In addition, the continued deficit at 7-Eleven was due to poor convenience store market conditions and downsizing." He also stated, "Investments in biologics added to cost burdens, and Lotte Chemical's poor performance continued."

He added, "Although there was encouraging improvement in the results of Lotte GRS and the consolidated subsidiary Lotte Shopping, it is unfortunate that the domestic business segment showed a slowdown."

Improvement in second-quarter results also appears unlikely. Nam explained, "Although some affiliates such as Lotte Innovate and GRS are expected to show earnings growth, improvement in the food and distribution business divisions is unlikely, and it is difficult to definitively expect a turnaround in the performance of Lotte Chemical, which is a key subsidiary within the group." He also noted, "In the second quarter, costs related to the exercise of the put option by Lotte Global Logistics will also be a burden."

However, performance growth is expected in the second half of the year. Nam assessed, "Lotte Group is evolving into a new Lotte with a strengthened focus on new businesses. While it will take time to shift the business portfolio, results from reorganizing and improving efficiency in existing businesses are already emerging. The growth of new business divisions is also rapid." He added, "In the second half, growth in the food business division and the effects of restructuring at 7-Eleven are anticipated."