[Click e-Stock] "Lotte Chilsung, Cost Pressure Relief Becoming Visible"

On July 18, Korea Investment & Securities raised its target price for Lotte Chilsung from 130,000 won to 160,000 won, stating that a gradual easing of cost pressures is expected from the second half of this year, and that considering expectations for future overseas business expansion, a buy strategy remains valid from a mid- to long-term perspective. The investment opinion was maintained as 'Buy'.

Lotte Chilsung's sales in the second quarter were estimated at 1.1009 trillion won (+0.1% year-on-year), and operating profit at 55.1 billion won (-8.6%), both expected to fall short of market expectations. The beverage division is projected to post sales of 535.6 billion won (-0.4%) and operating profit of 26.7 billion won (-24.6%), while the liquor division is estimated to record sales of 192.3 billion won (-4.9%) and operating profit of 1.7 billion won (-46.9%).

Kang Eunji, a researcher at Korea Investment & Securities, commented on the beverage division's performance, saying, "Despite the decline in sugar prices, profitability is expected to deteriorate due to increased fixed costs such as rising aluminum prices and a decrease in sales volume." She added, "Although beverage sales volumes are likely to continue declining due to sluggish domestic consumption, zero-calorie carbonated beverages and energy drinks are expected to continue growing, which likely helped offset the decrease in sales." She also noted that the liquor division's performance likely worsened due to an unfavorable domestic consumption environment.

However, a gradual improvement in profitability is expected from the second half of the year. This is because the prices of major raw materials, which surged sharply last year, are now declining. Kang stated, "Sugar prices are continuing to stabilize downward, and the prices of coffee beans (Arabica) and orange juice concentrate have dropped by more than 30% compared to their 2024 peaks." She also said, "A lower won-dollar exchange rate compared to the first half is also positive for easing cost pressures." The internal profitability improvement project at PCPPI (Pepsi Philippines) is also expected to deliver noticeable results starting in the second half.