[Click e-Stock] "Lotte Chilsung, Full-Fledged Contribution from Overseas Subsidiaries"

On August 5, KB Securities raised its target price for Lotte Chilsung from 155,000 won to 170,000 won, stating that it is the time for both an upward revision of earnings forecasts and a re-rating (stock price re-evaluation) due to the full-fledged contribution of overseas subsidiaries to the company's performance. The investment opinion remains 'Buy'.

Lotte Chilsung's consolidated sales for the second quarter amounted to 1.0873 trillion won (down 1.1% year-on-year), and operating profit was 62.4 billion won (up 3.5%), exceeding the market consensus for operating profit (57.6 billion won) by 8.2%. Beverage sales decreased by 8.5% due to weak performance in the business channel and increased rainfall, while liquor sales dropped by 6.5% due to a slowdown in the downstream market. However, sales from overseas subsidiaries increased by 15.2%, and operating profit rose by 69.7%.

Ryu Eunae, a researcher at KB Securities, commented, "Since the end of March, Myanmar subsidiary's sales have increased as raw material imports have stabilized, and its operating profit margin reached 43%, leading to an 8.1% operating profit margin for overseas subsidiaries overall." She added, "From the third quarter onward, annual earnings are expected to show a low-to-high pattern, and the distribution of consumer coupons for economic recovery is projected to maximize profit leverage effects."

The profit contribution from overseas subsidiaries confirmed through second-quarter results is also expected to accelerate in the second half of the year and beyond. Ryu estimates that operating profit from overseas subsidiaries (the Philippines, Pakistan, Myanmar) will increase by 38.5 billion won year-on-year to 79.5 billion won in 2025, and forecasts that the proportion of operating profit from overseas subsidiaries will rise from 22.2% in 2024 to 36.5% in 2025, and to 40.2% in 2026.