[Why&Next]Soju Company Betting on 'Selling Land for Dividends'... Is It Sustainable?

Hite Jinro’s Dominance in the Domestic Soju Market
Muhak Struggles to Escape Undervaluation Amid Survival Crisis
Pursuing Non-Operating Asset Sales, Quarterly Dividends, and Treasury Share Cancellation

As Hite Jinro's dominance in the domestic soju market has solidified, the position of regional soju companies continues to weaken. In this context, Muhak, a leading liquor company in the Gyeongnam region, is drawing attention for launching a comprehensive transformation of its business structure. Muhak, listed on the Korea Exchange, has announced a series of plans to enhance corporate value and dispose of treasury shares. The company has unveiled a strategy to build a "sustainable management structure" centered on three pillars: assets, dividends, and exports, instead of focusing on external growth. However, the prevailing outlook is that a short-term rebound in performance, which underpins corporate value, will be difficult to achieve.

According to the Financial Supervisory Service's electronic disclosure system on January 8, Muhak, a listed company on the Korea Exchange, recently released a "Corporate Value Enhancement Plan Report" and set mid-term goals to achieve a price-to-book ratio (PBR) of 0.7 times and a return on equity (ROE) of 10% by 2027. The company plans to gradually raise these figures from the current PBR of 0.41 times and ROE of 6.8%.

Muhak's flagship soju brand "Joeunday"

Selling Assets, Increasing Dividends, Reducing Shares: Muhak's Four Key Strategies

There are four main execution strategies for this plan. First, Muhak has classified non-operating real estate holdings in Seoul and the Gyeongnam area as assets for sale. As a regional liquor company, Muhak has accumulated many assets in the form of former headquarters, training centers, and idle land, but these have only increased book value without contributing to actual profit generation. The company plans to gradually sell these assets and reallocate the proceeds to repay debt, invest in facilities, and return value to shareholders.

Additionally, Muhak announced it would specify quarterly dividends in its articles of incorporation and provide annual minimum dividend guidance, enabling investors to predict dividend levels each year. This signifies a departure from the traditional practice of regional companies paying dividends only in good years, aiming instead to embed dividends as a fundamental part of management. Through dividends, the company seeks to stabilize its shareholder base and reduce stock price volatility.

Exterior of Muhak's Changwon Plant 1 in Gyeongnam.

Furthermore, over the next three years, Muhak will allocate 5% of its annual separate net income to the repurchase and cancellation of treasury shares. This is not merely a measure to manage the stock price, but a strategy to structurally reduce the number of shares and increase earnings per share (EPS). In an industry like the domestic soju market, where growth is limited, it is much more important to distribute the same profit over fewer shares than to expand the company's size.

Lastly, Muhak announced it would actively utilize treasury shares not just for cancellation but also as resources for facility investment and organizational infrastructure. In practice, Muhak has decided to issue exchangeable bonds (EB) backed by approximately one million shares as underlying assets, using the funds for equipment replacement at Changwon Plant 2 and the construction of a new training center. On December 15, the company sold 484,363 treasury shares to Samsung Air Conditioning at 8,387 won per share, totaling 4,062,350,000 won. Muhak explained this as "establishing a business partnership to strengthen mutual cooperation."

Hite Jinro's Dominance: Regional Soju Loses Its Presence

Muhak's soju brand 'White'

Muhak's recent decisions are directly linked to the structure of the domestic soju market. Hite Jinro, the industry leader, has effectively dominated the Seoul metropolitan area, large supermarkets, and convenience store channels, completing a nationwide distribution network. In contrast, regional soju companies find it difficult to expand their distribution beyond their home bases and are even losing ground to Hite Jinro's brands in their local markets. Additionally, the rapid spread of trends such as reduced company gatherings, low-alcohol beverages, highballs, and RTD (Ready To Drink) products has continuously diminished the relative appeal of diluted soju.

For this reason, Muhak's strategy is to seek a breakthrough through exports. However, the absolute scale of exports remains small. Muhak's export revenue in 2024 was 17.2 billion won, up from 16.3 billion won the previous year, but this is not considered significant growth. As of the third quarter of last year, exports stood at about 10.7 billion won, accounting for only around 10% of total sales (97.4 billion won).

Performance figures also clearly reflect these structural changes. After recording a deficit during the COVID-19 pandemic, Muhak returned to profitability in 2022 and maintained a surplus with 152 billion won in sales and 16.8 billion won in operating profit in 2024. However, cumulative sales through the third quarter last year were 108.9 billion won, a 5% decrease from the same period the previous year. During this period, operating profit fell 36% to 8 billion won. Annual sales last year are expected to fall below 140 billion won, with operating profit also expected to decline to the 10 billion won range.

Moving Beyond Domestic Dependence: Transitioning to Exports, Assets, and Dividends

The consensus is that it will be difficult for this transformation strategy to deliver a short-term rebound in performance. The decline in domestic soju consumption is clear, and the gap with Hite Jinro is difficult to close quickly, considering differences in business capabilities and marketing investment. Achieving a 10% ROE through core business growth alone is realistically challenging.

However, there is potential for Muhak's strategy to succeed, as it represents a shift from a "growth company" to a "stable, cash-generating company." If the company reduces its debt burden by selling non-operating assets and establishes quarterly dividends and minimum dividend guidance, the stock price could be revalued based on dividend stability rather than performance. In particular, if the plan to allocate 5% of annual separate net income to treasury share buybacks and cancellations is executed, earnings per share (EPS) will gradually improve even during periods of stagnant profit.

Expansion of exports is also more of a supplement to support the bottom line than a dramatic driver of performance rebound. If stable growth in fruit soju sales in Southeast Asia, China, and Korean communities in the Americas raises the export ratio to around 15%, it could fill much of the sales gap caused by declining domestic demand. However, the absolute scale of overseas sales is still small, making it clear that exports alone will not be enough to change the performance structure in the short term.

If this strategy succeeds, Muhak could be revalued in the market as a stable, cash-generating liquor company. Conversely, if dividend guidance is not met or asset sales are delayed, the corporate value enhancement plan may end up as a one-off declaration. Eunju Sim, a researcher at Hana Securities, commented, "With weak demand for liquor continuing, meaningful short-term improvement in fundamentals appears difficult. However, if the minimum annual dividend per share is set at a significant level as disclosed by the company, the downside risk for the stock price will be much more limited than in the past."

Muhak's Export Fruit Soju 'Joeundei'