[Click eStock] "Lotte Chilsung, Short-term Investment Appeal Declines... Investment Opinion and Target Price Lowered"

[Asia Economy Reporter Song Hwajeong] Daishin Securities on the 11th downgraded its investment opinion on Lotte Chilsung from 'Buy' to 'Marketperform' and lowered the target price from 180,000 KRW to 130,000 KRW, citing continued productivity deterioration due to market share contraction through the first half of this year.

Han Yujeong, a researcher at Daishin Securities, explained, "We expect a deterioration in the profitability of the liquor business division this year, leading us to revise down the 2020 operating profit estimate by 22%. Although the downside rigidity is secured considering only the real estate value in Seocho-dong owned by Lotte Chilsung, the short-term investment appeal declines due to burdens from worsening competition across beer and soju this year."

Lotte Chilsung's fourth-quarter results last year fell short of expectations. Consolidated sales for Q4 reached 520 billion KRW, down 6% year-on-year, and operating loss was 6.9 billion KRW, turning to a deficit. Researcher Han analyzed, "Operating profit turned negative, missing the consensus estimate of 1.6 billion KRW. The liquor segment performed poorly due to competitors' new product launches and increased market cost investments, resulting in a 28% decrease in beer and soju sales, significantly worsening profitability compared to the same period last year."

The burden is expected to continue through the first half of this year. Han said, "While external uncertainties that emerged in Q3 last year are likely to gradually ease, and the high proportion of canned beer products among the top three beer companies suggests that the revision of the liquor tax law could be a positive factor, we anticipate that the trend of market share contraction in the liquor segment will continue through the first half of this year, with productivity deterioration offsetting these positives."

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