Alcohol Stocks' Fortunes: HiteJinro Rises While Lotte Chilsung Falls

[Asia Economy Reporter Song Hwajeong] The fortunes of the two major players in the alcoholic beverage industry, HiteJinro and Lotte Chilsung, are diverging. Despite unfavorable market conditions due to the novel coronavirus disease (COVID-19), HiteJinro posted a surprise earnings performance, while Lotte Chilsung's results were sluggish. With differing outlooks for the second quarter, the temperature gap is also evident in their stock prices.

According to the Financial Supervisory Service's electronic disclosure system on the 19th, HiteJinro recorded sales of 533.9 billion KRW and operating profit of 56.1 billion KRW in the first quarter of this year. Sales increased by 26.2% compared to the same period last year, and operating profit turned positive, greatly exceeding market expectations. On the other hand, Lotte Chilsung posted sales of 507.4 billion KRW and operating profit of 6.3 billion KRW in the first quarter. These figures represent decreases of 12% and 68%, respectively, compared to the same period last year, falling short of consensus estimates.

Due to the impact of COVID-19, the beer market size in the first quarter is estimated to have shrunk by more than 10%, and soju by about 2%, indicating generally poor market conditions, but the two companies showed contrasting results. Market share made the difference.

HiteJinro expanded its market share by promoting Terra and Jinro Is Back, increasing sales volume despite the market downturn. Park Heejin, a researcher at Shinhan Financial Investment, said, "HiteJinro's profit improvement is due to sales growth through market share increase and margin improvement," adding, "Despite the market slump in the first quarter, HiteJinro's beer sales increased by 29.4% and soju by 26.8%, respectively."

Lotte Chilsung is struggling as it loses market share. Park Eunjeong, a researcher at Yuanta Securities, analyzed, "The decline in soju sales is presumed to have slowed, but the market share decline continues, and the beer segment remains weak," adding, "The decline in the operating rate of the core cash cow, the soju segment, also led to continued losses in the alcoholic beverage division."

The outlook for the second quarter also diverges. Son Hyoju, a researcher at Hanwha Investment & Securities, said, "From the second quarter, marketing expenses may increase as the peak season begins, but since competitors' situations remain challenging, HiteJinro is expected to continue expanding market share even during the peak season," adding, "Profit improvement is also expected to continue due to the easing of fixed cost burdens from increased operating rates." In contrast, Lotte Chilsung is expected to see gradual recovery only in the second half due to the continued high base burden. Researcher Park Eunjeong explained, "Second-quarter sales are expected to decrease by 11% to 600.8 billion KRW, and operating profit to decline by 30% to 32.6 billion KRW," adding, "Since market share decline in the alcoholic beverage market has continued since the second half of last year, the high base burden will persist."

Accordingly, HiteJinro's target stock prices have been raised one after another, while Lotte Chilsung's price targets have been lowered. Daishin Securities raised HiteJinro's target price from 30,900 KRW to 44,000 KRW, Kiwoom Securities from 40,000 KRW to 48,000 KRW, and Meritz Securities from 40,000 KRW to 45,500 KRW. Kim Jungwook, a researcher at Meritz Securities, said, "Market share expansion is a key factor for earnings growth and an important point for investment decisions," adding, "Confidence in the full-scale earnings contribution of Terra and Jinro Is Back this year will be strengthened."

Yuanta Securities lowered Lotte Chilsung's target price from 150,000 KRW to 121,000 KRW, and Hi Investment & Securities lowered it from 150,000 KRW to 140,000 KRW. Lee Kyungshin, a researcher at Hi Investment & Securities, explained, "The short-term recovery potential of the alcoholic beverage division is somewhat uncertain, and despite the recent significant stock price decline, it will be difficult to see a rapid recovery to previous levels until meaningful improvement trends are confirmed."

This content was produced with the assistance of AI translation services.