[Click eStock] "Lotte Chilsung, Year-End and New Year Uncertainty Stock Price Adjustment is a Buying Opportunity"

[Asia Economy Reporter Eunmo Koo] The fundamentals of Lotte Chilsung are improving. Although market demand for both beverages and alcoholic beverages remains sluggish, a strong improvement in the cost ratio of the alcoholic beverage sector was observed in the third quarter. Considering the potential recovery in demand for the beverage and alcoholic beverage markets, product mix improvement, and increased beer operating rates, the recent stock price adjustment due to the resurgence of the novel coronavirus (COVID-19) should be approached as a buying opportunity from a mid- to long-term perspective.

Lotte Chilsung's consolidated operating profit for the third quarter turned positive compared to the same period last year, raising expectations for fundamental improvement. On the 17th, Sangjun Park, a researcher at Kiwoom Securities, explained in a report, "Beverages have shown poor performance due to decreased foot traffic and weak demand in dine-in channels, but alcoholic beverages are improving their cost ratio through reduced promotional expenses, inventory optimization, and the launch of new beer products."

However, due to the recent resurgence of COVID-19, visibility for fourth-quarter performance is very low. Despite a rebound in beverage and alcoholic beverage demand in October and November, demand in December, which accounts for a large portion of sales, is likely to remain weak. Nevertheless, Researcher Park stated, "Considering the easing intensity of COVID-19 spread and the growing expectations for vaccinations next year, Lotte Chilsung could become a beneficiary of the contact transition."

For beverages, sales recovery and product mix improvement are expected to focus on carbonated drinks, coffee, and bottled water. Researcher Park explained, "Lotte Chilsung's flagship product, Cider, has a lower proportion of delivery and dine-in sales compared to cola, which led to a larger sales decline this year. Coffee and bottled water also experienced weak market demand due to decreased foot traffic, and the proportion of small-sized product sales declined, worsening the product mix." He added, "Considering that Cider is the most profitable product among Lotte Chilsung's offerings and that the average selling price (ASP) level of small-sized products is high, there is high visibility for sales recovery and product mix improvement next year."

In the alcoholic beverage sector, while cost ratio improvements and promotional expense reductions continue, various strategies are being reviewed to improve beer operating rates. Additionally, considering that the market demand, which was weak this year, could recover next year, the visibility for performance improvement is relatively high.

The investment opinion remains "Buy," and the target stock price has been raised to 150,000 KRW. Researcher Park evaluated, "Considering the recovery in demand for the beverage and alcoholic beverage markets due to the contact transition and Lotte Chilsung's profitability turnaround, the profit growth rate of Lotte Chilsung is expected to be relatively strong during the industry recovery phase. The recent stock price volatility caused by the COVID-19 resurgence should be viewed as a buying opportunity from a mid- to long-term perspective."

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