[Click eStock] "Lotte Chilsung, Alcohol Momentum Shift... Operating Rate Expected to Rise"

[Asia Economy Reporter Eunmo Koo] NH Investment & Securities analyzed that although Lotte Chilsung's low utilization rate and sluggish top-line in the alcoholic beverage sector had been disappointing, the beer segment is entering a structural upswing phase thanks to strong sales of new products and the OEM contract with ‘Gompyo Beer’. The investment rating was upgraded to ‘Buy’, and the target price was raised from the previous 100,000 KRW to 150,000 KRW.

Lotte Chilsung has seen strong sales of ‘Cloud Saeng Draft’ and recently signed an OEM contract with ‘Gompyo Beer’. As a result, the utilization rate in the beer segment is expected to increase by an additional 5-8%, enabling an annual utilization rate rebound to at least 30%. On the 14th, researcher Jomijin from NH Investment & Securities stated in a report, “Since cost efficiency and organizational restructuring have improved the profit structure so far, it is expected that the profit leverage effect will expand with the top-line growth in beer.” He added, “The beverage segment was hit by COVID-19 and currently has no base burden. The product portfolio will expand with the launch of Pepsi Zero Cola, and entry into delivery-based dining outlets, which had been insufficient, will also increase.”

For the fourth quarter of last year on a consolidated basis, sales are estimated at 483.1 billion KRW, down 7.1% year-on-year, and operating profit is expected to turn positive at 1.8 billion KRW. Despite the operating profit turning positive in the alcoholic beverage segment, one-time costs such as labor expenses are expected to keep profits around the break-even point.

Researcher Jo predicted, “Sales growth in the beverage segment will be difficult due to unfavorable external factors such as the resurgence of COVID-19 and cold waves. Especially, B2B sluggishness will be highlighted, leading to a sales decline across all product categories in the fourth quarter.” However, the alcoholic beverage segment’s sales growth rate is expected to expand compared to the third quarter due to the low base effect from the previous year, high growth in beer from new product launches, and increased wine sales. Researcher Jo forecasted, “There is no base burden in alcoholic beverages until the first half of the year, so a significant sales rebound will continue.”

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