[Click eStock] "Lotte Food, Holding Short- and Long-Term Momentum"

[Asia Economy Reporter Park Jihwan] Shin Young Securities maintained a 'Buy' rating and a target price of 550,000 KRW for Lotte Food on the 3rd, stating that the company possesses both short- and long-term momentum.

Researcher Kim Jeongseop of Shin Young Securities said, "Lotte Food's consolidated Q2 sales and operating profit recorded 457.5 billion KRW and 19.5 billion KRW respectively, up 3.9% and 39.1% year-on-year, exceeding market expectations for operating profit by 8.4%."

Despite an unfavorable business environment, the company continued external growth due to the low base effect from the previous year, price increases in oils, and recovery in client demand. It recorded operating results exceeding expectations through efforts to reduce costs such as expanding sales of high-margin products and adjusting low-margin business and SKU portfolios. Net profit declined due to the base effect from the previous year's gain of approximately 61.5 billion KRW from the sale of the Yeongdeungpo site.

Price increases and volume recovery in oils drove overall company performance. Sales in the oils and food ingredients division increased by 10.3%, and operating profit rose by 85.7%. Oils showed encouraging results due to the previous year's base effect, price hikes, increased client volume, and expansion of high-value-added products. Despite unfavorable business activities caused by COVID-19, the food ingredients segment offset sluggishness through B2B channel expansion and reduction of low-margin stores.

Long-term growth drivers are also expected. Consolidated Q3 sales and operating profit are forecasted to increase by 4.3% and 7.2% year-on-year to 493.1 billion KRW and 22.4 billion KRW, respectively. Researcher Kim Jeongseop explained, "Along with the previous year's base effect, favorable weather, price increase effects, full-scale expansion of the Home Meal Replacement (HMR) business, and increased sales of high-value-added products will contribute to a positive performance trend."

In the short term, profitability is expected to improve through recovery in upstream industry demand due to expanded vaccine distribution, price increases, and adjustments to low-margin business portfolios. Researcher Kim emphasized, "In the mid-term, profitability improvement from production plant integration, entry into eco-friendly oil material business, and full-scale expansion of the HMR business are expected as long-term growth drivers."

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