[Click eStock] "Lotte Je-gwa, Performance Improvement from Second Half"

[Asia Economy Reporter Song Hwajeong] Daishin Securities maintained its 'Buy' rating and target price of 220,000 KRW for Lotte Confectionery on the 4th, stating that although the company's second-quarter earnings fell short of expectations, performance is expected to improve from the third quarter onward due to the effects of new product launches.

Lotte Confectionery's second-quarter sales increased by 2% year-on-year to 509.1 billion KRW, while operating profit decreased by 3% to 24.8 billion KRW, falling short of the market consensus operating profit estimate of 31 billion KRW. Yoojeong Han, a researcher at Daishin Securities, analyzed, "Despite the base effect, the recovery in the gum and candy market was slower than expected, resulting in a 4% decline in snack sales and poor performance. Additionally, due to unfavorable weather conditions, ice cream sales also decreased by 1%, leading to a separate sales decline of 1% and operating profit falling 16% below expectations."

Performance in the third quarter is expected to exceed expectations. Daishin Securities estimated Lotte Confectionery's third-quarter sales and operating profit at 580.2 billion KRW and 57.5 billion KRW, respectively. These figures represent increases of 4% and 20% year-on-year, with operating profit surpassing the consensus estimate of 52.6 billion KRW. Researcher Han explained, "Domestic ice cream sales are estimated to increase by 10%, with the ice cream segment driving the growth in scale and profitability of the separate corporation. The price hikes implemented in the domestic bakery segment and Kazakhstan in the first half of the year are expected to be reflected from the end of the third quarter." Furthermore, sales contributions from new products launched in the second quarter in the Indian ice cream segment and Kazakhstan are expected to expand, and the effect of sales channel transitions in the Belgian corporation is also anticipated to continue.

Researcher Han stated, "In the second half of the year, the effects of new product launches and product price rationalization will lead performance improvements, and in 2020, the normalization of the snack market following the COVID-19 shock will drive earnings recovery."

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