[Click eStock] "Lotte Food, Increased Marketing Costs for Ice Cream and HMR"…Target Price Down

[Asia Economy Reporter Ji Yeon-jin] IBK Investment & Securities announced on the 14th that it has adjusted its profit estimates and lowered the target price for Lotte Foods from 600,000 KRW to 540,000 KRW, anticipating that the cost increase trend will continue for the time being as the company strengthens brand marketing for its ice cream and home meal replacement (HMR) products.

Kim Tae-hyun, a researcher at IBK Investment & Securities, stated, "As part of the business portfolio restructuring on the 8th, Lotte Foods decided to phase out its low value-added meat division (which accounted for 11.4% of last year's total sales) by the end of this year. Since this division recorded an annual operating loss of around 1 billion KRW, a slight improvement in profitability is expected, and the sales gap is expected to be compensated through the expansion of growth businesses including HMR and mergers and acquisitions (M&A)."

Lotte Foods' sales and operating profit for the third quarter of this year are expected to be 494 billion KRW and 20.7 billion KRW, respectively. Sales are projected to increase by 4.5% compared to the same period last year, but operating profit is estimated to decrease by 1.3%, which is below market expectations. Performance is expected to be sluggish due to increased costs in the ice cream, dairy processing, meat processing, and HMR sectors.

Sales and operating profit in the oil and food ingredients division are estimated at 179.5 billion KRW and 10.4 billion KRW, respectively, representing increases of 7.2% and 20.2% year-on-year. Due to the dining restrictions policy leading to a downturn in the dining-out market and the reduction of group meal service stores, sales of food ingredients are expected to continue declining. However, oil sales are expected to perform well due to increased sales volume and price hikes, and profitability improvement is expected to continue due to the expansion of high value-added products and product mix improvements.

However, sales in the ice cream and dairy processing division are expected to increase by 5.1% year-on-year to 128.6 billion KRW, while operating profit is expected to decrease by 6.9% to 8.7 billion KRW. Although ice cream sales likely benefited from the heatwave in July and August, operating profit is expected to decline due to expanded brand advertising for products like Pig Bar, decreased sales of infant formula, and increased surplus raw milk inventory.

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