[Click eStock] "Lotte Food, Short-Term Cost Burden but Long-Term Merger Synergy"

[Asia Economy Reporter Kwon Jae-hee] Hi Investment & Securities on the 31st issued a 'Buy' rating and a target price of 580,000 KRW for Lotte Food. Although there are burdens due to external factors such as raw material price increases, the merger with Lotte Confectionery is expected to generate synergy effects in the mid to long term.

Hi Investment & Securities forecasted Lotte Food's sales and operating profit for the first quarter of this year to be 344.7 billion KRW and 9.3 billion KRW, respectively.

Despite price increases in the oil segment, the burden from external variables related to raw material prices is expected to continue.

Regarding processed oils, although price pass-through efforts continue in response to rising raw material costs, the burden from additional increases in crude oil prices is expected to be reflected.

Researcher Lee Kyung-shin of Hi Investment & Securities analyzed, "Considering the recent trend of additional raw material price increases despite solid volume secured from major clients, negative impacts until the first quarter of this year are inevitable. However, considering market dominance, the profit structure is expected to remain solid after cost stabilization."

The ice cream segment is expected to grow at a level similar to the market due to the seasonal off-season. However, there is a possibility of continued cost expenditures due to the high base effect from the same period last year and the reflection of skim milk powder costs.

Researcher Lee said, "Lotte Food, which is being absorbed and merged into Lotte Confectionery, is expected to achieve efficiency in products, distribution channels, and brands after the integration of the ice cream business in the current term," adding, "Although it will take time for full integration, synergy effects through the merger are expected in the mid to long term."

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