[Click eStock] "Lotte Jeonbosung, Strengthening New Business and Expecting Synergy with Group Companies"

[Asia Economy Reporter Lee Jung-yoon] IBK Investment & Securities maintained a buy rating and a target price of 50,000 KRW on Lotte Information & Communication on the 4th, stating that the company is strengthening new businesses through mergers and acquisitions (M&A) and that synergies with Lotte Group companies are expected as COVID-19 eases.

Seung-hoon Lee, a researcher at IBK Investment & Securities, explained, "Last year, Lotte Information & Communication acquired Jungang Control, which operates an electric vehicle charging infrastructure business, and Caliberus, which possesses metaverse technology," adding, "The electric vehicle charging infrastructure business is expected to create synergies with the group’s logistics, rental, and distribution businesses." Previously, Lotte Group, Hyundai Motor Group, and KB Asset Management announced an agreement to establish a special purpose company (SPC) to install approximately 5,000 electric vehicle chargers by 2025. Additionally, the acquisition of Caliberus is expected to strengthen synergies with distribution affiliates. Furthermore, with the reopening, Lotte Group’s sales recovery is anticipated, which is expected to enhance cooperation with its subsidiaries.

However, Lotte Information & Communication’s operating profit in the first quarter of this year fell 54.8% year-on-year to 5.1 billion KRW, missing consensus estimates. First-quarter sales rose 9.9% to 239.4 billion KRW. The researcher analyzed, "The companies acquired last year were in a deficit state and were consolidated into the performance, and rising labor costs caused a significant cost burden," adding, "Jungang Control recorded a deficit with sales of 39.3 billion KRW in 2021, and Caliberus also continued to incur losses." Total labor costs increased by 14.7% compared to the same period last year, but since the increased labor costs from the second half of this year are expected to be reflected in the group’s business, profitability improvement is anticipated from the third quarter.

This year, Lotte Information & Communication is estimated to record sales of 1 trillion KRW and an operating profit of 39.7 billion KRW. Recently, it secured a next-generation system construction project worth 66.6 billion KRW from Lotte Rental, and since additional large-scale orders are expected in the future, expectations for external growth and operating leverage effects in the second half of the year are increasing. The first half of the year will be a preparation period for business structural changes, during which costs will rise first, but sales are expected to be rapidly reflected in the second half, making profitability improvement from the third quarter highly likely.

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