[Click eStock] "Lotte Chilsung, Investment Appeal Remains Despite Q3 Earnings Slump"

Hanwha Investment & Securities Report

[Asia Economy Reporter Minji Lee] Hanwha Investment & Securities maintained a buy rating and a target price of 260,000 KRW for Lotte Chilsung on the 4th.

In the third quarter, Lotte Chilsung recorded sales of 784.3 billion KRW, a 12% increase compared to the same period last year. Operating profit decreased by 12% to 75 billion KRW. The operating profit fell short of the market expectation of 91.7 billion KRW.

By segment, carbonated beverage sales grew by 19.7%, driven by strong performance of zero-calorie carbonated drinks, leading the growth in standalone beverage sales. The market share of zero-calorie carbonated drinks expanded to 50.2%. Regarding alcoholic beverage sales, beer sales declined by 1.3% year-on-year due to slower-than-expected penetration in the commercial market. However, sales of soju, wine, and exports grew by 22.5%, 26.3%, and 21.8% respectively, maintaining double-digit growth in standalone alcoholic beverage sales.

Han Yujeong, a researcher at Hanwha Investment & Securities, said, “The Cargo Solidarity strike and rising packaging material costs led to increased beverage production costs. Additionally, the retroactive reflection of wage increases and expanded advertising expenses for the new soju product ‘Saero’ resulted in operating profit declining year-on-year for the first time in nine quarters.”

Although profits decreased, expectations for performance improvement remain valid. The mid- to long-term growth drivers are alcoholic beverage plant utilization rates and overseas performance. As of the third quarter, the estimated utilization rates for soju and beer plants were 78% and 33%, respectively. Researcher Han Yujeong stated, “With the expansion of Saero sales and the start of hybrid production, the utilization rates of soju and beer plants will continue to rise, leading to improved profitability in alcoholic beverages. From 2019 to 2024, Lotte Chilsung’s export sales are expected to grow at an average annual rate of 10.3%, overcoming regional limitations confined to domestic sales.”

By region, the US and Southeast Asia, and by product, Milkis, Lets Be, and fruit soju are expected to be the centers of growth. When consolidating the Philippine subsidiary (PCPPI), in which Lotte Chilsung currently holds a 73.6% stake, the annual sales increase effect is expected to exceed 30%. Researcher Han Yujeong added, “Although the results fell short of market expectations, the mid- to long-term investment points remain unchanged.”

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