[Click eStock] "HiteJinro, Earnings Overshadowed by One-Time Costs... Recovery Expectations Rise"

[Asia Economy Reporter Kwon Jaehee] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 38,000 KRW for HiteJinro on the 14th.

In the third quarter, HiteJinro's sales reached 657.4 billion KRW, and operating profit was 57 billion KRW, marking increases of 17.9% and 27% respectively compared to the same period last year. These figures align with market consensus. Although the results reflected a mix of steady sales and increased various costs, they exceeded the conservative estimate of 12%.

Sales were favorable. Due to increased sales volume following the reopening, the gross profit margin (GPM) on a separate basis rose by 2.2 percentage points. Reflecting the effect of price increases as well, beer and soju sales grew by 8% and 24%, respectively. Based on domestic sales, growth was 15% and 17%, respectively. Despite a high base, steady fruit soju exports led to a 27% increase in overseas subsidiary combined sales.

However, additional labor costs and transportation expenses related to the Cargo Solidarity strike, labor costs from collective bargaining agreements, and advertising and promotional expenses prevented the company from fully benefiting from the leverage effect of increased sales, which is a regrettable aspect.

Although unexpected one-time costs occurred this year, these are expected to act as a base effect for next year. Since there are no significant changes in market demand and business conditions, the company can fully enjoy the profit growth effect. In particular, the industry as a whole is expected to invest in marketing expenses to recover from the negative growth over the past three years. However, demand cannot be met through push marketing methods as in the past, and ultimately brand power will be an important factor. HiteJinro is maintaining its market share based on strong brand power and plans to accelerate the overall market share growth by increasing penetration in non-metropolitan areas where market share is relatively low.

Researcher Cho Sanghoon of Shinhan Investment Corp. commented, "Although short-term fluctuations in market share and profits may be significant due to marketing expenses across the industry recently, changes in business conditions are not large, and rather, expectations for market share growth are greater," adding, "This is a time when expectations for the upcoming recovery are needed more than concerns about competition."

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