[Click eStock] HiteJinro, Operating Profit Decline Leads to 'Target Price Downgrade'

[Asia Economy Reporter Lee Seon-ae] IBK Investment & Securities announced on the 15th that it maintains a buy rating on Hite Jinro but lowers the target price from 48,000 KRW to 38,000 KRW. The closing price on the previous day was 26,700 KRW. This adjustment reflects the overall valuation decline in the industry and the potential increase in expenses such as advertising and promotional costs aimed at defending sales due to the launch of new soju products by competitors.

Consolidated sales for the fourth quarter are expected to grow 9% year-on-year to 593.9 billion KRW, but operating profit is estimated to decrease by 61.2% year-on-year to 13.1 billion KRW. Due to the base effect, an improvement in liquor sales volume in the fourth quarter is anticipated. However, Kim Taehyun, a researcher at IBK Investment & Securities, stated, "There will likely be personnel-related expenses such as retirement benefit provisions in the mid-10 billion KRW range, making a significant decline in operating profit inevitable," adding, "Operating profit is expected to fall short of the consensus estimate of 24.1 billion KRW."

By segment, beer sales are projected to increase by 5.1% to 166.4 billion KRW, with an operating loss of 10.1 billion KRW (continuing losses, compared to a 6.0 billion KRW loss in the fourth quarter of last year). Although imported beer (distribution) and export volumes are expected to decline, sales volume is likely to increase due to the recovery of the on-premise market following the lifting of social distancing measures. Soju sales and operating profit are forecasted at 375.4 billion KRW (+11.6%) and 26.3 billion KRW (-27.0%), respectively. The strike issue was resolved in mid-September, and with product shipments normalized in the fourth quarter, combined with the base effect and price increases, sales growth is expected to continue.

Researcher Kim said, "As consolidated sales and operating profit are expected to improve by 2.8% and 9.6%, respectively, next year, the buy rating is maintained."

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