[Click eStock] "Lotte Chilsung, Short-term Cost Investment Unavoidable... Target Price Down"

Shinhan Investment Corp. on the 3rd lowered the target price for Lotte Chilsung from 200,000 KRW to 180,000 KRW, viewing short-term cost inputs as inevitable. The investment rating was maintained at 'Buy.'

Researcher Jo Sang-hoon of Shinhan Investment Corp. explained, "We revised down earnings estimates due to the burden of liquor costs and marketing expenses, and lowered the target price by 10% reflecting the valuation decline of peer companies. Although short-term cost inputs are unavoidable, excessive spending is limited as the advertising and promotion ratio relative to sales is managed."

Lotte Chilsung's second-quarter earnings this year fell short of market expectations (consensus). Second-quarter sales increased by 4.5% year-on-year to 796.2 billion KRW, while operating profit decreased by 7.2% to 59.2 billion KRW. Researcher Jo analyzed, "Lotte Chilsung's second-quarter results were 8% below consensus. Despite a negative operating environment, sales held up well, but cost burdens and marketing expenses were disappointing. Liquor sales increased by 5.1% thanks to growth in 'Saero' sales, but operating profit dropped by 76% due to cost burdens and marketing expenses."

Meaningful results are expected overseas starting next year. Researcher Jo said, "As early as the third quarter of this year, Philippine Pepsi will be incorporated as a consolidated subsidiary and reflected in earnings from the fourth quarter. The consolidation of Philippine Pepsi signifies a significant increase in overseas sales proportion, serves as a production base for beverage and soju expansion into Southeast Asia, and represents overcoming the limitations of a domestic company due to rising overseas sales proportion and valuation reappraisal."

There is an opinion that the stock price depends on new products. Researcher Jo stated, "Doubts about the liquor business remain, but various strategies to increase beer utilization rates are positive. The stock price trend will be determined more by the stabilization of new products and market share trends than by earnings."

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