[Click e-Stock] "Lotte Chilsung Proves Profit Resilience Despite Sluggish Demand"

On May 5, Hanwha Investment & Securities analyzed Lotte Chilsung, stating that despite sluggish demand in the domestic beverage and liquor markets, the company demonstrated strong profit resilience through cost efficiency and normalization of overseas operations. In particular, it was noted that first-quarter results exceeded market expectations, signaling that structural improvements are now taking effect in earnest.

Han Yoo-jung, an analyst at Hanwha Investment & Securities, stated, "Lotte Chilsung's consolidated sales for the first quarter of this year were KRW 952.5 billion, up 4.6% year-on-year and 6.5% quarter-on-quarter, while operating profit reached KRW 47.8 billion, a 91.0% increase year-on-year and a turnaround from the previous quarter. This exceeded the consensus operating profit estimate of KRW 37.0 billion."

The domestic business performed relatively well despite a challenging environment. The analyst explained, "Although demand in the domestic beverage and liquor markets remained weak, profit improvement was driven by cost efficiency and normalization of overseas subsidiaries' performance." In the beverage segment, "Even as the domestic beverage market declined by 1–2% and the on-trade channel dropped by 2%, zero-sugar carbonated beverage sales reached KRW 84.0 billion, up 16% year-on-year, and internal cost-saving initiatives helped offset cost pressures," she analyzed.

The liquor segment is also experiencing structural improvements. She noted, "Despite market sluggishness and revenue gaps caused by withdrawal from some businesses, sales of 'Saero' grew by 12%, and the decline of 'Chum-Churum' slowed. Although exports to Southeast Asia and China declined, resulting in a slowdown in short-term export growth, exports to core markets remained solid."

Profitability recovery in overseas business was particularly notable. The analyst explained, "Profitability improved due to the elimination of one-off costs and cost reductions in the Philippines, as well as normalization of import license issues in Myanmar." However, she added, "Growth in the Philippines fell short of expectations due to a significant weakening of brand power in the local cola market."

For the second quarter, the increase in profits is expected to be somewhat limited. The analyst projected, "Consolidated sales in the second quarter are expected to be KRW 1.1261 trillion, up 3.6% year-on-year, and operating profit is expected to be KRW 62.5 billion, a 0.2% increase year-on-year. Unlike the first quarter, the year-on-year profit growth is expected to be limited." She explained that "this is largely due to the high base effect of last year's second-quarter operating profit, and because cost pressures related to increased Middle East risk since March may begin to be partially reflected from the second quarter."

Nevertheless, the analyst maintained a positive assessment of the company's mid-to-long-term investment appeal. She emphasized, "Although demand recovery in the domestic beverage and liquor markets remains slow, the continued growth of core brands such as zero-sugar carbonated beverages and 'Saero,' along with the full-fledged reflection of profitability normalization at overseas subsidiaries, are positive factors." She added, "Although the potential increase in cost burden due to Middle East risks is a short-term variable, we believe it can be managed through price increases and cost efficiency."

She also noted, "Given the potential for the realization of non-operating asset value, such as development of the Seocho-dong site and sale of the Yangpyeong-dong site, the current share price still offers attractive valuation."

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