[Click eStock] "Lotte Chilsung, Cost Uncertainties Persist... Target Price Cut"

On September 14, Hyundai Motor Securities reported that cost uncertainty remains for Lotte Chilsung due to Middle Eastern geopolitical factors and revised its target stock price downward from 170,000 won to 140,000 won. The investment rating was maintained at 'Buy'.

Lotte Chilsung posted sales of 1.1129 trillion won in the second quarter of this year, up 2.4% year-on-year, while operating profit decreased by 10.5% to 55.8 billion won. Ha Heeji, a researcher at Hyundai Motor Securities, stated, "The company delivered results below market expectations due to cost increases driven by Middle Eastern geopolitical factors."

In the beverage segment, sales increased 1.7% but operating profit dropped by 13.5%. Researcher Ha explained, "Despite a decline in the traditional trade (TT) channel, growth was centered on zero-calorie carbonated drinks and energy beverages," adding, "However, surging prices for raw materials (cans and PET bottles) and rising oil prices led to profit declines."

For the liquor segment, sales grew by 3.2% and operating profit jumped by 158.6%. Researcher Ha noted, "While the liquor market environment remains challenging, Saero Soju and ready-to-drink (RTD) alcoholic beverages showed strong growth, though beer remained sluggish, which was somewhat disappointing." He added, "However, product mix improvements had a positive impact on profitability."

Globally, sales increased by 3.4%, but operating profit declined by 27.0%. Growth was seen mainly in Pakistan, but the company heavily recognized the short-term negative impact from the Middle East, which led to deteriorating profitability.

Hyundai Motor Securities forecasts that Lotte Chilsung’s third-quarter results will see sales increase by 3.6% to 1.1175 trillion won, but operating profit decrease by 6.3% to 86 billion won. Researcher Ha pointed out, "While July’s price hikes in beverages and strong sales growth led by main products (zero-calorie carbonated drinks, energy drinks, Saero, and RTD beverages) are expected, burden on profitability remains."

Nevertheless, annual earnings guidance for this year (sales up 3.2% year-on-year to 4.1 trillion won, operating profit up 19.6% to 200 billion won) was maintained, factoring in product mix improvements. Researcher Ha said, "Although the prices of key materials such as cans and PET bottles are expected to remain high in the second half, the effects of price hikes, lower fixed costs, and a product mix improvement strategy to protect profitability support the decision to maintain this year’s earnings guidance."

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