Lotte Chilsung
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
Lotte Chilsung’s domestic soju market share recovery is continuing, led by Chumchurum Saero. Share price momentum is high thanks to the possible consolidation of the firm’s Philippine subsidiary within the year.
Saero’s run continues in 2023
We maintain a Buy rating and TP of W230,000 on Lotte Chilsung.
Sales of Chumchurum Saero, a new soju product launched in Sep 2022, remain strong in 1Q23. Currently, the firm only sells a glass bottle version of Chumchurum Saero, but it plans to add a plastic bottle version in 2Q23. As a result, related sales should increase, and the company’s share of the domestic soju market is likely to exceed 20%, in line with the company’s target.
The possible consolidation of the company’s Philippine subsidiary within the year is also positive. In 2022, sales at the subsidiary reached W908.7bn. Looking ahead, the firm’s portion of overseas sales looks set to increase significantly, and its OPM, which is currently estimated at 1%, is predicted to recover to 10% within three years. Consequently, we expect the consolidation of the subsidiary to bolster Lotte Chilsung’s EV over the mid/long term.
Sales and OP sound in 1Q23
We forecast consolidated 1Q23 sales of W681.6bn (+9% y-y) and OP of W66bn (+11% y-y), beating consensus.
Liquor sales are projected at W215.2bn (+11% y-y), driven by solid demand for Chumchurm Saero. Monthly sales of Chumchurm Saero, which stood at W7.9bn in December, are now in the mid-W9bn range. If a PET version of Chumchurm Saero is released in 2Q23, related sales should comfortably exceed W10bn per month. Although sales at the beer business are somewhat sluggish, we do not believe this is a cause for concern, given its relatively small contribution to the alcoholic beverage division.
Sales at the beverage division are projected at W418.6bn (+7% y-y). Despite high base burden, earnings improvement should continue on increased demand for zero-calorie carbonated drinks and product portfolio expansion.