Hite Jinro
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
We lower our TP for HiteJinro on a reduction to our earnings estimates to reflect both a rise in malt prices and cost increase stemming from the launch of a new product. However, a share price rebound is possible, if new beer product ‘Kelly’ proves successful.
Lower TP to W31,000
We lower our TP for HiteJinro by 13.9% to W31,000. Our new TP was derived by applying a P/E of 22.5x to 12-month forward NP (excluding minority interest) of W97.6bn. The reduction in TP is mainly attributable to a trimming of annual earnings estimates to reflect both cost increase and greater marketing expenses following the launch of a new beer product.
However, we believe that earnings concerns are already reflected in the current share price, which has fallen to the P/E level of 16.1x. Moving ahead, the important factor will be the performance of the firm’s new beer offering (Kelly), which was launched on Apr 4. If Kelly can solidly establish itself alongside existing product Terra, HiteJinro’s gap in market share with No. 1 beer brewer OB should narrow. When liquor companies enjoy a rise in market share, a strengthening in EV typically comes along for the ride. In line, we recommend keeping an eye on the firm’s sales volume growth.
1Q23 preview: Advise conservative approach
We expect HiteJinro to post consolidated 1Q23 sales of W586.7bn (+1% y-y) and OP of W27.8bn (-52% y-y), with both figures to miss consensus. Of note, the forecasted OP decline is mainly attributable to related marketing expenses in advance of the launch of new beer Kelly.
Sales at the soju division are estimated at W360.2bn (+2% y-y). Although the pace of sales growth itself is down y-y, we believe that the company’s position as the No. 1 operator in the domestic soju market remains solid. Noting the ‘Jinro is Back’ renewal as a zero-sugar soju in 1Q23, the key moving ahead will be how quickly the renewed version can settle in the market.
At the beer division, sales are projected at W172.8bn (-6% y-y). Amid somewhat sluggish sales, a decline in margins was inevitable, given cost increase ahead of the launch of new product Kelly. We note that a large cost uptick was also witnessed around Terra’s launch in 2019. Given the corresponding rise in share price in line with market share expansion that was seen at the time, we believe that the key variable for HiteJinro’s future share performance will be sales of Kelly.