Hite Jinro
The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
We lower our TP on HiteJinro to W28,000 to reflect increased marketing expenses following the launch of its Kelly brand. That said, we believe earnings concerns as already being baked into the share price. Moving ahead, expanding its beer market share is to be the key determining factor for the firm’s share price.
Lower TP to W28,000
We lower our TP on HiteJinro by 9.7% to W28,000. We derive our new TP by applying a P/E of 25.6x to 12M FWD NP (excl minority interest). The main reason behind cuts to our earnings estimates is higher-than-expected marketing costs.
While its marketing expenses have upped, the positive effects of this expenditure on sales is becoming increasingly visible. Due to the nature of alcoholic beverage makers, EV tends to rise alongside market share increases. Thus, whether HiteJinro succeeds in narrowing its market share gap with domestic number-one OB Brewery should be a more important factor in determining share price than short-term income.
2Q23 preview: Impacted by higher-than-expected marketing costs
On a consolidated basis, we expect HiteJinro to post 2Q23 sales of W665.1bn (+3% y-y) and consensus-missing OP of W18.7bn (-70% y-y).
We size soju division sales for the quarter at W378.1bn (-3% y-y). The pace of expansion in the domestic soju market itself has slowed, and there was high-base burden (y-y) due to a temporary spike in demand ahead of the strike by the Korea Cargo Workers Union). The company’s domestic soju market share is still high, standing in the upper 60% range.
We estimate 2Q23 sales for the beer division at W226.6bn (+11% y-y). Of note, this is the first quarterly earnings report since the launch of HiteJinro’s new Kelly brand. Within one quarter of its launch, sales of Kelly appear to be settling down quickly enough to account for 20% of HiteJinro's total beer sales. However, overall profitability should remain sluggish for now in light of higher-than-expected marketing costs.