The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com --- Ed.
Considering both the incorporation of its Philippines business as a consolidated subsidiary and product price hikes at rivals, Lotte Chilsung’s share price momentum is primed to strengthen towards end-year.
Philippines domain incorporated as consolidated subsidiary
We maintain a Buy rating and a TP of W180,000 on Lotte Chilsung. With the incorporation of its Philippine subsidiary having wrapped up at end-September, the subsidiary’s earnings are to be consolidated from the 4Q23. Given that earnings for the subsidiary have yet to be reflected in consolidated earnings, we see room for upward revisions following the incorporation.
Also boding well for future earnings is the fact that OB Beer, the number-one player in the domestic beer market, recently upped its product prices by 6.9% on average. While it cannot be said with certainty whether Lotte Chilsung will follow suit, considering the significant burden of rising manufacturing costs, the possibility appears well open. An ASP hike should boost its earnings and share price.
3Q23 preview: Earnings to arrive sound, contrary to concerns
We expect Lotte Chilsung to record consolidated 3Q23 sales of W824.6bn (+5% y-y) and OP of W79.3bn (+6% y-y). Although there are some worries toward sluggish sales in July and August, we believe that a significant top-line rebound in September ushered in a y-y rise in OP.
We size beverage division sales growth for the quarter at +6% y-y. The classification of artificial sweetener aspartame as a possible carcinogen appears to have had little to no negative impact on sales.
We estimate 3Q23 sales growth for the alcohol division at +2% y-y. Although liquor market conditions have been tepid as of late, Lotte Chilsung’s Chum-churum Saero soju product looks on track to enjoy monthly sales of W15bn by end-year. Looking at the company’s beer business, while we still see a notable drop in sales, an eye needs to be kept on sales figures as the firm is preparing to launch a new beer product in November in order to re-energize them.