Korea Investment & Securities forecasted on the 18th that Lotte Chilsung will gradually alleviate cost burdens starting in the second half of this year. It also raised the target stock price from 130,000 won to 160,000 won and maintained its investment opinion at 'buy.' The last closing price of Lotte Chilsung was 132,500 won.
Korea Investment & Securities projected that Lotte Chilsung's sales in the second quarter of this year would increase by 0.1% year-on-year to 1.1009 trillion won, while operating profit is expected to decrease by 8.6% during the same period to 55.1 billion won. These figures are below the securities industry's forecasts by 2.1% and 5.6%, respectively.
Due to sluggish domestic consumption, beverage sales have decreased, although zero-calorie carbonated drinks and energy drinks seem to have defended against the decline in sales. Analyst Kang Eun-ji at Korea Investment & Securities noted, "Despite the drop in sugar prices, fixed costs have increased due to rising aluminum prices and declining sales, leading to a deterioration in revenue."
However, it is expected that cost burdens will gradually ease starting in the second half of the year. The price of sugar is maintaining a downward stabilization, and the prices of coffee beans and orange juice concentrate have dropped by more than 30% compared to last year's peak. The lower exchange rate of the won against the U.S. dollar in the second half compared to the first half is also positive for alleviating cost burdens.
Analyst Kang said, "The profitability improvement of the Philippine subsidiary (PCPPI), where an internal revenue enhancement project is underway, is also expected to start in earnest from the second half, indicating that Lotte Chilsung's profitability will rebound from the second quarter's low."
He also noted, "Considering the expectations for future overseas business expansion, a medium- to long-term buying strategy is valid."