NH Investment & Securities on the 7th said domestic demand for Lotte Chilsung continues to decline. It said expectations for short-term results should be lowered. However, it noted that the likelihood of expanding overseas sales in the Philippines, Pakistan, and Myanmar is high, so the investment appeal remains valid in the mid to long term. It maintained a "buy" investment opinion and cut the target price to 160,000 won from 170,000 won.
Lotte Chilsung's third-quarter sales this year were 1.0792 trillion won, and operating profit was 91.8 billion won. Compared with the same period a year earlier, sales rose 1.3% and operating profit rose 16.6% on a preliminary basis. Sales in the domestic beverage and alcoholic beverage institutional sectors fell 0.1% and 5.3%, respectively, from a year earlier. In the domestic market, demand is steadily declining, while production costs and the won-dollar exchange rate are rising, weighing on profitability.
Joo Young-hun of NH Investment & Securities said, "There are burdens on short-term results, but concerns about deteriorating results are already largely reflected in the current share price," and added, "The likelihood of the share price falling further is not great."
However, expectations remain valid for improvements in the performance of overseas subsidiaries. It is positive that the trend of improving results at overseas subsidiaries is continuing. The combined sales and operating profit of Lotte Chilsung's overseas subsidiaries increased 9.5% and 44.8%, respectively, from the same period last year.
Joo said, "The Phoenix Project, a management efficiency initiative at the largest Philippine subsidiary, has ended," and added, "A rise in contribution to results through full-fledged profitability improvement is expected."