Heungkuk Securities said on the 18th that for LOTTE Corporation, improvement in pretax profit and net profit would be limited because of weak results at affiliate LOTTE Chemical. It maintained a Buy rating but lowered the target price to 35,000 won. LOTTE Corporation's closing price the previous day was 28,800 won.
Heungkuk Securities said that for LOTTE Corporation, a steady increase in earnings before interest and taxes (EBIT) would be possible next year, but equity-method losses and excessive net interest expense would occur because of weak results at affiliate LOTTE Chemical, limiting improvement in pretax profit and net profit.
Park Jong-ryeol, a researcher at Heungkuk Securities, said, "It is necessary to enhance financial soundness through strong restructuring across the group and to make companywide efforts to improve performance."
For LOTTE Corporation's consolidated results in the fourth quarter of this year, it forecast revenue of 3.9 trillion won and operating profit of 26.2 billion won. It said revenue would rise 2.6% from a year earlier and operating profit would return to the black.
It explained that this is due to the low base in the fourth quarter of last year, improved results at food and beverage subsidiaries such as LOTTE Wellfood and LOTTE Chilsung, and better earnings at LOTTE Innovate.
Park said, "Despite solid EBIT from consolidated subsidiaries, operating losses in new business units, including LOTTE Biologics, and weak results at equity-method affiliate LOTTE Chemical are weighing on performance."
Meanwhile, the scale of excessive interest costs is limiting improvement in pretax profit. It maintained the full-year consolidated forecast for this year at revenue of 15.7 trillion won and operating profit of 371 billion won.
It lowered the full-year consolidated forecast for next year from the previous estimate. Heungkuk Securities projected 2026 full-year consolidated revenue of 16.2 trillion won and operating profit of 514.2 billion won.
Park said, "While operating profit growth is possible thanks to improved results in the separate unit and consolidated subsidiaries, there are limits to fully connecting that to growth in pretax profit," adding, "This is because, along with the slump at equity-method affiliate LOTTE Chemical, it will not be easy for the operating results of the grandchild company LOTTE Engineering & Construction to turn to a recovery trend."
At the same time, Park said the shareholder return framework should be advanced by one step to restore market confidence.