Heungkuk Metaltech Securities on the 23rd said Lotte Corporation needs to bolster financial soundness through sweeping restructuring across the group and to push for companywide performance improvement. It maintained its Buy rating and raised the target price to 44,000 won. Lotte Corporation's previous session closing price was 36,450 won.
Lotte Corporation posted consolidated sales of 3.8 trillion won and an operating loss of 105.8 billion won in the fourth quarter last year. Operating results fell short of the initial forecast.
Park Jong-ryeol of Heungkuk Metaltech Securities analyzed, "Despite the low base effect from the prior year and improvements at some subsidiaries, results worsened due to higher materials and supplies prices at food and beverage subsidiaries such as Lotte Wellfood and Lotte Chilsung."
Along with weak results at consolidated subsidiaries, operating losses occurred as fixed costs at new business units, including Lotte Biologics, increased, and it was also noted that weak performance at equity-method affiliate Lotte Chemical persisted.
Park explained, "Despite reversing impairment losses thanks to subsidiary performance improvement, there are limits to improving pretax profit because of excessive interest expenses."
Heungkuk Metaltech Securities projected that Lotte Corporation's EBIT margin could rise steadily this year, but that improvements in pretax profit and net profit would be limited due to equity-method losses stemming from weak results at affiliate Lotte Chemical and heavy net interest expenses.
At the same time, it cut its full-year consolidated sales forecast to 16.1 trillion won and operating profit to 441.3 billion won from previous estimates.
Park said, "Efforts are needed to enhance financial soundness through strong restructuring across the group and to improve performance companywide," adding, "To restore market trust, the shareholder return framework should be advanced by one step. It is necessary to present a concrete plan for canceling treasury shares."