SK Securities said on the 3rd that a high dividend yield is supporting the downside of the share price for Lotte Corporation(004990), and that group-level profitability improvements are becoming visible. It maintained a "Buy" investment opinion and a target price of 33,000 won. Lotte Corporation's previous day's closing price was 23,950 won.
On a consolidation basis in the first half, Lotte Corporation posted sales of 7.7 trillion won and operating profit of 1.75 trillion won. They rose 1.1% and 9.3%, respectively, from a year earlier, and net profit turned to a surplus of 790 billion won.
Choi Gwansoon, an SK Securities analyst, said, "Well Food, which saw growth overseas, led earnings improvement in the food business, and profitability improvement was confirmed by better results at equity-method affiliates such as Lotte Chemical," adding, "In particular, Korea Seven succeeded in turning to a surplus for the first time in 11 quarters since the third quarter of 2023 by shedding low-profit stores and moving to superior locations."
In the bio business, sales plunged due to the regular shutdown of the Syracuse campus in the United States and facility upgrades, but with orders resuming and the Songdo campus completed, it is aiming for 1 trillion won in sales by 2030.
Lotte Corporation has a shareholder-return policy of a shareholder return ratio of at least 35%—the sum of dividends and share cancellations—relative to separate net profit. In the first half of this year, separate net profit was 195.2 billion won, up 179.6% from a year earlier, reflecting improved affiliate results and the reversal of impairment losses on investment securities.
With separate net profit increasing, Choi forecasts that the downside for shareholder returns will also rise. Choi expects this year's cash dividend to be 1,250 won, the same as last year. That is about 5.2% relative to the current share price.
There is also analysis that cancellation of treasury shares held can be expected. Lotte Corporation currently holds 23.7% in treasury shares.
Choi said, "As of the second quarter on a separate basis, net debt was 3.5 trillion won, and financial structure improvement is needed," adding, "Accordingly, we are also considering improving the financial structure and securing investment resources by disposing of a portion of treasury shares."
He added, "Both cancellation and disposal will serve as an opportunity to highlight the value of the treasury shares held."