South Korea: HiteJinro’s earnings momentum expected to pick up with gradual return to normal daily life
HiteJinro’s earnings momentum should pick up on business environment improvement in line with a gradual return to normal daily life. The company is also expected to hike its beer and soju prices. Accordingly, both product prices and sales volume are set to grow, the Business Korea reported citing a report by NH Investment & Securities.
While sticking to a Buy rating, the analysts revise up their TP for HiteJinro from W40,000 to W42,000, reflecting an increase in their target multiple from 23x to 25x. There is little change to earnings forecasts, but NH Investment & Securities removed a 10% discount to the global peer average considering both global peers’ valuation increase and anticipated market share expansion in line with a gradual return to normal daily life.
Liquor demand is forecast to normalize gradually in South Korea this year, although there will likely be fluctuations depending on Covid-19 developments and policies. Considering its high B2B sales portion, HiteJinro’s earnings are predicted to rebound rapidly upon an improvement in the business environment. Its share of the beer market has shrunk as stricter social distancing rules have crippled sales of the Terra brand with a high market share in the key commercial districts of the Seoul Metropolitan Area. Upon reopening, however, the firm’s share of the beer market is expected to resume rising. Also noteworthy are the company’s outstanding share of the domestic soju market and its widening overseas sales portion. In addition, HiteJinro might follow its rival’s beer price increase policy, and raise soju prices, reflecting a 7.6% rise in the ethyl alcohol price.
HiteJinro’s 2022 consolidated sales are projected at W2.3tn (+5.0% y-y) and OP at W203.8bn (+17.1% y-y).
Its beer and soju sales are estimated to rise by 4.1% and 6.1% y-y, respectively. After bottoming out in 1Q22, the firm’s quarterly earnings should keep improving going forward on a both gradual return to normal daily life and an uptick in demand for beer and soju.
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