South Korea: Hyundai Motor Securities lowers its target price for Hite Jinro

On November 28, Hyundai Motor Securities lowered its target price for Hite Jinro from 27,000 won to 25,000 won. The firm maintained its buy investment rating.

Ha Heeji, a researcher at Hyundai Motor Securities, stated, "A challenging business environment continues," explaining the decision.

In the third quarter, Hite Jinro posted sales of 669.5 billion won (a 2.4% decrease year-on-year) and operating profit of 54.4 billion won (a 22.5% decrease, with an operating margin of 8.1%). Researcher Ha analyzed, "Due to the overall slump in the alcoholic beverage market and unfavorable weather conditions, the results fell short of market expectations."

She further explained, "In particular, as demand was pulled forward in response to the beer price hike in the second quarter, Hite Jinro's beer sales volume appears to have declined by 9% in the third quarter. Due to the increased burden of fixed costs from the decrease in sales volume, profit in the beer division also fell by 49% year-on-year," she said, adding, "Soju sales volume is estimated to have risen by 2%, and the soju market share in the third quarter remains in the high 60% range."

The outlook for the fourth quarter also remains conservative. Researcher Ha stated, "While the domestic alcoholic beverage market continues to stagnate, the increased contribution of Filite is expected to partially offset the weakness in beer sales. Soju sales volume is projected to grow slightly," she said. Regarding overall profit, she added, "Advertising and promotional expenses, which had been reduced, are expected to be executed in the fourth quarter to stimulate consumption."

For next year, consolidated sales are forecast at 2.595 trillion won (up 1.6% from this year) and operating profit at 212.4 billion won (up 2.5%, with an operating margin of 8.2%). Researcher Ha commented, "Significant improvement in results seems difficult due to changes in drinking culture and the overall market downturn in the domestic alcoholic beverage sector. However, modest growth is expected thanks to the lower base and improved efficiency in selling and administrative expenses."

She added, "The Vietnam plant is scheduled for completion at the end of next year," and, "Once overseas soju sales growth becomes visible as a result, we can expect the share price to rise."