South Korea: Hite Jinro swings into positive territory in Q1
South Korean brewer Hite Jinro swung into positive territory YoY in 1Q20 with consolidated operating profit of KRW56.1 bln, BusinessKorea reported on May 19.
It came as an earnings surprise, exceeding the market consensus (KRW32.1 bln) and BusinessKorea’s estimate (KRW35.1 bln) by more than KRW20 bln.
Consolidated sales jumped 26.2% YoY. Profit growth was mainly driven by increased sales on market share gains and margin improvement.
The domestic beer and soju markets contracted by more than 10% and about 2% YoY, respectively, in 1Q due to weak on-trade demand. However, Hite Jinro’s sales climbed by 29.4% YoY from beer products and by 26.8% YoY from soju products. Sales growth with market share gains drove a 4.6%p YoY improvement in the COGS ratio.
Marketing expenses (promotions, advertising) decreased by roughly KRW7 bln YoY amid sluggish on-trade market conditions.
BusinessKorea analysts expect earnings to continue improving on market share gains in 2Q. The soju business should see a continued boost from Jinro is Back, which helped expand the market share by more than 10%p YoY in 1Q. The industry observers also have no worries over beer sales given steady growth in the market share. Beer and soju sales are forecast to increase 27.7% and 9.7% YoY, respectively. This should drive up consolidated sales by 15.8% YoY. Profit growth should hinge on promotion expenses. With the recent resurgence of COVID-19 cases slowing recovery in on-trade market conditions, short-term earnings are unlikely to be affected by promotion expenses. Hite Jinro’s consolidated operating profit is projected to surge 207.7% YoY to KRW32.6 bln in 2Q.
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