South Korea: HiteJinro sees operating profit fall 27% y-y in 4Q20

HiteJinro’s consolidated operating profit fell 27% y-y in 4Q20, missing consensus. Its soju and beer sales declined amid stricter social distancing measures, and profitability was dampened by the booking of one-off costs. However, proving its solid brand power, the firm is outperforming its market rivals, the Business Korea reported on February 15.

The company posted 4Q20 consolidated sales of W516.6 bln (-7.5% y-y) and operating profit of W23.9 bln (-27.0% y-y). Sales dropped at both the soju division and the beer division amid an unfavourable business environment, including: 1) suspension of commercial establishments running after 21:00; 2) the strengthening of social distancing rules; and 3) a high-base burden (y-y).

The analysts at NH Investment & Securities maintain a Buy rating and a TP of W50,000 on HiteJinro. Although the overall liquor industry has been hit by the effects of social distancing measures, the analsts positively view the fact that the firm is showing superior sales performance versus peers. Aiming to offset a decline in its B2B sales, the firm is making pre-emptive investment in B2C products.

NH Investment & Securities estimate that sales dropped 9% y-y at the firm’s soju division and 10% y-y at its beer division. Having previously fallen sharply amid a boycott of Japanese beer products, imported beer sales upped an estimated 20% y-y, offsetting a decline in regular beer sales. However, the analysts point out that the extent of sales decline at the two divisions was relatively low compared to the plunges seen in the overall soju and beer markets.

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