South Korea: HiteJinro reports drop in beer sales and operating profit in Q2 2021
One of South Korea’s leading beer producers, HiteJinro posted consolidated 2Q21 sales of W565.5 bln (-2.8% y-y) and operating profit of W42.6 bln (-21.2% y-y), with sales being hit hard by stricter (y-y) social distancing rules. The company’s operating profit margin (-1.8%p y-y) narrowed in line with a reduction in overall utilization rate, BusinessKorea reported on August 18.
The firm saw 2Q21 beer sales of W193.5 bln (-9.8% y-y) and operating profit of W5.9 bln (-30.7% y-y).
While the overall regular beer market shrank 10% y-y, the firm’s regular beer sales dropped about 11% y-y. NH Investment & Securities see the main reason for the sharp sales decline (vs the overall market) as being inflated demand for competitor’s inventory, which piled up amid concerns towards a labor strike issue in June.
The company’s profitability was sapped by both a widened sales portion for low-margin products and a decrease in utilization rate. While the overall imported beer market contracted 15% y-y, the firm’s imported beer sales rose 10% y-y.
Although adhering to a Buy rating, the NH Investment & Securities analysts lower their target price (TP) on HiteJinto from W50,000 to W40,000. Their new TP reflects downward adjustments to 2021E and 2022F EPS (of 14% and 10%, respectively) and a change in their target multiple (10% discount applied to global peer average: 25x → 23x) given a weakening in the firm’s market share expansion trend amid a prolonging of the Covid-19 crisis.
Due to the impact of the pandemic, commercial sales are unlikely to recover smoothly in 3Q21. Meanwhile, HiteJinro’s beer market competitors continue to alter their product prices, and the company has also joined in price cuts for canned products (since July), evidencing that competition is intensifying in the domestic household beer market, too. But, the analysts maintain a Buy rating, positively viewing HiteJinro’s unrivaled share in the soju market and its growing overseas sales portion—expectations towards an earnings rebound upon a market recovery remain valid in their view.
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