South Korea: HiteJinro’s Q3 sales decline but analysts maintain Buy rating on it

HiteJinro’s 3Q21 OP fell 30% y-y on the effects of strict social distancing. However, as we enter the living with Covid-19 era, the firm should see earnings momentum gradually recover alongside an improvement in the external environment, the Business Korea reported on November 15.

The NH Investment & Securities analysts maintain a Buy rating and TP of W40,000 on HiteJinro, one of Korea’s leading beer makers. Sales at businesses which have struggled amid Covid-19 have been recovering from November on an easing in social distancing measures, in turn boosting expectations for a liquor market rebound. However, upon the arrival of a liquor industry recovery, it is highly likely that competitors will strongly ramp up their promotional/advertising activities. Profitability improvement relative to top-line growth may be delayed somewhat due to increased marketing expense in the process of responding to such developments, but company-wide earnings momentum should still improve from yearend.

HiteJinro posted consolidated 3Q21 sales of W557.4 bln (-10.7% y-y) and operating profit (OP) of W44.9 bln (-30.3% y-y). Sales took a hit from stricter social distancing compared to the previous year. Affected by a reduction in overall utilization rate, operating profit margin (OPM) (-2.3%pt y-y) also declined.

The beer division delivered 3Q21 sales of W204.4 bln (-16.3% y-y) and OP of W9.6 bln (-49.5% y-y). While the overall beer market decreased 13% y-y, the company’s regular beer sales are estimated to have slid 14% y-y. The analysts estimate the firm’s domestic beer market share at 38~39%. The decline in profitability is attributed to the sale of low-priced limited edition products and a drop in utilization rate. Meanwhile, despite a y-y drop in the imported beer market, HiteJinro saw its imported beer sales climb 5% y-y.

At the soju division, 3Q21 sales and OP came to W305.8 bln (-8.7% y-y) and W30.8 bln (-31.3% y-y), respectively. While the overall domestic market shrank by about 13% y-y, the firm suffered sales decline of only 11% y-y, maintaining its monopoly position with a 67% market share.

Meanwhile, overall exports narrowed by 7% y-y due to the Covid-19 situation in Southeast Asia.

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