South Korea: HiteJinro Co looking at a lucrative year from higher soju and beer prices

HiteJinro Co, a leading beer and distilled rice liquor soju manufacturer of South Korea, is looking at a lucrative year from higher soju and beer prices, the Pulse reported on February 16.

HiteJinro surprised the market by reversing into a net profit of 14.4 billion won ($11.8 million) in the fourth quarter ended December with operating income surging by 121.7 percent on-year to 31.4 billion won and sales gaining 5.6 percent to 495.2 billion won. A rise in soju prices was the main factor behind its improved balance sheet.

The factory price for its flagship soju label Chamisul was bumped up to 1,015.7 won per bottle from 961.7 won at the end of November last year. Preorders ahead of the price hike led the surge in sales in the final October-December quarter. The higher price tag is expected to translate into a 40 billion won increase in sales for this year as well.

“For soju, consumption remains steady regardless of higher prices,” said Baek Woon-mok, an analyst at KDB Daewoo Securities. HiteJinro usually sells 800 billion won in soju a year, and extra 40 billion won will roll in when prices are raised by 5.62 percent.

Another analyst, Kim Seung of SK Securities, said the first 10 billion won would be added in sales in the first three months this year. The key would be keeping the lead without extra marketing cost amid intensifying competition after Jinro soju price was pulled up.

Brokerages predicted the company’s operating profit would reach 158.8 billion won this year, up from last year’s 134.0 billion won.

HiteJinro usually spends 180 billion won to 200 billion won in ads, and if marketing cost goes up by 10 percent, the company would spend 18 billion won to 20 billion extra in ad expenditures.

The possibility of raising beer prices also bodes well for the company’s outlook for 2016. If prices are raised by 5 percent to 6 percent as it has done for soju, the company would see similar gain in beer sales. The company is expected to raise beer prices ahead of the summer peak season.

HiteJinro, however, said the company has not decided on raising prices of its beer brands although there are upside factors.

17 February, 2016