South Korea: Analysts maintain Buy rating on HiteJinro, expect earnings to rebound from H2 2021

NH Investment & Securities analysts maintain a Buy rating and a TP of W50,000 on HiteJinro. In line with an easing in pandemic-induced restrictions on operating hours for restaurants and pubs, pent-up demand for alcohol consumption is to be released. And, with vaccination rates on the rise, the liquor industry should normalize from 2H21, the Business Korea reported on June 15.

The analysts anticipate that B2B sales growth will add to already accelerated B2C sales growth, in turn reigniting stagnated market share growth momentum. Although there are some investor concerns that competition in the liquor industry will intensify due to a better operating environment, NH Investment & Securities expect improvement in HiteJinro’s quarterly top-line recovery to translate gradually into more robust margins. The pace of improvement in the firm’s share price has been slow, as B2B sales have been showing the slowest recovery among distribution channels due to government regulations on restaurant operating hours. Upon more visible earnings improvement in 2H21, HiteJinro’s share price should be primed for a sharp climb.

The experts believe that HiteJinro’s efforts to increase its sales in overseas markets will soon begin in earnest to be reflected in its earnings. Although its current overseas sales portion is anemic, the company’s overseas top-line growth is to pick up speed in keeping with a general global re-opening of economic activities. Moving ahead, overseas sales should come to serve as a mid/long-term earnings growth engine for the firm.

NH Investment & Securities forecast 2H21 consolidated sales and OP growth of 9.2% y-y and 28.7% y-y, respectively. Amid a general strong rebound for the liquor industry as a whole, the firm will likely enjoy strong earnings improvement across all of its liquor domains, including at its currently suppressed non-consolidated domestic beer and soju businesses, as well as at its overseas exports wing. Having been interrupted by the prolonged Covid-19 crisis, the company’s march towards capturing a wider share of the domestic beer market looks set to resume.

15 June, 2021