[Edaily Reporter kyoungeun kim ] Korea Investment & Securities stated that LotteChilsungBeverage(005300)posted weak second-quarter earnings due to the fallout from the war in the Middle East. While maintaining its “Buy” investment rating

the firm lowered its target price by 6% from the previous level to 150,000 won.

Choi Go-woon, an analyst at Korea Investment & Securities, stated in a report on the 6th, “Second-quarter earnings were weak, as feared,” adding, “Operating profit fell 10% year-over-year to 55.8 billion won, missing the consensus estimate by 10%.”
The primary causes of the deterioration in profitability are rising prices of raw materials and exchange rates. Analyst Choi explained, “In addition to rising prices of raw materials such as aluminum and polyethylene terephthalate (PET) due to the fallout from the war in the Middle East, increases in utility costs and exchange rates have exacerbated the cost burden.”
The performance of overseas subsidiaries was also lackluster. He noted, “Overseas operations were the weakest, as their core markets are regions highly dependent on Middle Eastern energy,” adding, “Operating profits at subsidiaries in the Philippines, Pakistan, and Myanmar all declined year-over-year.”
It was also difficult to pass on costs in the domestic beverage sector. Researcher Choi assessed, “Due to weak domestic consumer sentiment, particularly in traditional channels, it was difficult to pass on the burden of raw material costs.” However, he added, “Growth continued for strategic product lines aligned with changing market trends, such as zero-sugar beverages and ready-to-drink (RTD) beverages.”
The alcoholic beverages segment, however, was an exception. Analyst Choi stated, “While overall alcohol consumption is structurally declining, LotteChilsungBeverage’s soju sales increased by 2% thanks to the growth of ‘Saero,’” adding, “Furthermore, sales of the RTD product ‘Sunhari Jin’ more than doubled, surpassing last year’s annual sales in just half a year.”
He continued, “It is estimated that the company rose to the top of the RTD market by capturing new demand through the effects of rebranding, such as expanding its product lineup,” and assessed, “Since the impact of packaging costs is limited in the alcoholic beverages business, operating profit improved the most significantly in the second quarter, offsetting the slump in the beverage division.”
Researcher Choi cited three main reasons for expecting a rebound in profitability in the second half of the year.
First is price increases. He stated, “By implementing an average 5% price increase—including for flagship products—at the end of June, the company should be able to offset cost pressures.” Regarding cost burdens, he explained, “In the meantime, prices for packaging materials such as aluminum have fallen by more than 10% from their peak.”
He also highlighted the company’s ability to defend its domestic market share through new products. “Although domestic demand remains sluggish, LotteChilsungBeverage is leading consumer trends and holding its ground by strengthening its lineup of new products, such as zero-calorie carbonated drinks, functional beverages, and RTDs,” he said.
Research Analyst Choi predicted, “Combined with our ongoing efforts to improve the company’s fundamentals, profitability will gradually recover,” adding, “Annual operating profit for 2026 is projected to reach 204 billion won, a 22% increase from the previous year, in line with our existing guidance.”
Analyst Choi cited the decline in investment appeal across the entire food and beverage sector as the reason behind this year’s weak stock performance. He explained, “LotteChilsungBeverage has been hit hardest by the war in the Middle East and has been further sidelined due to its relatively weak overseas growth momentum,” noting, “Before we knew it, the expected price-to-book ratio (PBR) for 2026 had fallen to 0.6x, a historic low.”
He continued, “Conversely, once the recent concentration of supply and demand in the stock market eases and external uncertainties such as the war are resolved, the potential for a rebound will be high.” He added, “Since cost risks were confirmed through second-quarter earnings and price hikes have begun in earnest in the second half of the year in response, we believe the stock price has bottomed out.”