[Edaily Reporter Shin Ha-yeon ] On the 3rd, SKSecurities assessed that Lotte Corporation(004990)is seeing tangible improvements in group-wide profitability, while its high dividend yield is providing support against a stock price decline. The firm projected that the cancellation and disposal of treasury shares, along with new orders secured by Lotte Biologics, will serve as catalysts for future stock price appreciation. It maintained its “Buy” investment rating and a target price of 33,000 won.

Choi Kwan-soon, an analyst at SKSecurities, stated, “This is because the effects of group-wide profitability improvements are becoming visible, while the high dividend yield is supporting the stock price from the downside,” adding, “With the current stock price trading at a 29.5% discount to net asset value (NAV) and a price-to-book ratio (PBR) of 0.3x, the risk of further stock price declines is limited.”

Lotte Corporation’s consolidated revenue for the first half of the year was 7.7153 trillion won, up 1.1% year-over-year, while operating profit rose 9.3% to 175.1 billion won. Net income turned to a profit of 79.0 billion won.

Analyst Choi explained, “Wellfood, which saw growth in its overseas segment, drove the improvement in the food division’s performance, and profitability improvements were confirmed due to better results from equity-method subsidiaries such as LOTTE CHEMICAL CORPORATION.”

He particularly highlighted the turnaround of the convenience store affiliate, Korea Seven. By closing low-profit stores and relocating them to prime locations, Korea Seven succeeded in returning to profitability for the first time in 11 quarters since the third quarter of 2023. Operating profit for the second quarter was 4.1 billion won.

SKSecurities projected that Korea Seven’s annual operating loss would narrow significantly from 66.1 billion won last year to 18.8 billion won this year, and that the company would return to profitability next year with an operating profit of 200 million won.

The bio business was also cited as a future growth driver. In the first half of the year, revenue in the bio segment plummeted by 82.8% due to a scheduled shutdown at the Syracuse, U.S., campus and facility upgrades.

Analyst Choi explained, “Although revenue in the biotech division plummeted due to the scheduled shutdown and facility upgrades at the Syracuse, U.S., campus, the company has set a target of 1 trillion won in revenue and an operating profit margin of 20–30% by 2030, following the resumption of orders and the completion of the Songdo campus.”

Shareholder returns were also viewed as a factor supporting the stock price. Lotte Corporation has a policy of maintaining a shareholder return ratio—defined as the sum of dividends and the amount of treasury stock retired—at 35% or higher relative to standalone net income. Standalone net income for the first half of this year was 195.2 billion won, a 179.6% increase compared to the same period last year.

Analyst Choi stated, “Stand-alone net income reached 195.2 billion won, reflecting improved performance at affiliates such as the chemical and retail divisions, as well as the reversal of impairment losses on investment securities,” adding, “With the increase in stand-alone net income, the downside risk regarding shareholder returns is expected to rise.”

He continued, “We expect the cash dividend to remain at 1,250 won, the same as last year,” explaining, “This represents a yield of 5.2% based on the current stock price.”

In particular, he highlighted plans for utilizing the large volume of treasury stock held by Lotte Corporation. Currently, treasury stock accounts for 23.7% of the total shares. However, given that net debt on a standalone basis reached 3.5 trillion won in the second quarter, there is a need to improve the company’s financial structure.

Analyst Choi noted, “The company is also considering improving its financial structure and securing investment funds through the disposal of some treasury shares,” adding, “Both cancellation and disposal will serve as opportunities to highlight the value of the held treasury shares.”

The company is also deemed to offer attractive valuation. According to the report, Lotte Corporation’s NAV is estimated at 3.384 trillion won, while its current market capitalization stands at 2.387 trillion won. This results in a discount to NAV of 29.5%, exceeding the average discount rate of 21.1% observed since 2024.

This year, Lotte Corporation’s consolidated revenue is projected to reach 15.831 trillion won, a 1.9% increase year-over-year, while operating profit is expected to rise 38.0% to 331 billion won. Next year’s operating profit is forecast to increase by 21.0% to 400 billion won.

Analyst Choi emphasized, “Announcements regarding the cancellation or disposal of treasury shares, as well as new orders secured by Lotte Biologics, are highly likely to serve as catalysts for a rise in the stock price,” adding, “We believe that time is not far off.”