Kyobo Securities announced on November 12 that it is maintaining a "buy" rating and a target price of 175,000 won for Lotte Wellfood, citing ongoing undervaluation despite improved performance.
Analyst Kwon Woo-jung stated, "In the third quarter, sales and operating profit met market expectations. Despite a more than threefold increase in raw material costs compared to the first half of the year, structural improvement efforts helped maintain performance domestically, while overseas operations benefited from price increases and lower input costs, leading to solid results."
Lotte Wellfood reported third-quarter sales of 1.17 trillion won, a 2% increase from the same period last year, while operating profit rose by 30% to 89.9 billion won. Domestic sales decreased by 2% year-on-year, but operating profit increased by 10%.
Kwon noted, "Excluding the strong performance driven by trend marketing, there was a general market contraction in areas such as ice cream, oils, dairy products, and food ingredients. The burden of raw material costs from the Middle East increased more than threefold compared to the first half of the year, but this was partially offset by price increases and a decline in exchange rates."
Overseas sales and operating profit surged by 16% and 138%, respectively, in the third quarter. Kwon highlighted that in India, the new ice cream plant in Pune and expanded coverage contributed to improved performance, as did the fourth line expansion of Choco Pie, which began operations in June, achieving over 100% utilization early on.
While domestic profitability was impacted by raw material costs, overseas profitability exceeded expectations, leading to the maintained "buy" rating and target price of 175,000 won. Kwon emphasized, "The current exchange rate is favorable, and there is a high likelihood of domestic price increases being considered. Notably, overseas sales volumes remain robust despite price hikes."
He added, "The current stock price is only seven times the expected earnings for 2027, and the valuation remains unchanged compared to the past. The forward price-to-earnings ratio (Fwd P/E) is trading at an average of 9.9 times over the past five years."
* This article has been translated by AI.
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