SK Securities maintained its Buy rating and target price of 33,000 won on South Korea’s Lotte Holdings (004990). The firm cited visible group-wide profitability improvements, a high dividend yield, and a large treasury share position as factors supporting the stock’s downside.

Choi Kwan-soon, an analyst at SK Securities, said in a report released on the 3rd: “While the high dividend yield supports the stock’s downside, group-wide profitability improvements are becoming visible. At the current price, the stock trades at a 29.5% discount to net asset value (NAV) and 0.3x price-to-book ratio (PBR), making additional downside risk limited.”

Lotte Holdings’ first-half consolidated revenue came in at 7.7153 trillion won (approximately $5.7 billion), up 1.1% year-over-year, while operating profit rose 9.3% to 175.1 billion won (approximately $128.9 million). Net income swung to a profit of 79 billion won (approximately $58.1 million).

The earnings improvement was attributed to strong performance in Lotte Wellfood’s food business, driven by growth in overseas operations, and a recovery in profitability at equity-method subsidiaries including Lotte Chemical. “Wellfood, which saw growth in overseas operations, led the food segment’s earnings improvement, and profitability gains were confirmed at equity-method subsidiaries such as Lotte Chemical,” Choi explained.

Korea Seven Turnaround and Biologics Growth Expectations

The return to profitability at convenience store subsidiary Korea Seven is another notable development. Through a strategy of closing low-profitability stores and relocating to prime locations, Korea Seven swung to a profit for the first time in 11 quarters since Q3 2023. Second-quarter operating profit was 4.1 billion won (approximately $3.0 million).

SK Securities expects Korea Seven’s annual operating loss to narrow significantly from 66.1 billion won (approximately $48.6 million) last year to 18.8 billion won (approximately $13.8 million) this year, before swinging to an annual operating profit of 200 million won (approximately $150,000) next year.

The biologics business was presented as a future growth engine. While first-half biologics revenue plunged 82.8% due to a scheduled shutdown at the U.S. Syracuse campus and facility upgrades, long-term growth is expected as orders resume and the Songdo campus is completed. Lotte Biologics has set targets of 1 trillion won (approximately $735.9 million) in revenue and a 20-30% operating margin by 2030.

Shareholder Returns and Treasury Share Utilization Potential

Shareholder return policies were also assessed as a factor supporting the stock price. Lotte Holdings maintains a policy of keeping its total shareholder return ratio — combining cash dividends and treasury share cancellations relative to standalone net income — at 35% or above. First-half standalone net income reached 195.2 billion won (approximately $143.6 million), reflecting improved subsidiary earnings and a reversal of impairment losses on investment securities. That represents a 179.6% increase year-over-year.

Choi expects this year’s cash dividend to remain at 1,250 won per share, the same as last year. At the current share price, that equates to a dividend yield of 5.2%. “With the increase in standalone net income, the floor for shareholder returns is expected to rise,” he said.

Attention is also focused on how Lotte Holdings will utilize its 23.7% treasury share stake. However, with second-quarter standalone net debt reaching 3.5 trillion won (approximately $2.6 billion), the need for balance sheet improvement was also noted. “The company is considering improving its financial structure and securing investment resources through the disposal of some treasury shares,” Choi said. “Both cancellation and disposal would serve as catalysts highlighting the value of the treasury shares held.”

The valuation also appears attractive. According to the report, Lotte Holdings’ NAV is estimated at 3.384 trillion won (approximately $2.5 billion), while its current market capitalization stands at 2.387 trillion won (approximately $1.8 billion). The 29.5% discount to NAV exceeds the average discount of 21.1% since 2024.

SK Securities forecasts Lotte Holdings’ full-year consolidated revenue to grow 1.9% year-over-year to 15.831 trillion won (approximately $11.6 billion), with operating profit up 38.0% to 331 billion won (approximately $243.6 million). Next year’s operating profit is projected to grow a further 21.0% to 400 billion won (approximately $294.4 million).

“Announcements regarding the cancellation or disposal of treasury shares and new orders at Lotte Biologics are highly likely to serve as catalysts for share price appreciation,” Choi emphasized. “We believe that timing is not far off.”