[Asia Economy Reporter Oh Ju-yeon] Hanwha Investment & Securities forecasted on the 10th that Shinsegae Food's poor performance in the first quarter of this year is inevitable. However, they presented a positive outlook, expecting growth in the manufacturing division and improvements in the dining business through the application of a franchise model, maintaining a 'Buy' investment rating while lowering the target price to 80,000 KRW due to changes in earnings estimates.
Hanwha Investment & Securities estimated that Shinsegae Food's sales in the first quarter of this year would be 292.9 billion KRW, a 7.5% decrease compared to the same period last year, and that operating losses would reach 3.8 billion KRW, turning to a deficit.
Nam Seong-hyun, a researcher at Hanwha Investment & Securities, explained, "Due to the impact of the novel coronavirus infection (COVID-19), normal business activities at group meal service sites are difficult, the burden on directly operated stores is increasing due to the decline in dining-out population, and a decrease in customer attraction at the group's distribution network is expected."
However, he predicted that sales of home meal replacement (HMR) product lines would have grown by more than 20% due to relatively increased demand for HMR.
Researcher Nam said, "Despite the poor performance of major business divisions in the first quarter, sales in the manufacturing sector are expected to continue double-digit growth due to increased demand for home meal replacements." However, he explained that the impact on profits is limited. This is because the annual production capacity is only about 100 billion KRW, and although product margin rates are not low, major channels such as discount stores and online platforms cannot be considered to have relatively high margins.
He also pointed out that a disappointing aspect of this demand increase is the limitation of production capacity.
Researcher Nam stated, "Shinsegae Food can expand related production capacity up to 200 billion KRW, but it is a burdensome structure to aggressively increase manpower due to the minimum wage and the application of a 52-hour workweek," adding, "This is because the automation ratio is relatively low and fixed cost input is high." He continued, "They plan to resolve this in the mid-to-long term by expanding automated facilities," and noted, "It is regrettable that they have not fully enjoyed the recent boom in the industry."
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