Orion Quickly Normalizes China Business Despite COVID-19... "Expecting Strong Q2"

[Asia Economy Reporter Kum Bo-ryeong] Orion had concerns about the impact of the novel coronavirus infection (COVID-19), but it is gaining attention as its China business normalized faster than expected.

According to Samsung Securities on the 11th, Orion's consolidated first-quarter results are estimated at sales of 546.5 billion KRW and operating profit of 85.5 billion KRW. These figures represent increases of 9.8% and 10.6% respectively compared to the previous year, and are expected to meet consensus estimates.

In China, there were concerns about disruptions in production and logistics due to COVID-19, but Orion showed faster production normalization compared to competitors. As the share of discount store (MT) channels increased, shelf share also rose, leading to expected sales and operating profit growth of 10% and 9%, respectively. The concentration of demand on pies and snacks, which Orion has traditionally been strong in, was also evaluated positively.

There are also expectations for growth in domestic and global markets. Samsung Securities analyst Cho Sang-hoon explained, "Despite a high base in Korea, sales and operating profit are expected to increase by 5% and 9%, respectively, due to continued growth of new products. In Vietnam, sales and operating profit are expected to increase by 19% and 75%, respectively, due to the base effect from last year's Choco Pie inventory adjustment and the impact of new products. In Russia, sales and operating profit are expected to increase by 9% and 25%, respectively, supported by new product effects and price normalization in some channels."

The second-quarter outlook is also not significantly negative. Since competitors have recently normalized production and sales, the key issue is whether the market share (MS) gained in the first quarter can be maintained to some extent in the second quarter. Orion plans to launch new products such as Char Choco Pie and snack extensions in the second quarter to increase the market share of its China subsidiary. Analyst Cho said, "From the second quarter, there will be more opportunities as Orion plans to strengthen shelf dominance through aggressive new product launches." Kiwoom Securities analyst Park Sang-jun also analyzed, "Since shelf MS tends to become fixed once it changes, the sales growth rate of the China subsidiary in the second quarter is expected to be relatively solid."