[Click eStock] "Novarex, Potential for Earnings Growth Driven by Health Functional Food Market Expansion... Target Price Up"

[Asia Economy Reporter Eunmo Koo] Shinhan Financial Investment forecasted that Novarex will continue to achieve performance growth not only this year but also next year and the year after, driven by the growth of the health functional food market and the expansion of production facilities. The target stock price was also raised from the previous 36,000 KRW to 40,000 KRW.

On the 22nd, Shinhan Financial Investment estimated that Novarex's sales in the second quarter of this year reached 53.6 billion KRW, a 32.0% increase compared to the same period last year, and operating profit rose 44.8% to 6.3 billion KRW, continuing strong performance following the first quarter. Researcher Changmin Yoon of Shinhan Financial Investment explained in the report, "Traditionally, the health functional food market experiences increased sales of not only existing products but also women's diet products, inner beauty, and constitution improvement product groups during the warmer seasons, making the second and third quarters peak seasons," adding, "This year, interest in health functional foods increased rapidly due to the COVID-19 pandemic in the first quarter, accelerating the entry of new consumers."

It is analyzed that next year's performance growth is also guaranteed by production facility expansion in line with the market's high growth. Novarex is currently expanding a new factory in Osong, which is scheduled to be completed in the first quarter of 2021 and to begin full-scale operation from the second quarter. Researcher Yoon said, "The new Osong factory, like the existing Ochang factories 1, 2, and 3, has an annual production capacity of 200 billion KRW," and added, "With the new factory expansion, production capacity will more than double compared to before, allowing Novarex to fully benefit from the high growth in health functional foods and the concentration trend toward top OEM (Original Equipment Manufacturer) and ODM (Original Design Manufacturer) companies." Shinhan Financial Investment estimated next year's sales to increase by 28.5% year-on-year to 268.3 billion KRW, and operating profit to grow by 42.9% to 33.9 billion KRW.

The investment opinion was maintained as 'Buy,' and the target stock price was raised from 36,000 KRW to 40,000 KRW. Researcher Yoon explained, "Due to the high growth of the health functional food market, the overall sector valuation is likely to be revised upward, and a steady upward trend in stock prices is expected."