Food, Beverage, and Alcohol Lead the Way... "Industry Revaluation Expected"

The Food and Beverage Index Rose from 2507.68 on March 23 to 4269.07 on the 9th

CJ CheilJedang Bibigo Dumplings (Photo by Asia Economy DB)

[Asia Economy Reporter Kum Bo-ryeong] Since the outbreak of the novel coronavirus disease (COVID-19), food and beverage stocks have shown steady growth as defensive stocks, leading to expectations of a sector revaluation.

According to the Korea Exchange on the 10th, the food and beverage index rose from 2,507.68 on March 23 to 4,269.07 as of the previous day, drawing an upward curve. This represents a 70.24% increase in about three and a half months. During the same period, the KOSPI index rose 46.24% from 1,482.46 to 2,167.90, showing that the food and beverage sector significantly outperformed the market.

The leap in food and beverage stocks is based on solid earnings. According to Hana Financial Investment, the combined sales and operating profit of CJ CheilJedang, Nongshim, Orion, HiteJinro, and Daesang for the second quarter are estimated to increase by 5.2% and 18.6%, respectively, compared to the previous year. Looking at the entire year, their combined operating profit is expected to grow by 17.6% year-on-year.

The improvement in food and beverage earnings is supported by the popularity of Korean food. Recently, The New York Times ranked Nongshim's "Shin Ramyun Black" as the world's best ramen. "Shin Ramyun Gunmyeon" and "Shin Ramyun Bowl" were also ranked 6th and 8th, respectively. CJ CheilJedang's "Bibigo Wang Gyoja" ranked first in sales in the dumpling and wonton category on JD.com, China's second-largest online trading site. The share of the U.S. in major processed food exports increased from 11.3% in 2014 to 16.4% in the first quarter of this year, making the U.S. an export destination as important as China.

The potential for online growth is also high. Online food sales in April and May recorded increases of 56.4% and 38.8% year-on-year, respectively. Researcher Kim Hye-mi of Cape Investment & Securities explained, "The proportion of online channels in total food and beverage retail sales expanded to 16.1% in April and 14.8% in May compared to the previous year, and considering the share of online channels in overall distribution sales, there appears to be sufficient room for further expansion in the future."

The stock outlook is positive. In particular, CJ CheilJedang and Nongshim are expected to reflect the anticipation of mid- to long-term global business expansion in their stock prices, thanks to significant overseas sales growth this year. Hana Financial Investment researcher Shim Eun-joo said, "Remarkable overseas performance not only positively impacts earnings but is also likely to lead to a sector revaluation."