Food and Beverage Stocks Loved Amid Social Distancing... Health Supplement Stocks Show Fearsome Surge

Increased Interest in Home-Cooked Meals and Health Amid COVID-19 Resurgence
High Growth Expected to Continue in the Second Half of the Year

[Asia Economy Reporters Bomryeong Kim, Minji Lee] With the implementation of social distancing level 2.5 in the Seoul metropolitan area due to the spread of the novel coronavirus infection (COVID-19), expectations for benefits to the food and beverage sector are rising. As consumers' interest in health increases, market attention toward health functional food (HFF) companies is also gradually growing.

According to the Korea Exchange on the 31st, CJ Seafood's stock price on the 28th rose 12.68% (620 KRW) from the previous session to close at 5,510 KRW. On the same day, Ottogi and Daesang also closed at 609,000 KRW and 29,350 KRW, up 5% (29,000 KRW) and 2.62% (750 KRW) respectively compared to the previous trading day.

There is an analysis that food and beverage stocks can benefit from the spillover effect of the social distancing level 2.5 implemented from the previous day in the metropolitan area. Nighttime operations of general restaurants in the metropolitan area are restricted, and as more people cook at home, demand for home meal replacements (HMR), ramen, and snacks is expected to expand. Shin Seung-jin, a researcher at Samsung Securities, explained, "Due to the resurgence of COVID-19, a decrease in dining-out demand and an increase in time spent at home are expected to benefit food and beverage companies." Samsung Securities newly included Daesang in this week's 'Top 10 Weekly Recommended Stocks.'

The COVID-19 benefits to food and beverage stocks have already been reflected in their earnings. Looking at the operating profits of food and beverage stocks in the second quarter of this year, CJ CheilJedang recorded 384.9 billion KRW, up 119.5% year-on-year. During the same period, Daesang, Nongshim, and Orion also rose 81%, 404%, and 69% to 61 billion KRW, 41.4 billion KRW, and 85.2 billion KRW respectively. In particular, the ramen market in the first half of the year surpassed 1.1 trillion KRW, growing 7.2% compared to the previous year.

Foreign investors are expecting an upward trend in food and beverage stocks. From the 17th to the 28th, when the COVID-19 resurgence began, foreign investors net purchased 36.2 billion KRW worth of CJ CheilJedang shares. This ranked 8th among foreign investors' net purchases in the KOSPI market during that period. Along with this, they also bought major food and beverage stocks such as Orion (5.9 billion KRW) and Nongshim (5.5 billion KRW).

Health functional food companies are showing remarkable stock price increases due to the impact of COVID-19. The market expects that companies that posted solid earnings in the first half due to expanded HFF sales will continue their high growth in the second half.

As of 9:30 a.m. on the day, Cosmax NBT, a health supplement developer, was trading on the KOSDAQ market at 10,450 KRW, up 4.9% from the previous session. Cosmax NBT has maintained its upward trend since reaching a new high of 11,000 KRW during trading on the 13th. Kolmar BNH also surged to 72,900 KRW on the 25th, rising about 14% compared to early this month. This is interpreted as reflecting expectations that consumer interest in health functional foods will increase further as COVID-19 resurges ahead of the holidays.

Since the March low, the stock prices of health functional food manufacturers have been on an upward trajectory as of the previous day. Cosmax NBT and Kolmar BNH rose 233% and 229% respectively, while Novarex (133%) and Seohung (89%) also showed significant gains. This is attributed to the increased demand from consumers for a healthy life following the spread of COVID-19 in March, which led to a substantial increase in product sales for companies. According to data published this month by Samil PwC, after COVID-19, global consumers have placed greater emphasis on mental health (69%), physical health (69%), and medical needs (64%) than before.

Jo Eun-ae, a researcher at Ebest Investment & Securities, analyzed, "Due to the financial burden on health insurance caused by aging, strengthening self-health management to reduce medical expenses is emerging as an important issue," adding, "The health functional food market is expected to show steady growth due to government market growth promotion and changes in social awareness."