[Click eStock] "Dongwon Industries, High Tuna Can Demand... Target Price Up 11%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating on Dongwon Industries on the 8th, stating that although global demand for canned tuna is rising, supply remains unstable, which is expected to benefit Dongwon Industries. The target price was raised by 11% from the previous level to 310,000 KRW.

Dongwon Industries' consolidated sales for the fourth quarter of last year are estimated at 669.3 billion KRW, with operating profit at 63.9 billion KRW, representing growth of 5% and 221% respectively compared to the same period last year.

The fisheries division recorded the highest catch volume in history in the fourth quarter of 2019, so although the catch volume is expected to decrease by 14% year-on-year, it is estimated to have achieved solid results comparable to 2018 levels. The average fish price is expected to have risen about 38% from the previous year, which recorded the lowest price, to 1,309 USD.

Starkist, the US subsidiary that produces and sells canned tuna, is expected to have seen a 7% increase in sales in local currency terms compared to the same period last year due to strong canned tuna sales driven by increased home consumption demand. Sales in KRW terms are estimated to have increased by 4%. Heejae Noh, a researcher at Daishin Securities, said, “With the surge in demand, promotional costs decreased and discount rates narrowed, leading to a 14% increase in operating profit,” adding, “Starkist is also expected to lead the strong performance in the fourth quarter.”

This year, Starkist’s sales are projected to decline by 2% due to the won-dollar exchange rate impact. However, in local currency terms, sales are expected to increase by 4%, as the expansion of remote work and restaurant closures due to the COVID-19 pandemic are anticipated to sustain strong demand for canned tuna in the US.

Positive spillover effects are also expected from the spread of COVID-19 in Thailand. In Samut Sakhon, Thailand, known as a global tuna processing hub, a large number of COVID-19 cases have been confirmed. Thai Union, the world’s largest tuna processing company, is conducting comprehensive testing of all 27,000 employees. Movement restrictions between workstations within factories and quarantine measures for employees who had contact with confirmed cases are being implemented.

Researcher Heejae Noh stated, “It is understood that the Thai government is considering city lockdowns for high-risk COVID-19 areas including Samut Sakhon,” adding, “Production disruptions in Thailand, which accounts for over 60% of US canned tuna imports, will translate into positive spillover benefits for competing companies.”