[Click eStock] "Seohung, Continued Performance Improvement Expected Until 2022"

Ebest Investment & Securities

[Asia Economy Reporter Minji Lee] Ebest Investment & Securities maintained a buy rating and a target price of 70,000 KRW for Seohung on the 15th.

Ebest Investment & Securities raised its operating profit estimate for Seohung this year by 7.2%, from 79.4 billion KRW to 85.2 billion KRW. The company explained that this increase reflects a realistic adjustment of previously conservative estimates.

Factors boosting expectations for Seohung's performance include the expansion of hard capsule production and a surge in orders in the health functional food business. From the third quarter of 2019 to the fourth quarter of last year, Seohung increased its hard capsule production capacity from 75 units to 87 units, and this effect is expected to improve profitability this year.

Jung Hongsik, a researcher at Ebest Investment & Securities, explained, "Despite a 9.2% (41.5 billion capsules) growth in production performance through expansion compared to the same period last year, Seohung temporarily supplied the average selling price (ASP) about 8% lower due to promotions to secure new customers," adding, "Performance is expected to rise this year through normalization."

Profitability improvement in the health and functional food sector is also anticipated. In the first quarter of this year, the volume prepared last month is being fully reflected in sales, and related operating profit is expected to increase by 25% compared to the same period last year, setting a record high.

Seohung is expected to continue its performance improvement trend next year as well. Operating profit is forecasted to increase significantly due to the effect of reduced depreciation expenses and improved operating profit margin from the health and functional food sector. The operating profit margin is estimated to rise from 10.3% in 2019 to 13.7% this year.

Depreciation expense reduction is also expected. Researcher Jung said, "Since the expansion and relocation of the Osong plant in 2012, depreciation has been carried out over about 10 years," and added, "Next year, the 10-year depreciation period for large-scale machinery investments will be reached, resulting in a cost-saving effect of over 5 billion KRW."