[Click eStock] "Dongwon F&B, the Hidden Master of the Food Industry"

Product Costs Rise... Expecting Premium for Top Businesses
Seasoned Food Distribution Sector to Benefit from COVID-19 Base Effect

[Asia Economy Reporter Gong Byung-sun] Dongwon F&B is predicted to fully benefit from the base effects caused by COVID-19 this year in the premium segment of top-tier businesses and the seasoning distribution sector. With the increase in contract prices for group catering and the additional volume from Samjo (seasoning sauce) expansion, sales are expected to reach an all-time high. Accordingly, Daishin Securities maintained a target stock price of 260,000 KRW and a 'Buy' investment rating for Dongwon F&B.

Dongwon F&B is expected to make full use of the premium position among top-tier businesses this year. As the market leader in tuna cans and dairy products, Dongwon F&B can flexibly pass on cost increases during periods of rising costs. This means that if necessary, consumer prices can be raised to minimize losses caused by cost increases. In fact, the cost of Dongwon F&B products is expected to rise this year. The input fish price per ton in the first quarter of this year is expected to increase by 38% year-on-year to $1,309 (approximately 1.47 million KRW). The price of raw milk is also scheduled to increase by 2%, from 1,034 KRW to 1,055 KRW per liter starting in August.

The seasoning distribution sector is also expected to benefit from the COVID-19 base effect. Last year, the operating profit of the seasoning distribution sector was 23.2 billion KRW, down 15% compared to 2019. Han Yoo-jung, a researcher at Daishin Securities, explained, "The seasoning distribution sector is expected to continue to see profit growth due to the COVID-19 base effect," adding, "This year, seasoning distribution sales are projected to increase by 7% year-on-year to 1.26 trillion KRW, and operating profit is expected to rise by 18% to 27.3 billion KRW."

Even if it does not fully escape the impact of COVID-19, sales are expected to reach a record high, according to Daishin Securities' forecast. Researcher Han said, "Even if the impact of COVID-19 cannot be viewed optimistically, there will be effects from the increase in contract prices for group catering and the additional volume from Samjo expansion," adding, "Combined with the base effect, sales can reach an all-time high."

Daishin Securities also judged that Dongwon F&B has valuation appeal. The basis for this judgment is that Dongwon F&B's price-to-earnings ratio (PER) this year is only 10 times. Researcher Han emphasized, "Dongwon F&B is a hidden master in the food industry," and "steady upward profit trends are expected."