Food and Beverage Stocks Leading Price Hikes...Will Appetite Revive?

Last Year’s Cost Increase Impact Causes Slump
Attention on Whether Rebound Follows Reassessment

[Asia Economy Reporter Park Jihwan] As major domestic food companies raise their selling prices, attention is focused on whether the stock prices, which had been sluggish due to cost increases last year, will enter a full-fledged rebound phase.

According to the Korea Exchange on the 9th, the KOSPI Food and Beverage sector index has risen 4.76% since the beginning of this year. Although this falls slightly short of the market return of over 6% during the same period, it is a meaningful reversal considering that it was the only sector to decline in the fourth quarter of last year while all other sectors rose.

This is interpreted as a result of food companies raising the selling prices of processed foods this year. Pulmuone increased the prices of tofu and bean sprouts by 10%, and Ottogi raised the prices of cup rice and rice bowl dishes by 28.5%. Generally, price increases are regarded as a driver of profit growth and stock price increases for food companies. The domestic food market has limited sales volume growth, but it is analyzed that profitability improvement is possible by achieving external growth through price increases and passing costs on to consumers.

Recently, food companies’ price hikes have been due to rising prices of grains used as raw materials. According to Hana Financial Investment, the average price of the four major grains has risen 22% over the past three months. Wheat, corn, soybeans, and raw sugar prices increased by 15%, 35%, 23%, and 14%, respectively.

In the securities industry, there is an analysis that the period for stock price revaluation has arrived as companies continue to raise prices. Choi Seonghwan, Chief Researcher at Research Allem, said, "With people resuming outdoor activities and concerns about rising costs, the current food and beverage sector index is still below pre-COVID levels," adding, "Since major companies have started raising prices, the timing for stock prices to reflect this seems imminent." Sim Eunju, a researcher at Hana Financial Investment, forecasted, "The effects of price increases are expected to become visible from the second quarter," and "a significant improvement in performance is likely in the third quarter."

There is also a positive evaluation that while earnings growth continues this year, stock prices are still undervalued. It is analyzed that the sector index has not yet recovered the highest level of 4524.34 recorded in August last year, indicating undervaluation. This contrasts with the KOSPI, which has risen 28% since then. According to FnGuide, operating profits in the food and beverage sector this year are expected to increase by an average of 5.04% compared to last year.