[Click eStock] "Nongshim, Focus on Overseas Expansion Rather Than Short-Term Earnings Pressure"

[Asia Economy Reporter Song Hwajeong] Daishin Securities maintained a 'Buy' rating and a target price of 400,000 KRW on Nongshim on the 18th, noting that although there is short-term pressure on earnings, attention should be paid to the expansion of its dominance in overseas markets.

Nongshim's first-quarter performance this year was sluggish. On a consolidated basis, first-quarter sales decreased by 8% year-on-year to 634.4 billion KRW, and operating profit fell 56% to 28.3 billion KRW. Operating profit fell short of the market consensus of 36.3 billion KRW. Han Yujeong, a researcher at Daishin Securities, analyzed, "Considering a one-time expense of about 8 billion KRW related to retirement benefits of a separate corporation, the results are in line with expectations," adding, "Nongshim's market share in the ramen market by value rose 0.2 percentage points year-on-year to 56.4%, continuing a six-quarter consecutive increase in market share." She noted that the continued trend of expansion in major overseas markets is particularly encouraging. Despite the burden of the previous year's base, separate export sales increased by 21%, and sales in North America, Japan, and Australia also rose by 4%, 17%, and 15%, respectively.

The downward trend in profits is expected to continue into the second quarter. The researcher said, "The spread of COVID-19 began in late first quarter in Korea and from the second quarter in North America and other regions, so the significant year-on-year decline in profits is likely to persist in the second quarter," adding, "Also, considering that the domestic ramen market has shrunk more than expected, we have revised downward our annual earnings estimates." The domestic ramen market size in the first quarter was 528.2 billion KRW, down 16% year-on-year and 5% compared to the first quarter of 2019.

The researcher added, "It is necessary to focus on the expansion of dominance in overseas markets rather than short-term earnings pressure."