[Click eStock] "Orion, Base Burden Continues... Earnings Improvement from Second Half"

[Asia Economy Reporter Song Hwajeong] Korea Investment & Securities maintained a 'Buy' rating and a target price of 175,000 KRW for Orion on the 20th, expecting performance improvement to be possible from the second half of the year.

The burden of last year's high base continues. In April, Orion's total sales across all corporations decreased by 6% year-on-year to 172.9 billion KRW, and operating profit fell by 29% to 21.1 billion KRW. By corporation, Korea recorded 67.7 billion KRW, up 4%, while China recorded 76.4 billion KRW, down 20%. Vietnam and Russia recorded 20 billion KRW and 8.8 billion KRW, increasing by 14% and 49%, respectively. Operating profit by corporation showed Korea and China at 12 billion KRW and 5.5 billion KRW, down 2% and 71% year-on-year, respectively, while Vietnam decreased by 8% to 2.2 billion KRW. Russia increased by 17% to 1.4 billion KRW. Lee Jeongeun, a researcher at Korea Investment & Securities, analyzed, "China could not avoid profit decline due to the surge in shipments caused by the COVID-19 special demand in the same month last year," adding, "The inventory depletion of small wholesalers (intermediary sellers who purchase products from manufacturers and resell to consumers) continuing from the end of March this year until April also contributed to sales decline due to shipment volume adjustment."

Performance improvement is expected to be possible from the second half of the year. New category mass-produced bread and jelly products launched in China are expanding distribution across all channels, expected to drive performance improvement in China going forward. Efforts to restructure channel networks to secure market dominance by country are also evaluated positively. The researcher explained, "Vietnam is transitioning to direct logistics supply to improve margins, and China is attempting to switch to small wholesalers to expand the TT channel (traditional retail stores)."

Korea Investment & Securities forecasted that Orion's sales and operating profit in the second half of the year will increase by 10% and 19%, respectively, compared to the same period last year. The researcher said, "Although visibility of first-half performance is low due to the high base burden and raw material price increases in the same period last year, performance improvement through new product launches and expansion of the new category portfolio will continue from the second half."