[Click eStock] Will Ramen Prices Increase? Preference "Nongshim > Samyang Foods > Ottogi"

[Asia Economy Reporter Lee Seon-ae] Daishin Securities on the 15th issued an overweight investment opinion on ramen food companies, judging that price increases in the ramen industry within the year are likely due to the burden of rising costs.

The average prices of wheat and palm oil, raw materials for ramen, rose by +27% and +71% respectively in May. Grain prices, which had slightly rebounded at the end of 2019, have shown a sharp upward trend since 2020. Wheat prices have risen to levels seen in 2013, and palm oil prices have reached levels seen in 2008. Han Yoo-jung, a researcher at Daishin Securities, predicted, "Since international grain prices are typically reflected in the purchase prices of material suppliers with a 3 to 6-month lag, the cost burden on ramen companies is expected to increase further in the second half of the year."

For Nongshim, the market share leader, major raw materials such as wheat flour and palm oil accounted for 59% of raw material purchases in 2020, representing a significant portion.

Despite increased labor and logistics costs due to double-digit minimum wage hikes in 2018 and 2019, Nongshim's last ramen price increase was in December 2016, Samyang Foods' last ramen price increase was in May 2017, and Ottogi's last ramen price increase was in April 2008. Despite rising raw material and labor costs, price increases were delayed, causing the gross profit margins of Nongshim, Ottogi, and Samyang Foods' ramen products to fall to the mid-20% range. Considering that Samyang Foods has been actively expanding its high-profit export sales share since 2016, the decline in domestic gross profit margins for the three ramen companies is believed to have been even greater.

Ottogi's ramen market share, which was only 10% before 2010, expanded to 24% by 2018, intensifying competition. As of the fourth quarter of 2019, when sales by brand were available, among the top 20 brands by sales, Nongshim had 10 brands (Shin Ramyun, Chapagetti, Ansungtangmyun, Neoguri, etc.), Ottogi had 4 brands (Jin Ramen, Sesame Ramen, Jin Jjambbong, Beef Seaweed Soup Ramen), Samyang Foods had 3 brands (Buldak Bokkeummyeon, Samyang Ramen, Nagasaki Jjambbong), and Paldo had 3 brands (Wang Ttukbaegi, Bibimmyun, Kkokkomyeon).

Although Ottogi's ramen market share was expected to continue its upward trend, it has plateaued since 2018 due to competition with Nongshim's diversified product portfolio. Accordingly, the cutthroat competition for market share expansion by the second-largest company is considered to have ended for the time being.

Researcher Han explained, "Due to the burden of rising costs, price increases in the ramen industry within the year are highly likely, and stock preferences are in the order of Nongshim, Samyang Foods, and Ottogi." The target stock prices for each company are 400,000 KRW, 120,000 KRW, and 650,000 KRW, respectively.