[Click eStock] "Orion's Slump in the Chinese Market"

Q2 Sales and Operating Profit Below Consensus
Daishin Securities "Orion Target Price Maintained at 150,000 Won"

[Asia Economy Reporter Gong Byung-sun] Orion is expected to report second-quarter earnings this year that fall short of market consensus. The sluggish performance in the Chinese market is believed to have impacted the results.

On the 21st, Daishin Securities forecast that Orion's simple aggregate sales by corporation for the second quarter would decrease by 2% year-on-year to 505.3 billion KRW, and operating profit would drop by 30% to 59.5 billion KRW. Including estimates for the Indian corporation's performance, consolidated second-quarter sales are expected to decline by 2% year-on-year to 502.5 billion KRW, and operating profit to fall by 30% to 60.4 billion KRW. These figures are 4.3% and 17.15% below the respective consensus estimates of 525.2 billion KRW and 72.9 billion KRW.

The underperformance in the Chinese market appears to have contributed to the results falling short of consensus. The Chinese corporation's second-quarter sales are predicted to decrease by 14.3% due to a high base effect from last year. Operating profit is also expected to decline by 60.1%. Yu-jeong Han, a researcher at Daishin Securities, explained, "Operating profit is expected to be weak due to rising costs and retirement payments incurred during the indirect transition of small distributors who act as intermediaries."

Growth in the Vietnamese and Russian corporations is expected to continue. Sales in local currency terms for the Vietnamese and Russian corporations are estimated to increase by 15% and 53% year-on-year, respectively, driven by aggressive expansion of key products and increased sales of new products. However, Daishin Securities anticipates that profit improvement will be limited due to a sharp rise in manufacturing cost ratios caused by increased costs. Operating profit for the Vietnamese corporation is expected to decrease by 18.8% year-on-year to 8 billion KRW, while the Russian corporation's operating profit is forecast to increase by 4.4% to 4 billion KRW during the same period.

The domestic corporation's performance is predicted to be relatively positive. The researcher stated, "The domestic corporation is expected to show solid results due to the effects of new product launches and expanded sales of new products under the Market O Nature and Doctor You brands."

Accordingly, Daishin Securities maintained its investment opinion of "Buy" on Orion and its target stock price of 150,000 KRW. The closing price on the previous day was 119,000 KRW. The researcher emphasized, "It is necessary to confirm the effects of the operational restructuring in China and Vietnam and price increases in key regions."