[Click eStock] "Dongwon Industries, Performance Falls Short of Expectations but... Undergoing Structural Improvement"

Subsidiary StarKist Achieves Normalization of Selling Prices and Sales Activation Cost Reduction
Daishin Securities Maintains Dongwon Industries Target Price at 400,000 Won

[Asia Economy Reporter Gong Byung-sun] Dongwon Industries' second-quarter performance this year fell short of market expectations (consensus). However, securities firms noted that this was due to temporary factors and that Starkist, the tuna can manufacturing company acquired in 2008, continues to improve its business structure through price normalization and other measures.

According to Daishin Securities on the 4th, Dongwon Industries' second-quarter sales decreased by 9% year-on-year to 659.7 billion KRW, and operating profit fell by 34% to 59.3 billion KRW. These figures are 10.24% and 11.49% below the sales and operating profit consensus of 735 billion KRW and 67 billion KRW, respectively.

(Provided by Daishin Securities)

Weakness in the seafood sector led to results below consensus. The average price per ton of skipjack tuna in the second quarter was $1,346 (approximately 1,545,881 KRW), down 2% year-on-year. Although the catch volume increased by 10% compared to the previous quarter, it is estimated to be 7% lower than the same period last year. Han Yoo-jung, a researcher at Daishin Securities, said, “The decline in operating profit was greater than the decrease in seafood sales, resulting in performance below expectations. However, this is considered a temporary factor.”

Subsidiary Starkist is expected to continue its contraction in the second quarter, but its business structure appears to be improving. Despite the base burden from the impact of COVID-19 last year, it achieved business improvements such as price normalization and cost reduction for sales activation. As a result, the operating profit margin in the distribution sector is expected to reach 13% in the second quarter. The researcher explained, “This is slightly lower than the second quarter of last year, when profitability temporarily surged due to increased stockpiling demand, but it seems to have improved about 1.9 times compared to the second quarter of 2019, before COVID-19.”

Accordingly, Daishin Securities maintained its investment opinion of ‘Buy’ on Dongwon Industries with a target price of 400,000 KRW. The closing price on the previous day was 240,500 KRW.