[Click eStock] "Binggrae, Long-Term Amortization of Intangible Assets Poses Burden on Profit Growth"

[Asia Economy Reporter Song Hwajeong] IBK Investment & Securities on the 25th downgraded the target price for Binggrae from 72,000 KRW to 66,000 KRW, citing that the amortization expense of intangible assets resulting from the acquisition of Haitai Ice Cream is expected to weigh on profit growth over the long term. The investment opinion was maintained as 'Buy.'

Binggrae's sales increased in the second quarter of this year, while operating profit sharply declined. On a consolidated basis for the second quarter, sales amounted to 324.7 billion KRW, up 21.3% year-on-year, but operating profit fell 31.7% to 18.3 billion KRW. Kim Taehyun, a researcher at IBK Investment & Securities, analyzed, "Binggrae's standalone performance was sluggish, and as in the first quarter, Haitai Ice Cream's results were reflected in the consolidated figures, continuing a sales growth trend in the 20% range. However, operating profit significantly decreased due to the increase in amortization expenses of intangible assets. Despite weakness in China, overseas subsidiaries showed growth momentum with sales increasing by 31.9% and 58.0% in the U.S. and Vietnam subsidiaries, respectively."

Binggrae's standalone sales rose 4.7% to 268.4 billion KRW, while operating profit dropped 37.8% to 13.9 billion KRW. Researcher Kim explained, "Profitability deteriorated as the cost of goods sold ratio increased by 2.9 percentage points due to rising raw material prices such as sugar and coffee, and sluggish ice cream sales." Haitai Ice Cream recorded an operating profit of 200 million KRW in the second quarter, and considering the heatwave in July and August, the operating profit trend is expected to continue into the third quarter.

It is an opinion that the amortization expense of intangible assets will inevitably burden profit growth over the long term. Researcher Kim said, "There is still no significant synergy between the two companies, and due to the amortization expense of intangible assets from the acquisition of Haitai Ice Cream, approximately 2 billion KRW will be incurred each quarter until the third quarter of 2025, which will act as a burden on profit growth over the long term."