[Click eStock] "Nongshim, Effect of Ramen Price Increase Expected"

Operating Profit Margin Expected to Improve from 2.7% in Q2 to 3.7% in Q3
KB Securities Maintains Nongshim Target Price at 400,000 Won

On the 15th, ramen is displayed at a large supermarket in downtown Seoul. With rising recognition through Korean dramas and movies, ramen is gaining global popularity. According to the industry, Nongshim's cumulative overseas sales of Shin Ramyun in the third quarter have surpassed domestic sales. Samyang Foods' overseas sales accounted for 57% of total sales last year. Photo by Moon Honam munonam@

[Asia Economy Reporter Gong Byung-sun] Nongshim's third-quarter performance this year is expected to meet market consensus. The effect of domestic ramen price increases is interpreted as alleviating the burden of rising grain prices.

On the 22nd, KB Securities estimated Nongshim's third-quarter sales at 665.3 billion KRW, a 2.1% increase compared to the same period last year, and operating profit at 24.7 billion KRW, a 15.9% decrease over the same period. These figures are in line with the consensus estimates of 664.9 billion KRW and 25.5 billion KRW, respectively.

The rise in grain prices is expected to negatively impact performance. Prices of grains such as wheat and flour fell in the first quarter of last year but have been rising again since then. Additionally, due to a high base effect, operating profit is estimated to decline in the third quarter of this year.

However, the domestic ramen price increase is believed to have prevented a poor performance. Although the number of business days decreased due to the Chuseok holiday, which was expected to worsen performance, the decision to raise ramen prices on August 16 led to panic buying demand. As a result, domestic sales are expected to increase by 0.6% year-on-year, and sales in China by 4.2% during the same period. Additionally, sales in North America, Japan, and Australia are expected to grow by 8.8%, 4.2%, and 4.5% year-on-year, respectively.

From the fourth quarter of this year, the effect of price increases will be fully reflected. The operating profit margin, which was 2.7% in the second quarter, is expected to record 3.7% in the third quarter and 4.4% in the fourth quarter. KB Securities researcher Lee Sun-hwa explained, “From the first quarter of next year, the margin spread will expand, and the effect of price increases will become more apparent. When the second US plant starts operating at the end of this year, external growth in the North American region will accelerate further.”

Accordingly, KB Securities maintained its 'Buy' investment opinion on Nongshim and a target stock price of 400,000 KRW. The closing price on the previous day was 288,500 KRW.