[Click eStock] "Binggrae Offsets Cost Burden with Price Increase Effect Reflected Next Year"

[Asia Economy Reporter Song Hwajeong] IBK Investment & Securities maintained its 'Buy' rating and target price of 66,000 KRW for Binggrae on the 8th, expecting that the effect of next year's price increase will be fully reflected, offsetting the cost burden.

Binggrae's fourth-quarter performance this year is expected to fall short of market consensus. IBK Investment & Securities estimated that Binggrae's consolidated sales for the fourth quarter would increase by 3.4% year-on-year to 228.8 billion KRW, with an operating loss of 12.1 billion KRW, continuing the deficit. Kim Taehyun, a researcher at IBK Investment & Securities, said, "Sales are in line with the consensus (sales 228.4 billion KRW, operating profit 8.2 billion KRW), but operating profit will fall short. Since the acquisition of Haitai Ice Cream in early October last year was reflected in the consolidated results, there was a significant sales growth trend until the third quarter of this year, but from the fourth quarter, the acquisition effect disappears, reducing the sales growth rate to single digits. With the ongoing burden of rising raw material prices and expected increases in transportation and storage costs and commission fees, it will be difficult to significantly reduce the deficit." In particular, fermented milk sales increased by 40% and 20% year-on-year in the second and third quarters, respectively, and this quarter is expected to show strong performance due to the combined effect of strong protein drink sales and price increases. Juice sales are expected to remain at last year's level, but coffee beverage sales are expected to continue strong growth. Frozen products (including ice cream) sales are estimated to increase by 1.3% to 67.8 billion KRW. Due to the burden of last year's fourth-quarter sales performance, which greatly benefited from increased home ice cream consumption during COVID-19, growth is expected to be modest.

Price increases for major products have been reflected since last month. From November, prices for major products such as Banana Flavored Milk and Yoplait Original were raised by 6-7%, leading to an expected 3.7% improvement in refrigerated product (dairy beverages, etc.) sales. Next year, the effect of price increases is expected to be fully reflected, offsetting the cost burden. Researcher Kim said, "Although the global resurgence of COVID-19 is expected to sustain the rise in raw material prices for some time, the effect of product price increases will be fully reflected next year, significantly offsetting the cost burden. Sales and operating profit next year are expected to improve by 5.4% and 3.8%, respectively, compared to this year."