[Click eStock] Daesang, Next Year's Estimated Earnings Downgraded but Buy Rating Maintained

[Asia Economy Reporter Lee Seon-ae] DB Financial Investment announced on the 17th that it maintains a buy rating on Daesang but lowers the target price from the previous 39,000 KRW to 33,000 KRW. This adjustment reflects a 13.7% and 13.8% downward revision of the estimated earnings per share (EPS) for 2022 and 2023, respectively, due to weaker-than-expected quarterly performance and rising cost factors.

Researcher Cha Jae-heon of DB Financial Investment explained, "However, even based on conservative earnings forecasts, the current stock price is trading at a price-to-earnings ratio (PER) of about 8.9 times, and at this lowered valuation level, there are no additional discount factors that would burden long-term investment, so we maintain the buy rating." He added, "Considering the strong market dominance in the main product lines, the company also has the ability to fully pass on cost burdens to prices."

Food sales in the fourth quarter are expected to maintain high growth due to active marketing investments in growth items such as HMR (Home Meal Replacement). The performance of the materials segment is expected to improve compared to the previous quarter due to the downward stabilization of international corn prices (from peak levels) and continuous price increases. In particular, with a time lag, the operating profit margin of the materials segment is expected to recover to normal levels in 2022. The consolidated performance of the Indonesian subsidiary is expected to be sluggish due to rising raw material prices such as raw sugar, increased volumes of Chinese MSG, and COVID-19, but these negative impacts are generally expected to be short-term.

Consolidated sales for the fourth quarter are estimated to increase by 8.2% to 799.8 billion KRW, and operating profit is expected to rise by 189.7% to 18.1 billion KRW due to the base effect. Consolidated sales for this year are projected to grow by 8.2% to 3.3685 trillion KRW, but operating profit is expected to decrease by 11.7% due to increased selling and administrative expenses in the HMR segment, rising raw material prices, poor performance of overseas subsidiaries, and the COVID-19 base effect. However, in 2022, it is expected that the operating profit margin will recover to normal levels (22E OP% 4.75%) due to price increases in the materials segment, stabilization of selling and administrative expense ratios related to HMR, and resolution of temporary COVID-19 factors.