[Click eStock] "Nongshim, Stock Price Rises Based on Earnings... Target Price Up 8%"

DB Financial Investment Report

[Asia Economy Reporter Minji Lee] DB Financial Investment maintained its buy rating on Nongshim on the 24th and raised the target price by 8.2% to 433,000 KRW. This is based on the expectation of a stock price increase supported by solid performance this year.

Despite a continuous low-price strategy, Ottogi's market share in the ramen market has been declining for three consecutive years. Ottogi's low-price strategy in the ramen market does not bring additional market share growth. Facing the limitations of market share growth based on volume, Ottogi may choose direct or indirect price increases rather than focusing on volume growth, and the actual increase in Jin Ramen's selling price could worsen the low-price competition that has persisted in the ramen market for over 14 years. From 2008 to the third quarter of 2021, the ramen market growth averaged 0.89% annually, which was lower compared to other food and beverage product prices.

Researcher Jaehun Cha of DB Financial Investment said, “If low-price competition eases, the price gap increase rate between ramen and other food and beverage products will significantly narrow,” adding, “This will accelerate the rebound of Nongshim’s ramen market share.”

Nongshim’s U.S. sales have just reached the mid-300 billion KRW range, but the increase in ramen demand and the expansion of the consumer base in the U.S. market are remarkable. In the U.S. ramen market, Nongshim can premiumize its brand based on Korean Wave (Hallyu) and Korean brand power, unlike Orion in the Chinese confectionery market. Researcher Cha explained, “Although establishing new factories is more challenging than in China, considering that distribution networks are expanding mainly through large retail channels, sales growth by amount will greatly exceed estimates when production lines are expanded.”

With the recovery of market share in the Korean corporation and solid performance improvement in the U.S. corporation, global market growth is expected to drive consolidated operating profit for 2022 to 139.5 billion KRW, a 33.2% increase from the previous year. Considering the expansion of Nongshim ramen’s distribution network, brand power increase, and production capacity growth in the U.S. region, sales growth exceeding estimates may occur.