[Into the Stocks] Samyang Foods Forgets Grain Price Hurdle Amid K-Ramen Popularity Surge

Grain Prices Surge Due to Ukraine Crisis
Fell to 82,000 Won on 8th
Ramen Exports Strong
Rose to 92,300 Won on 18th

[Asia Economy Reporter Lee Jung-yoon] As grain prices rise due to the Ukraine crisis, the sharply fallen stock price of Samyang Foods is recovering. Despite concerns over increased production costs, exports have increased thanks to the popularity of K-Ramen overseas.

According to the Korea Exchange on the 21st, Samyang Foods closed at 92,300 KRW, up 3.13% from the previous trading day. Compared to the lowest stock price recorded on the 8th of this month after the outbreak of the Ukraine crisis, it has risen by more than 13%.

Samyang Foods was directly hit by Russia's invasion of Ukraine. Although it was expected to benefit from reopening, grain prices rose due to the Ukraine crisis, causing a sharp decline. The Food and Agriculture Organization (FAO) of the United Nations reported that the global food price index (FFPI) last month was 140.7 (2014-2016 average = 100), reaching the highest level since the index began in 1996. Russia and Ukraine, the largest producers of grains such as wheat, are currently banning exports to prevent a sharp rise in domestic food prices. According to the Korea Customs Service, the proportion of wheat and corn imported from Russia and Ukraine last year was about 9.1% and 5.9%, respectively, which is not high. However, since these two countries account for about one-third of global exports, if countries that imported grains from Russia and Ukraine shift their demand to Korea's export markets, Samyang Foods' production cost burden could increase.

Despite concerns over cost burdens caused by the Ukraine crisis, strong ramen exports have driven Samyang Foods' recent rebound. Based on last year, Samyang Foods had the highest proportion of total exports among major ramen companies, followed by Nongshim, Ottogi, and Paldo, respectively. In the case of Samyang Foods, since it exports after domestic production rather than producing locally, it accounts for a large share of total ramen exports. The proportion of Samyang Foods' ramen exports overseas has exceeded 50% since August last year and expanded to 58% last month.

This year, an increase in exports is expected due to strengthened sales capabilities through the establishment of overseas sales corporations, diversification of export countries, and the completion of a new factory in Miryang, Gyeongnam. In particular, the sales proportion in China expanded from 17.5% in 2018 to 21.7% last year, and performance growth is expected due to diversification of export regions. Sales in Asian regions such as Thailand, Malaysia, and Indonesia are growing alongside the Americas, and their share is also expanding. In the first quarter of this year, Samyang Foods' consolidated sales are expected to exceed estimates, recording 189 billion KRW, up 29% year-on-year, and operating profit of 20.6 billion KRW, up 43%.

Jang Ji-hye, a researcher at DS Investment & Securities, said, "Although the rise in global grain prices is expected to affect domestic flour mills and food companies such as Samyang Foods, so far it has not led to an increase in flour prices," adding, "Overall, since export performance is good, it is expected to offset the burden of rising costs."