[Click eStock] Samyang Packaging, 'Undervalued' with Expected Earnings Turnaround Next Year

[Asia Economy Reporter Lee Seon-ae] The Korea IR Association Corporate Research Center stated on the 22nd that a turnaround in Samyang Packaging's performance is expected next year.

Samyang Packaging was established in November 2014 as a result of the physical division of the container and recycling business units from Samyang Corporation. Its traditional core business is PET bottle packaging, which has developed alongside the growth of the food and beverage industry. Since 2019, the advantages of aseptic packaging and its position as the market leader in share have gradually become known. Aseptic packaging is an attractive market where supply creates demand. Even beverages that were difficult to package with traditional PET bottles can be commercially launched using aseptic packaging.

Samyang Packaging's core business has transformed from simple PET bottle manufacturing to aseptic packaging services. Through aseptic packaging, the taste and aroma of beverages are preserved, and the shape of containers can be diversified. This is highly preferred by clients who launch trendy new beverage products. For Samyang Packaging, the various processes of aseptic packaging enable value-added creation. The penetration rate of aseptic packaging in the domestic beverage market is below 30%, and it is expected to grow at an average annual rate of over 10% for the next five years.

Researcher Kim Kyung-min of the Korea IR Association Corporate Research Center forecasted that Samyang Packaging's sales and operating profit this year will reach 432.8 billion KRW and 41 billion KRW, respectively. Thanks to the increase in aseptic demand and the transition from non-face-to-face to face-to-face daily life, beverage demand is expected to rise, leading to sales growth. Although operating profit is expected to decrease compared to 46.1 billion KRW in 2021, the sharp rise in PET resin raw material prices has stabilized, so a performance turnaround is anticipated in 2023.

Based on estimated 2022 performance, Samyang Packaging's price-earnings ratio (PER) valuation is 9.8 times. This is similar to the KOSPI index's PER valuation of 9.7 times, but it is positioned near the lower end of the PER band baseline for the recent five years (2018?2022), indicating undervaluation. Not only the PER valuation but also the price-to-sales ratio (PSR) and price-to-book ratio (PBR) valuations are lower compared to the individual band baselines for 2020?2021. On the other hand, Dongwon Systems, which also operates in the aseptic packaging business like Samyang Packaging, has a 2022 PER valuation of 19.1 times, which is higher. The reason for the difference in PER valuations between the two companies is presumed to be that Dongwon Systems operates various packaging businesses using steel and aluminum raw materials in addition to aseptic packaging, and for tuna cans, there is a captive customer within the group.

In conclusion, the reason Samyang Packaging is undervalued compared to Dongwon Systems is that the sharp rise in basic raw material oil prices and the resulting margin decline had a particularly negative impact on the performance in Q4 2021 and Q1 2022.

Researcher Kim emphasized, "Fortunately, PET resin prices, which had been rising until the outbreak of the Russia-Ukraine war, have not surged further since May 2022," adding, "With the stabilization of PET resin prices, Samyang Packaging's operating profit margin will improve, and the contribution of aseptic packaging services to performance will be fully reflected from sales to operating profit, which will help escape from undervaluation in valuation."