[Click e Stocks] Ottogi, Can't You Expand Overseas?

[Asia Economy Reporter Junho Hwang] "It is a regrettable moment for a portfolio concentrated on domestic sales."

On the 15th, securities firms evaluated Ottogi after the company posted disappointing results despite strong sales in the third quarter this year due to rising costs. The burden of rising cost ratios is expected to ease after peaking in the third quarter of this year. However, due to the portfolio's characteristic of having a high proportion of domestic sales, the scope of profitability improvement is expected to be limited until the first half of next year.

In the third quarter of this year, Ottogi's sales amounted to 821.6 billion KRW, a 16.2% increase compared to the previous year. Operating profit was 44.2 billion KRW, down 16.6% year-on-year. This figure falls short of the previous estimate of 53.4 billion KRW and the consensus operating profit of 54.3 billion KRW. While the selling and administrative expense ratio decreased by 0.3 percentage points, the cost ratio rose by 2.4 percentage points due to the increase in major raw material prices, resulting in performance below expectations.

By product category, sales of dried food products significantly decreased by 26% compared to the previous year, but sales of processed agricultural and marine products increased significantly by 65%. However, when applying the same recognition criteria due to changes in sales recognition standards by category, they grew by 12% and 29%, respectively.

With a 0.9 percentage point increase in market share in the ramen market (based on value), noodle sales increased by 9%. Due to price increases, sales of seasoning sauces and oils grew by 6% and 28%, respectively.

Han Yujeong, a researcher at Hanwha Investment & Securities, pointed out, "From 2019 to 2022, Ottogi's overseas sales grew at an average annual rate of 18%, maintaining a high growth trend," but added, "as of the third quarter this year, the proportion of overseas sales is only 10.9%, and the proportion of domestic sales remains overwhelmingly high."

He continued, "Despite expectations for the effect of Ottogi's ramen merger to be reflected from the fourth quarter of this year, concerns remain about the continued burden of rising costs," and lowered the target stock price to 520,000 KRW per share.