[Click eStock] "Orion, China Operating Profit Increases for Two Consecutive Months"…Target Price Up

[Asia Economy Reporter Lee Jung-yoon] Shinhan Investment Corp. maintained its buy rating on Orion on the 21st, stating that earnings improvement will be swift when consumption rebounds following the relaxation of China's quarantine policies, and raised the target price from the previous 135,000 KRW to 150,000 KRW.

Orion's year-on-year sales growth by country last month was recorded at 25.2% in Korea, 27.6% in China, 42.0% in Vietnam, and 84.7% in Russia. Operating profit increased across all regions due to cost-efficiency efforts despite overall cost pressures.

Notably, operating profit in China increased for two consecutive months. The rise in raw material and utility costs inevitably led to an increase in cost ratio. However, thanks to the early Lunar New Year effect and growth in the snack category, sales in RMB increased by 25%. Additionally, cost reduction efforts such as bidding expansion and auxiliary material efficiency continued.

Researcher Cho Sang-hoon of Shinhan Investment Corp. explained, "Recently, the Chinese government has shown signs of shifting to a de facto 'With COVID-19' policy by relaxing quarantine measures, signaling an end to the zero-COVID policy that had lasted throughout this year," adding, "Therefore, domestic consumption is expected to gradually recover."

He continued, "Although the growth rate of the Chinese confectionery market will not be as high as in the past, aggressive new product launches from the second quarter of this year have secured a competitive advantage in market share," and said, "It is particularly meaningful that, unlike competitors, Orion has improved performance solely through product competitiveness without raising prices."

With the relaxation of China's quarantine policies, earnings improvement is expected to be rapid when domestic consumption rebounds. After the snack peak season in the third quarter and the pie peak season in the fourth quarter of this year, performance improvement is anticipated across all categories next year. Furthermore, the easing of cost burdens due to falling grain prices is also viewed positively.