[This Week's Highlight] Soared on 'Maeun Buldak'... Samyang Foods Approaches 4 Trillion Market Cap

'Carbonara' Product Faces Shortage in the US
Hits Big Among Influencers... Popular with MZ Generation
Q1 Profit Margin in 20% Range... Factory Completion Next Year

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"Buldak Carbonara (Spicy Chicken Flavor Noodle Carbonara) is my favorite ramen."

This is a video review attached to Samyang Foods' 'Buldak Bokkeummyeon' series on Amazon, the largest e-commerce platform in the United States. Consumers cooking and sharing the ramen enjoyed the spicy flavor with smiles on their faces. The 5-pack set priced at $15.9 has garnered nearly 97,500 comments. The 'Variety Pack,' which bundles various flavors from cheese, curry, and jajang (black bean sauce) to double spicy, is also a popular product. Along with the bagged ramen, convenient cup noodles and related sauces are also on the rise. Recently, famous rapper Cardi B and TikTok influencer 'Kiss Lee,' who has 16.3 million followers, posted videos purchasing and cooking the Carbonara Buldak Bokkeummyeon, which also contributed to its popularity. Local foreign media such as The Wall Street Journal (WSJ), LA Times, and The New York Times have also paid attention to the 'Buldak Bokkeummyeon phenomenon.'

Buldak Bokkeummyeon Series Resonates with US MZ Generation

The high popularity of the Buldak Bokkeummyeon series led to an earnings surprise for Samyang Foods in the first quarter of this year. Samyang Foods posted record-breaking results in Q1, hitting a new 52-week high. Securities firms have consecutively raised their target prices, raising expectations. Annual sales and net income attributable to controlling shareholders for 2024 are expected to increase by 29% and 81%, respectively, compared to the previous year, suggesting that the stock price is likely to continue its upward trend for the time being.

Samyang Foods is a food company established in 1961. It manufactures noodles, snacks, sauces, and frozen foods, and introduced Korea's first ramen. The 'Original Samyang Ramen' is a representative product. Snack products familiar to consumers in their 30s and 60s include 'Jjanggu,' 'Sattobap,' and 'Byulppoppai.' Currently, the company leads the global K-ramen craze with its Buldak brand, which embodies Korean-style spiciness. The Buldak Bokkeummyeon, which drives Samyang Foods' heyday, was created from an idea by Kim Jeong-su, Vice Chairman of Samyang Foods. It is said that in early 2011, he developed the product after observing young people sweating while eating spicy food at a restaurant in Myeongdong, Seoul.

Among all business sectors, noodles account for the highest sales proportion. In Q1 this year, the noodle and snack division accounted for 91.9% of sales. The next largest segment was service operations (logistics, flake sorting, etc.) at 3.75%, followed by frozen foods (3.27%) and sauces/seasonings (2.37%). The noodle and snack division's Q1 sales increased by 51.78% year-on-year to 354.5 billion KRW. This is attributed to increased overseas sales of the flagship export product, Buldak Bokkeummyeon. New product development tailored to diverse consumer tastes and the company's flagship brands, Samyang Ramen and Buldak Bokkeummyeon, are playing a key role as 'cash cows.' Following the original spicy 'Buldak Bokkeummyeon,' the recent Carbonara version has been a home run.

[Image source=Yonhap News]

The popularity of Korean spicy ramen has also attracted foreign media attention. The New York Times cited the popularity of Carbonara Buldak Bokkeummyeon, noting that it "increased accessibility by offering a sophisticated flavor called 'Carbonara,'" highlighting the ease of recipe modification and the crucial marketing factor of being 'instagrammable.' Instagrammable is a key appeal point that resonates with the core consumers, the MZ generation (Millennials + Generation Z). It means that the product's suitability for posting photos on social media platforms like Instagram and TikTok greatly influences purchasing decisions. The influence of influencers' statements is also significant.

The great popularity of a single product can conversely be a risk factor. The company has had many internal concerns. Launching products reflecting the characteristics of local overseas markets is part of these efforts. For example, in China, they released 'Mala Buldak Bokkeummyeon' using 'Mala,' a representative local spicy flavor; for Japan, 'Yakisoba Buldak Bokkeummyeon'; and in the Americas, targeting the Hispanic market, 'Habanero Lime Buldak Bokkeummyeon.' They also launched sauces based on the popularity of the Buldak series. Jeong Hansol, a researcher at Daishin Securities, said, "To mitigate the risk of relying on a single brand, Buldak Bokkeummyeon, the company is expanding its product portfolio by releasing not only the original but also Carbonara Buldak Bokkeummyeon and customized products reflecting local market characteristics," diagnosing this as "the biggest reason the Buldak brand's competitiveness is maintained."

Securities Firms Applaud... Operating Profit Margin in Food Industry Hits 20% Range

In the securities industry, Samyang Foods' 'solo run' stood out in Q1 while overseas ramen competitors struggled. Kwon Woo-jung, a researcher at Kyobo Securities, said, "It recorded the biggest earnings surprise in the food and beverage sector in Q1," adding, "The overseas sales ratio rose sharply to 74.9% in Q1, resulting in strong sales and profit performance." He also noted, "Especially, the operating profit margin (OPM) improved significantly to 20.8% this quarter from 9.7% in the same period last year," emphasizing, "Considering the disappointing growth of overseas ramen competitors, this performance is even more remarkable."

Typically, the food sector shows an operating profit margin of around 5% regardless of company size, which is very low compared to other industries. In Samyang Foods' case, its high popularity in overseas markets such as the US and China is believed to have contributed to the high profit margin. The increase in the proportion of overseas sales, which have relatively higher average selling prices (ASP), and the decrease in input costs also played a role. The strong SNS viral effect compared to competitors allowed effective targeting without massive marketing expenses, which was also positive.

After confirming Q1 results, the securities industry expressed amazement. Since the Q1 earnings announcement on the 16th of this month, seven securities firms have raised their target prices. Among domestic securities firms, Kiwoom Securities set the highest target price at 660,000 KRW. Three firms had already raised their target prices before the Q1 earnings announcement. This was due to the upward revision of the full-year earnings forecast, mainly driven by improved performance of the Americas subsidiary. The entry rate is rising in mainstream US channels such as Costco and Walmart, and new entries continue in ethnic channels. Despite the rising stock price, the level of earnings improvement has outpaced it, leading the market to analyze that the stock remains in a 'relatively undervalued' range. The stock price responded accordingly, hitting a new 52-week high at 502,000 KRW on the 20th, breaking the 500,000 KRW mark. The market capitalization reached 3.78 trillion KRW, approaching 4 trillion KRW.

While demand is supported, supply shortages causing scarcity are expected to ease somewhat next year. There is anticipation that solid demand-driven growth will drive performance. Previously, overseas consumers complained on SNS and other platforms that it was difficult to find the product even when visiting Korean-style supermarkets like H Mart. Cardi B also mentioned on SNS that she "drove for 30 minutes to buy this product (Carbonara Buldak Bokkeummyeon)." Samyang Foods currently operates three production plants domestically (Wonju, Iksan, and Miryang). Among them, the Miryang plant produces both cup and bag products and mainly handles export products. Kyobo Securities expects that the expansion of the second plant in Miryang, scheduled for completion in May 2025, will improve the company's production capacity (CAPA) by 30%. This decision was made because the previous expansion of the first plant was deemed insufficient.

Meanwhile, at the shareholders' meeting in March last year, Samyang Foods added two business purposes to its articles of incorporation: real estate-related business and tourism business. The company is reviewing ways to utilize idle land it owns. However, no concrete execution plans have been made yet. The tourism business is in a similar situation. The company explained that due to rapidly changing business environments amid increasing overseas tourism demand, short-term business promotion is uncertain.