[Click eStock] 'Focus on Second Half Earnings Improvement' Nongshim, Target Price Up

On the 1st, IBK Investment & Securities raised the target price for Nongshim by 16% to 580,000 KRW, stating that "it is time to focus on performance improvement in the second half of the year." The buy rating was also maintained.

On the same day, Kim Taehyun, a researcher at IBK Investment & Securities, said, "Nongshim's consolidated sales in the second quarter are expected to be 871.3 billion KRW, up 4% year-on-year, and operating profit is expected to be 51.4 billion KRW, down 4.3%, generally in line with market expectations."

With continued cost burdens from wheat and starch and increased expenses related to promotional activities, a slight decline in profits is expected to continue. Researcher Kim said, "Sales of the domestic corporation by region are expected to increase by 5.6% year-on-year to 629.2 billion KRW, while operating profit is expected to decrease by 2.1% to 26.4 billion KRW," adding, "Sales of key products such as Shin Ramyun and Chapagetti are favorable, and the launch effect of Baehongdong cup noodles in April is expected to improve bibim noodle sales."

Exports centered on Europe and Southeast Asia are also expected to continue strong. Researcher Kim noted, "North American sales and operating profit are expected to record 151.3 billion KRW and 14.8 billion KRW, respectively, down 2.9% and 12.9% compared to the same period last year," adding, "Although the base burden related to the operation of the second factory in the U.S. will continue, the decline in performance compared to the first quarter is expected to ease."

He further explained, "Demand is highest locally for Shin Ramyun, Saengsaeng Udon, Tonkotsu Ramen, and Yukgaejang Sabalmyeon, in that order. The operating rate is understood to be maintained at 80% (maximum production capacity) for the first factory and around 50% for the second factory," adding, "The Chinese corporation is also expected to see performance improvements due to events such as the 6.18 shopping festival."

Performance improvement is anticipated in the second half of the year. Researcher Kim said, "The maximum possible sales of the U.S. factory currently stand at about 800 billion KRW, and when the new line (production capacity about 60 billion KRW) of the second factory starts operation at the end of the third quarter, total production capacity is expected to increase by about 8%," adding, "It is expected that new product launches focusing on non-soup noodles and cup noodles will be strengthened through the new line."

Additionally, he added, "Proposals for entry centered on large local distributors in Europe are increasing, raising expectations for diversification of sales regions and strengthened negotiation power within Europe. While expectations for performance growth in overseas markets in the second half remain valid, concerns about margin decline in the second quarter are believed to have been largely reflected in the stock price."