[Click eStock] "Nongshim, Domestic Business Profitability Declines... Improvement Expected in Second Half"

On the 16th, Korea Investment & Securities evaluated that Nongshim's domestic business profitability has deteriorated. However, it was assessed positively that the profitability of overseas subsidiaries has improved. The investment opinion 'Buy' and the target price of 540,000 KRW were maintained.

Researcher Eunji Kang of Korea Investment & Securities stated, "In the second quarter, sales increased by 2.8% year-on-year to 860.7 billion KRW, while operating profit decreased by 18.7% to 43.7 billion KRW, missing consensus estimates by 1.9% and 14.9%, respectively."

The main reason operating profit fell short of market expectations was the deterioration in domestic business profitability. Researcher Kang explained, "Sales growth in the domestic business was driven by increased sales of new ramen products such as Chapagetti The Black and Neoguri cup noodles series, but due to rising costs and increased promotional discount events, expenses increased, causing the operating profit margin to decline by 1.7 percentage points compared to the same period last year."

Unlike the domestic business, it is fortunate that the profitability of overseas subsidiaries has improved. The North American subsidiary saw a decrease in sales due to changes in product mix, but unlike the domestic business, cost burdens were alleviated and the yield of the second plant improved, resulting in a 0.4 percentage point increase in operating profit margin. The Chinese subsidiary experienced a decline in sales due to a drop in average selling price (ASP) through collaboration with Youbei, but profitability greatly improved through reduced promotional events and more efficient cost execution.

Researcher Kang forecasted, "Overseas subsidiaries' sales will increase in the fourth quarter with the start of a new production line at the U.S. second plant and normalization of the Chinese distribution network," adding, "There is also anticipation regarding the establishment of overseas sales subsidiaries and expansion of export-dedicated factories."

She added, "In the second half of the year, the domestic subsidiary's profitability is also expected to improve through cost burden relief via raw material contract renewals and a profit-focused business strategy."