[Click eStock] "Nongshim Q3 Earnings Miss Consensus... Target Price Lowered"

Sales of 850.4 billion KRW, Operating Profit of 37.6 billion KRW Recorded
Profitability Declined Due to Increased Domestic and Overseas Corporate Promotion Costs and Decreased Sales Volume
Target Stock Price Lowered from 540,000 to 450,000 KRW

On the 15th, Korea Investment & Securities lowered the target price for Nongshim from 540,000 KRW to 450,000 KRW, a 16.7% decrease.

According to Korea Investment & Securities, Nongshim recorded Q3 sales of 850.4 billion KRW (-0.6% YoY) and operating profit of 37.6 billion KRW (-32.5% YoY, operating margin 4.4%). This was 28.9% below the operating profit consensus, as increased promotional expenses and decreased sales volume at domestic and overseas subsidiaries negatively impacted profitability.

The domestic business posted sales of 667.5 billion KRW (+1.2% YoY) and operating profit of 17.0 billion KRW (-50.5% YoY, operating margin 2.5%). Although some cost burdens were alleviated, the operating margin fell by 2.7 percentage points due to decreased sales of key products such as ramen and snacks. Promotional discount events to stimulate consumption were held, but sales growth was limited. On the other hand, the export sector showed growth centered on Western Europe.

The North American subsidiary recorded sales of 152.7 billion KRW (-0.8% YoY) and operating profit of 11.8 billion KRW (-13.4% YoY, operating margin 7.7%). Promotional expenses increased due to Sam's Club and Kroger bowl noodle promotions, causing the operating margin to decline by 1.1 percentage points. In Q4, additional promotional expenses are expected due to test sales of Sam's Club stir-fried noodles and new product launches. The Chinese subsidiary posted sales of 33.4 billion KRW (-21.0% YoY) and operating profit of 2.8 billion KRW (-15.6% YoY, operating margin 8.3%), with performance deterioration continuing due to delays in normalizing online distribution channels.

Researcher Eunji Kang of Korea Investment & Securities stated, "(The target price downgrade) reflects the deterioration in profitability due to promotional expenses aimed at increasing sales volume." However, she added, "In the case of the North American subsidiary, sales growth is expected with the operation of a new line at the second plant and expansion of Walmart shelves, and sales growth in Europe can also be anticipated through the establishment of a European subsidiary." She also projected that the global launch of Shin Ramyun Tumbler is scheduled, maintaining positive expectations for mid- to long-term overseas business growth.