[This Week's Focus] Cold and Hungry Impeachment Crisis... 'Reliable Ramen Stock' Samyang Foods

"No Reason Not to Buy" Solid Growth Momentum
High Expectations for 2025 Performance
Yet Risks to Watch Out For

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Amid the shock of the impeachment political turmoil shaking the market, food companies have emerged as defensive stocks. Among them, Samyang Foods is playing a leading role in writing the 'K-Ramen legend' in overseas markets. In the securities industry, amid growing market uncertainty, it is even regarded as the top preferred stock in the food industry, called "Trustworthy Samyang Foods." The secret lies in the combination of three factors: 'price increase,' 'sales volume growth,' and 'strengthened purchasing power.'

Operating Profit Margin Maintains Above 20% for Three Consecutive Quarters

Samyang Foods announced on the 14th of last month that it recorded consolidated sales of 438.9 billion KRW and operating profit of 87.3 billion KRW in the third quarter. These figures represent increases of 31% and 101%, respectively, compared to the previous year. The operating profit margin remained above 20% for three consecutive quarters. Samyang Foods' strong performance was driven by overseas sales this quarter as well. Overseas sales increased by 43% year-on-year to 342.8 billion KRW, accounting for 78% of total sales. For the full year 2024, sales are expected to reach 1.6771 trillion KRW, operating profit 337 billion KRW, and net profit 260.9 billion KRW. Sales are projected to increase by more than 40%, with operating profit and net profit expected to more than double.

The performance outlook for 2025 is also bright. According to KB Securities, consolidated sales for 2025 are expected to reach 1.957 trillion KRW, a 15.9% increase from the previous year. Operating profit is projected at 428.8 billion KRW, up 23.7%, with an operating profit margin maintaining at 21.9%, staying above 20%. There is optimism that the operating profit consensus will be exceeded by 7.9%. Eun-ae Ryu, a researcher at KB Securities, noted, "High demand for ramen continues, and with the Milyang Plant 2 starting operations in the second half of 2025, utilization rates are expected to rise rapidly, leading to increased sales volume."

Kim Jung-soo, Vice Chairman of Samyang Foods, awarded the '700 Million Dollar Export Tower.' Buldak Bokkeummyeon is a product born from the idea of Kim Jung-soo, Vice Chairman of Samyang Foods. Photo by Samyang Foods

The key is to sustain demand for K-Ramen, which began with the 'Spicy Challenge' popular among the American Gen Z generation. Samyang Foods has found an escape route by expanding entry into mainstream Western channels. In the recent third-quarter IR, Samyang Foods stated, "As product demand increased in new regions such as the Americas and Europe, overseas exports expanded and business conditions improved," adding, "Offline channel sales of the China corporation increased, achieving the highest quarterly sales, and sales in the European corporation have also commenced."

Thanks to these achievements, Samyang Foods received the '700 Million Dollar Export Tower' award for the first time in the food industry at the 61st Trade Day ceremony this year. The Export Tower award is given based on performance over the previous year up to June. This is the fifth time the company has received the award, following 100 million dollars in 2017, 200 million in 2018, 300 million in 2021, and 400 million in 2022.

Led by the US and China... Challenging New Markets in Europe

The current centers of overseas exports are the United States and China. The third-quarter performance of the US corporation was 95.7 billion KRW, nearly double the 49.5 billion KRW of the previous year. Recently, the company succeeded in entering major US retailers such as Costco, Walmart, and Albertsons, brightening future prospects. Hee-ji Ha, a researcher at Hyundai Motor Securities, said, "As of the third quarter, Samyang Foods' mainstream market entry rate in the US is estimated at about 95% for Walmart and 55% for Costco," adding, "With increased capacity, expansion of entry into major US distribution channels is expected."

Performance also surged significantly in the Chinese market, where 'fake Buldak' products were rampant. Samyang Foods' China corporation recorded 115.3 billion KRW in the third quarter, a 39.9% increase year-on-year. In 2022, Korean food gained popularity in China, but counterfeit products imitating Korean products circulated, causing headaches for the domestic food industry. In response, Samyang Foods, CJ CheilJedang, Daesang, Ottogi, and others jointly took legal action with the Korea Food Industry Association. After a year-long legal battle, the association won an intellectual property (IP) infringement lawsuit in May 2023 against Qingdao Taiyangchao Food and Jindao Food in China.

Expansion into the European region is also steadily progressing. Sales of the European corporation just launched in the third quarter this year. Established in North Holland, the Netherlands, the European corporation is Samyang Foods' fifth overseas corporation after Japan, China, the US, and Indonesia. Third-quarter sales of the European corporation were 2.7 billion KRW. Whether success can be achieved in the European market remains uncertain, but it has certainly attracted attention. In June, the Danish Veterinary and Food Administration (DVFA) banned the sale of Buldak Bokkeum Myun products, calling them "dangerous flavors," but after protests from Samyang Foods and the Ministry of Food and Drug Safety, the ban was partially withdrawn. Ironically, this action by the Danish government increased Google search queries for 'Buldak Bokkeum Myun.' Yoo-jeong Han, a researcher at Hanwha Investment & Securities, added, "As the expansion of Milyang Plant 2 begins to contribute in earnest, acceleration is expected in expanding mainstream channels to Central and South America and Europe."

Expanding supply to meet increased demand is also positive. Attention is focused on the start of operations at the Milyang Plant 2 currently under construction. Tae-hyun Kim, a researcher at IBK Investment & Securities, said, "Commercial production is expected to start by June next year, or at the latest July," adding, "There is also consideration of establishing overseas production plants and further expansion." Especially, once Milyang Plant 2 is completed, production capacity is expected to increase by 40%, from the existing 1.8 billion units to an additional 700 million units. However, considering still high consumer demand and room for distribution network expansion, initial utilization rates may be faster than expected. Yoo-jeong Han of Hanwha Investment & Securities also noted, "Excess production from the existing Iksan and Milyang Plant 1 will be transferred to Milyang Plant 2, scheduled for full production in July next year," adding, "The break-even point (BEP) utilization rate is likely to be reached within one quarter."

Concerns Over 'Trump Tariff Policy Risk'

A concern is the 'Trump 2.0 government risk.' Donald Trump, when running as the Republican candidate, pledged to introduce universal tariffs as a policy. This is considered a negative factor for all domestic export companies, including Samyang Foods. If universal tariffs are introduced, product prices will rise, burdening local consumers. This could weaken price competitiveness and lead to decreased sales volume in the US. The only countermeasure is to expand local production facilities and localization to reduce tariff impacts. The mention of Samyang Foods' potential overseas factory establishment in the securities industry is presumed to be related to this background. There is also a significant burden to reorganize the global supply chain. It has become increasingly necessary to expand the supply chain beyond the US and China, which account for a high proportion of overseas sales. Increased exchange rate volatility is also cited as a risk management issue.

Nevertheless, the future stock price outlook is bright. According to financial information provider FnGuide, the consensus target price from securities firms is 752,222 KRW. The highest target price is 800,000 KRW from Hanwha Investment & Securities, and the lowest is 710,000 KRW from Kyobo Securities. On the 9th, Samyang Foods closed at 598,000 KRW, and on the 10th, it rose again to 669,000 KRW. As of 1:49 PM on the 11th, it is trading at 682,000 KRW, up 12,000 KRW (1.94%) from the previous close.