[why&next]"Lowest Profitability"... 'Angry' Nongshim Minority Shareholders Pressure for Value Upgrades

Nongshim and Samyang Foods Market Caps: 2.3509 Trillion KRW and 6.7571 Trillion KRW
Investor Group Including Unlocking Value Sends Open Letter
Demands Nongshim Announce Corporate Value Enhancement Plan Within the Year

2.2232 trillion KRW VS 1.5066 trillion KRW.

This was the market capitalization of Nongshim and Samyang Foods, competitors in the domestic ramen industry, one year ago. It seemed that Nongshim, the leading company, would continue its dominance. However, after one year, the corporate values of Nongshim and Samyang Foods reversed to 2.3509 trillion KRW and 6.7571 trillion KRW, respectively. This is the background behind the disgruntled voices among Nongshim’s minority shareholders.

An anonymous minority shareholder group of Nongshim called 'Unlocking Value' and other investors have been increasing pressure on Nongshim since the beginning of this year.

According to the food industry on the 12th, Unlocking Value recently sent a public shareholder letter to Nongshim demanding the announcement of a corporate value enhancement plan within the year. This is their second public letter following one in January.

Unlocking Value claimed, "We have formed an 'investor group' with minority shareholders and hold about 0.95% of Nongshim's shares," adding, "We are the fifth largest among publicly known minority shareholders." They are demanding the announcement of a corporate value enhancement plan within the year, which includes internal transaction diagnosis, disclosure of profitability by business division, setting operating profit margin targets, and linking executive compensation to these targets. They also pressured that if Nongshim does not publicly express its position, they will consider entering the board of directors.

Open Letter on Personal Shareholder Unlocking Value Delivered to Nongshim [Source=Unlocking Value Homepage]

Investor Group: "The Top Company Has the Lowest Profitability"

The operating profit margin of Nongshim, which the investor group criticized, is low even within the industry. Last year, Nongshim recorded sales of 3.4387 trillion KRW and operating profit of 163.1 billion KRW. Sales increased by 0.8% compared to the previous year, but operating profit decreased by 23.1%. Nongshim explained that operating profit declined due to increased promotional expenses caused by sluggish domestic market consumption and rising raw material costs due to exchange rate increases. Nongshim’s operating profit margin last year was 4.7%. Considering only the fourth quarter of last year, the operating profit margin was only 2.4%. During the same period, Samyang Foods’ operating profit margin reached 19.8%.

The investor group pointed out that competitors Toyosuisan and Nissin recorded operating profit margins of 23.8% and 15.8%, respectively, highlighting that Nongshim, which has secured a strong market position based on global brands, has maintained the lowest profitability in the industry for several years. The investor group stated, "Nongshim showed profitability at one-tenth the level of competitors despite operating the same business," and criticized, "It is logically difficult to accept that a company with the number one domestic market share shows contrasting profitability compared to peer companies."

Indeed, Nongshim’s low profitability has affected its stock price. Nongshim’s stock price fell by 8.1% over the past year. During the same period, Samyang Foods and Toyosuisan rose by 254.2% and 47.9%, respectively.

Nongshim, with High Major Shareholder Stake, Takes a Wait-and-See Approach for Now

Nongshim is currently taking a wait-and-see stance. The identity of the investor group has not been clearly revealed, and their shareholding has not been proven. It is unlikely that the investor group’s agenda will be discussed at the regular shareholders’ meeting scheduled for the 21st of this month. According to commercial law, shareholder proposals must be submitted six weeks before the shareholders’ meeting for the agenda to be discussed. However, since the investor group has publicly expressed its intention to continue shareholder activism, Nongshim is closely monitoring their future moves.

The largest shareholder of Nongshim is Nongshim Holdings, the holding company of the Nongshim Group, which holds 32.72% of the shares. The largest shareholder of Nongshim Holdings is Chairman Shin Dong-won of Nongshim (42.92%). The combined shareholding of the largest shareholder and related parties, including the Yulchon Foundation (4.83%), Shin Sang-yeol (3.29%), and Shin Dong-ik (1.94%), amounts to 44.25%. This stake is sufficient to maintain control even if a vote battle occurs with general shareholders at the shareholders’ meeting.

The second largest shareholder is the National Pension Service, holding 11.24%. According to the investor group, other major shareholders holding more than 1% include First Eagle Investment (3.30%), Vanguard Group (1.91%), and the Central Bank of Norway (1.64%).

The high shareholding of the Nongshim owner family and the recent price increases of ramen and snacks may serve as reasons for not responding to minority shareholders’ demands. On the 6th, Nongshim announced that it would raise prices of major ramen and snack products for the first time in about two years and six months since September 2022. The ex-factory prices of 17 major products are expected to increase by an average of 7.2%. This reflects the cost burden from rising manufacturing costs and exchange rates, so profitability improvement is expected.

However, aside from price increases, cost reduction is necessary to improve profitability. Nongshim, which has set a goal to actively target overseas markets, may find it difficult to show concrete results in reducing costs.

In August last year, Nongshim announced a 191.8 billion KRW investment plan to strengthen production competitiveness due to expanding export demand. Investment will continue at the Busan Noksan export-only factory until April 30, 2026. With expansion, marketing expenses are also likely to increase.

Minority Shareholder Activism Campaigns Spread

Minority shareholder activism is spreading throughout the retail industry. Emart and Lotte Shopping also received public letters from minority shareholders last month.

The minority shareholder solidarity platform ACT gathered 966 minority shareholders (1.4% stake) to propose financial structure improvement, appointment of the chairman as a registered executive, and enhanced shareholder communication to Emart. ACT submitted supporting documents by gathering the shareholder proposal requirement of '0.5% stake held for more than six months.' Emart is reviewing whether to put the agenda on the shareholders’ meeting. 310 shareholders (0.75% stake) demanded governance improvement and the introduction of cumulative voting to Lotte Shopping through ACT.

However, due to insufficient shareholding requirements, the agenda was not submitted at this regular shareholders’ meeting. According to the Korea Chamber of Commerce and Industry, minority shareholders accounted for 50.7% of all shareholder proposals by listed companies last year, nearly doubling from 27.1% in 2015 over ten years. This means that companies need to strengthen shareholder-friendly policies as shareholder activism spreads.

Researcher Kwon Soon-ho of IBK Investment & Securities analyzed, "Not only activist funds but also minority shareholder solidarity have led to multiple activism campaigns demanding shareholder returns and structural corporate changes," adding, "Since major shareholders hold less than 50%, the possibility of accepting demands in shareholder meeting vote battles is high, and activism campaigns are emerging in companies with shareholder return rates below 30%."