[This Week's Gwan.Jong] Choco Pie Sales Soar... Orion's Stock Price Rebound Gains Momentum

Stock Price Surges 32% in One Year, Led by This Month's Gains
Stable Overseas Subsidiary Performance Expected to Continue
Brokerages Raise Target Prices One After Another
"Currently Undervalued, Investment Appeal Increasing"

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Orion's stock price, which had been sluggish for the past year, has started to rebound. With stable sales overseas and an increase in production lines, mid- to long-term performance improvement is expected. Positive factors such as the end of the Russia-Ukraine war are also anticipated, which will likely accelerate the stock price recovery. Accordingly, securities firms have been raising their target prices one after another.

Smiling at Strong Overseas Performance in China and Vietnam

According to the Korea Exchange on the 26th, Orion's stock price rose 14% over the past three months. The closing price, which was 105,300 KRW on December 24 last year, rose to 119,600 KRW on the 24th of this month. On the 19th, it even reached 123,500 KRW during trading hours, setting a 52-week high. After fluctuating until last month, the stock price has increased sharply this month, entering a full-fledged upward phase. Compared to a year ago (90,500 KRW on March 25 last year), it has risen about 32%.

The recent stock price rebound is backed by a recovery in performance centered on overseas subsidiaries. In particular, new sales strategies have shown effectiveness in the Chinese subsidiary, where growth had stagnated in recent years, leading to improved sales. Since last year, Orion has been expanding sales through "snack stores" along with online channels in China, and the growth of snack stores has accelerated amid the recent economic downturn in China. Snack stores are cost-effective shops where customers can purchase small quantities of various products such as snacks, jerky, and instant milk tea. It was also significant that Orion shifted from direct sales by sales representatives to an indirect sales system using local corporate wholesalers last year. Orion's Chinese subsidiary recorded sales of 79.9 billion KRW and operating profit of 11.3 billion KRW last month, growing 42.2% and 189.7% respectively compared to the same month last year.

The Vietnamese subsidiary also posted stable results, with sales and operating profit increasing by 4% and 4.4% respectively compared to the same month last year. Russia recorded an 18.4% sales growth during the same period. Orion's overseas market share is relatively high, accounting for over 60%. Based on last year's performance, Orion's regional sales distribution was Korea 35.4%, China 40.9%, Vietnam 16.5%, and Russia 7.4%. When overseas subsidiaries perform well, the overall performance inevitably rises as well.

Stock Price Expected to Trend Upward... Target Price Raised

The outlook is also bright. In Vietnam, the effect of aggressive production line expansion is expected to appear within this year. Hyunjeong Son, a researcher at Yuanta Securities, said, "The Vietnamese subsidiary expanded five lines at the Ho Chi Minh City My Phuoc factory and nine lines at the Hanoi Yen Phong factory to meet increasing demand for Choco Pie, potato snacks, and rice crackers," adding, "By the end of next year, the annual sales production capacity (CAPA) of the Vietnamese subsidiary is expected to expand to about 850 billion KRW, an increase of more than 30% from the current level."

In Russia, known as the "Choco Pie powerhouse," accounting for 40% (about 1.6 billion units) of global Choco Pie sales last year, measures are being taken to meet demand. The Choco Pie production line is being expanded by 30%, and the establishment of a new third factory is under consideration. The effects of the expansion are expected to be reflected in performance starting at the end of this year when the expansion is completed.

The potential end of the Russia-Ukraine war is also a point to watch. Orion is considered a "beneficiary stock" as mid- to long-term growth and profitability improvement are expected if the war ends. Sangjun Park, a researcher at Kiwoom Securities, said, "If the war ends, the ruble may appreciate and economic recovery momentum could strengthen, and the burden of rising cocoa prices can be passed on through price increases," adding, "If raw material supply channels in Europe normalize and import costs decrease, sales growth and structural cost ratio improvement will occur." Researcher Son also analyzed, "After the war ends, recovery in Russian consumer sentiment and increased disposable income are expected, accelerating sales growth of the Russian subsidiary due to increased demand for snack products."

Accordingly, this year's performance is also expected to follow an upward curve. IBK Investment & Securities forecast Orion's consolidated sales this year to increase by 7.9% year-on-year to 3.3506 trillion KRW, and operating profit to rise 8.2% to 588.1 billion KRW. Yuanta Securities also predicted sales and operating profit to increase by 6.5% and 7.3% respectively during the same period.

Securities firms maintain a "buy" rating on Orion and are raising target prices. Kiwoom Securities recently raised the target price from 142,000 KRW to 150,000 KRW, and Korea Investment & Securities also raised it from 130,000 KRW to 150,000 KRW. Additionally, Kyobo Securities and Daishin Securities raised their targets to 145,000 KRW and 140,000 KRW respectively. iM Securities maintains the highest target price at 160,000 KRW. According to FnGuide, the consensus target price for Orion is 144,714 KRW, indicating an upside potential of about 21%.

Valuation is also a factor that enhances investment attractiveness. Considering future performance growth, Orion's current stock price is undervalued. Sanghoon Jo, a researcher at Shinhan Investment Corp., said, "This year's expected price-to-earnings ratio (PER) is 10.4 times, indicating an excessively undervalued phase," adding, "If market share increases through new product launches and channel expansion, category expansion (such as nut bars and jerky), and regional expansion become visible, entry into a premium valuation range is possible." Taehyun Kim, a researcher at IBK Investment & Securities, also said, "The current stock price corresponds to an expected PER of 9.4 times this year, which is lower than the industry average of 10.7 times, indicating low valuation pressure," and predicted, "As growth expectations remain valid, the stock price recovery trend will continue."