[Click eStock] "Supplementary Budget to Boost Consumption... Kyochon F&B Expected to Improve 2Q Results"

Sports Sponsorships Ended...
Lower Cost Burden

Kyochon F&B, which experienced sluggish performance in the first quarter of this year, is expected to see improved results in the second quarter. This outlook is due to a reduction in various one-off expenses, the arrival of the seasonal peak period, and the anticipated boost in consumer spending from policy measures such as the second-half livelihood support fund.

On June 17, IBK Investment & Securities maintained its 'Short-term Buy' investment rating and target price of 6,250 won for Kyochon F&B, citing these factors. The previous day's closing price was 5,480 won.

Kyochon F&B recorded sales of 124.6 billion won in the first quarter, a 10.0% increase year-on-year, driven by rising demand and a shift in its distribution structure through the conversion of franchise area headquarters. However, operating profit declined by 10.4% due to increased costs.

In the second quarter, however, profit growth is expected to resume. IBK Investment & Securities forecasts second-quarter sales of 126.6 billion won and operating profit of 12.9 billion won. These figures represent an 11.2% year-on-year increase in sales and a turnaround to profitability. Compared to the first quarter, operating profit is estimated to rise by 20.6%.

The main positive factors cited include: the end of sports event sponsorships; limits on one-off expenses such as labor costs and provisions; entry into the seasonal peak period; and the impact of new menu launches. Notably, the second quarter has traditionally faced high fixed costs due to sports sponsorships that lasted for the past 10 years. However, with the end of these sponsorships this year and the completion of the franchise area headquarters conversion, both sales and profits are expected to increase.

Momentum from a supplementary budget in the second half of the year is also anticipated. When emergency relief funds were distributed in 2020 and COVID-19 national support funds in 2021, the restaurant and grocery sectors received the largest inflows of support. Nam Sung-hyun, a researcher at IBK Investment & Securities, explained, "Among the expected allocations in the upcoming supplementary budget, restaurant usage is likely to be the highest," adding, "Kyochon F&B, which operates a franchise business, stands to benefit significantly from the supplementary budget."