[Click eStock] "Nongshim, 4Q Performance May Be Weak but Earnings Growth Expected from This Year"

[Asia Economy Reporter Song Hwajeong] Daishin Securities maintained its 'Buy' rating and target price of 290,000 KRW for Nongshim on the 31st, stating that although the company's Q4 earnings last year fell short of expectations, profitability is expected to normalize starting this year.

Han Yujeong, a researcher at Daishin Securities, said, "Despite the recent sluggish stock performance due to concerns over poor Q4 results last year, attention should be paid to the earnings growth trend beginning this year."

It is forecasted that last year's Q4 earnings will fall short of consensus. Researcher Han explained, "Nongshim's consolidated sales for Q4 last year are estimated at 623 billion KRW, an 8% increase compared to the same period the previous year, and operating profit is estimated at 20.3 billion KRW, a 9% increase, which falls short of the consensus operating profit of 23.9 billion KRW. The expected poor performance is due to the reflection of provisions related to labor costs, and we believe that concerns about this have been emerging since the end of last year and have been factored into the stock price."

Nongshim's domestic ramen market share in Q4 last year is estimated to have risen by 1.2 percentage points from the same period last year to 55.6%. Researcher Han noted, "Except for Q2 last year, which was affected by aggressive market responses from competitors, the trend of market share expansion compared to the previous year has continued, which is encouraging. The intensity of wasteful new product competition in the domestic ramen market has eased, increasing the visibility of performance recovery for existing products."

Particularly, attention should be paid to growth potential in the United States. Researcher Han said, "The U.S. subsidiary, which has shown the most encouraging growth over the past three years, is smoothly expanding not only its regional presence but also its product range. Due to the rising preference for Korean ramen in the U.S., unlike top Japanese companies, Nongshim's market share in the U.S. ramen market is likely to continue expanding."

After two years of profit decline, earnings growth is expected to begin this year. Researcher Han stated, "Gradual market share expansion and profitability normalization in Korea, improved visibility of profit and loss due to strong sales of Baeksansu in Korea, and continued market share growth in the U.S. will drive Nongshim's performance improvement this year. Although a temporary slowdown in the Chinese subsidiary's earnings growth is expected in Q1 due to operational disruptions caused by concerns over the spread of the novel coronavirus infection (Wuhan pneumonia) in China, the likelihood of a prolonged impact is low given the essential consumer goods nature."

This content was produced with the assistance of AI translation services.