[Click eStock] Orion, 1Q Operating Profit 96.9 Billion Won... Overcoming COVID, Up 32% YoY

Effect of Pre-Adjustment in Production and Distribution Channels in China... Faster Normalization Compared to Competitors
NH Securities "Growth to Continue in Q2"

[Asia Economy Reporter Minwoo Lee] Despite the economic slowdown caused by the novel coronavirus infection (COVID-19), Orion posted solid results in the first quarter of this year. This is analyzed to be because the company quickly normalized production and distribution channels compared to other companies in response to COVID-19.

On the 16th, NH Investment & Securities forecasted that Orion would achieve sales of 543.7 billion KRW and an operating profit of 96.9 billion KRW in the first quarter of this year. These figures represent increases of 8.6% and 31.7%, respectively, compared to the first quarter of last year.

Researcher Mijin Jo of NH Investment & Securities explained, "This year, the Chinese Lunar New Year came early, so the Lunar New Year effect was more reflected in the fourth quarter of 2019, and combined with the impact of COVID-19, there were many concerns. However, compared to competitors, Orion had advantages in production and distribution channels, enabling a quick recovery in performance from the COVID-19 impact, and this opportunity will allow them to gain leadership within China."

Previously, Orion lost significant shelf space and market share in China due to strained relations between the two countries over the Terminal High Altitude Area Defense (THAAD) system. Since then, the company restructured its Chinese subsidiary, reducing more than 400 employees, and reorganized distribution channels focusing on profitability. The traditional trade (TT) channel shifted to an agency system responsible for sales, which not only maximized sales but also improved margins by 5 percentage points compared to before. The modern trade (MT) channel also switched to a direct delivery structure, raising the operating profit margin to 2%. By separating B2B and B2C organizations for management, the company also expanded the proportion of online channels.

NH Investment & Securities viewed the COVID-19 crisis as a potential opportunity to fully recover the shelf space and market share lost due to THAAD. The impact of COVID-19 was relatively greater in the TT channel than in the MT channel. During the peak of the COVID-19 crisis, most TT channel stores had ceased operations, whereas most MT channel stores only shortened their business hours. Researcher Jo said, "Orion had a TT channel proportion more than 20% lower than local Chinese companies like Wangwang or Dali, so the impact was smaller and sales normalization was faster. In the Chinese market, Pepsi, the number one company in the potato snack sector, suffered significant damage because its production facilities were concentrated in Wuhan, where COVID-19 first emerged. However, Orion quickly normalized production and distribution based on its advantages during the easing phase of COVID-19, and from the second quarter onward, it is expected to continue increasing market share through new products."

Orion is also on the rise domestically. Researcher Jo diagnosed, "With a portfolio of snacks and pies growing faster than competitors, sales continued to rise thanks to strong new product sales and high online growth."

Against this background, NH Investment & Securities maintained a 'Buy' rating on Orion and raised the target price by 11% from 135,000 KRW to 150,000 KRW. The closing price on the previous trading day was 119,500 KRW.

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