[Click eStock] "Dongwon F&B, Strong Q3 Earnings Expected... Stock Price Decline Overdone"

Hana Financial Investment Report
Q3 Operating Profit 38 Billion KRW...7% Increase Compared to Same Period Last Year

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 330,000 KRW for Dongwon F&B on the 18th. This is based on the judgment that the stock price fell due to excessive market concerns despite expected improvements in third-quarter earnings.

Recently, Dongwon F&B's stock price has shown a sluggish trend despite expectations of improved performance in the second half of the year, as concerns have been raised about a potential decline in sales of Chuseok gift sets by processed food companies. However, similar to competitors, the company initially set a conservative target for this year’s Chuseok gift sets, and B2B orders are reportedly coming in as expected.

B2C orders may see a slight decline in selling prices due to the expansion of low-priced product lines, but profitability is not expected to be significantly affected as demand through online channels is expanding. Additionally, with the social distancing level raised to 2.5, demand for home dining has meaningfully increased again, leading to an expectation that September’s performance will exceed market expectations.

For the third quarter, the company’s sales and operating profit are estimated at 883.5 billion KRW and 38 billion KRW, respectively, representing increases of 7.1% and 7.2% compared to the same period last year. Processed food sales are expected to have increased by 6% year-on-year. The tuna input price in the third quarter is projected at 1,420 USD per ton, indicating limited cost burden. Although global fish prices recently rose to around 1,600 USD per ton, third-quarter demand is expected to be met through inventory reserves. The increased demand for convenience meals also positively impacted performance. Even with conservative assumptions on gift set sales volume, sales growth is expected to continue in this segment.

However, Dongwon Home Food is judged to be inevitably negatively affected due to the ongoing impact of COVID-19. Sales are expected to achieve net growth compared to the same period last year, driven by expanded franchise delivery demand, but profits are likely to slightly decline due to an increased proportion of low-margin channels.

Sim Eunju, a researcher at Hana Financial Investment, explained, “Due to the recent stock price decline, the current stock is trading at a 12-month forward PER of 8 times. Considering Dongwon F&B’s solid market share in the domestic food market and the potential recovery of Dongwon Home Food’s performance, the stock price drop appears excessive, and third-quarter results are expected to meet market expectations contrary to concerns.”

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