[Click eStock] "Daesang, Expecting Margin Recovery for Key Products in the Second Half"

Kiwoom Securities Report

[Asia Economy Reporter Minji Lee] Kiwoom Securities maintained a buy rating and a target price of 40,000 KRW for Daesang on the 15th. This is based on the judgment that the margin recovery of key products could gradually appear in the second half of the year.

In the fourth quarter of last year, Daesang recorded an operating profit of 6.8 billion KRW on a consolidated basis, down 57% compared to the same period last year. This is estimated to be about 73% below the market expectation (25 billion KRW). Sangjun Park, a researcher at Kiwoom Securities, said, “Excluding the impact of COVID-19 quarantine costs, the performance generally met market expectations.”

On a separate basis, the food division showed positive cost ratio improvements centered on kimchi, sauces, and pastes due to strong home meal demand and reduced promotional expenses. The materials division saw a 2% increase in starch and sugar sales compared to the same period last year, but the decline in lysine KRW selling price due to the weak dollar and the rise in raw sugar input costs negatively affected the overall company performance.

Recently, since December last year, Daesang has been facing increased cost pressure from rising input prices of major raw materials such as corn and raw sugar. Accordingly, the short-term pressure on the company-wide margin spread decline is intensifying. However, the possibility of recovery in demand for beer and beverages, the forward demand for starch and sugar, due to the resumption of outdoor activities following the easing of COVID-19 concerns, is positive. Additionally, the recent recovery in China's pig farming numbers and rising grain prices have led to an upward trend in lysine spot prices, and it is expected that the performance improvement effect from the rise in lysine contract prices will appear from the first quarter of this year.

Researcher Park explained, “Considering the market organization of the starch and sugar industry, pricing strategies will emerge to defend against cost increases,” adding, “Margin recovery of key products including starch and sugar will gradually appear throughout this year.”

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