[Click eStock] "Ottogi Faces 2Q Slump Due to Cost Burden, Forced to Raise Ramyeon Prices..."

2Q Operating Profit 36.2 Billion Won... 32% Decrease YoY
Ramen Price Increase Inevitable Due to Cost Burden... Maintaining Market Share Is Key

[Asia Economy Reporter Minwoo Lee] Ottogi posted earnings below market consensus for the second quarter of this year. Although sales increased, the rise in the cost of oils and fats was the background of the poor performance. To address this, the company raised ramen prices the most in the industry. Attention is focused on whether it can maintain its market share going forward.

On the 18th, Daishin Securities lowered Ottogi's 6-month target stock price by 6.2% to 610,000 KRW, citing this background. The closing price the previous day was 523,000 KRW. The investment rating of 'Buy' was maintained.

Ottogi recorded consolidated sales of 668.7 billion KRW and operating profit of 36.2 billion KRW in the second quarter of this year. Compared to the same period last year, sales increased by 4%, but operating profit fell by 32%. It was also significantly below the market consensus of 47.1 billion KRW.

Due to the impact of rising crude oil prices leading to increased selling prices and volume growth from the operation of a new factory, sales of oils and fats grew by 36% compared to the same period last year. Despite the high base effect from the previous year, sales of dried food products, seasoning sauces, and other noodles excluding ramen increased by 1%, 6%, and 1% respectively, helping to hold up overall sales.

Operating profit was sluggish. The cost ratio increased by 2.9% compared to the second quarter of last year due to the burden of rising costs and purchase price increases. Advertising expenses and freight storage fees rose by 11% and 96% respectively compared to the same period last year, but the selling and administrative expense ratio was maintained at the level of the second quarter of last year due to a decrease in other fixed costs.

The key issue is whether Ottogi, which has already implemented price increases, can maintain its market share. The domestic ramen market size in the second quarter was 535.5 billion KRW, down 8% compared to the same period last year. During the same period, Ottogi's market share is estimated to have increased by 0.3 percentage points to 23.7%. Yujeong Han, a researcher at Daishin Securities, explained, "From this month, the prices of major ramen products have increased by 12%, and the effect of the price increase is expected to be partially reflected from the third quarter. Since Ottogi's rate of increase is the highest among the four major ramen companies, defending market share will be crucial going forward."

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