[Click eStock] "Chong Kun Dang Holdings, Profit Improvement Expected in Q3 Due to Chuseok Effect"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating on Chong Kun Dang Holdings on the 10th and set a target price of 140,000 KRW, unchanged from the previous level. Although profits decreased in the second quarter due to focused marketing of new products, it is expected that profits may increase in the third quarter due to the Chuseok effect.

Chong Kun Dang Holdings recorded sales of 235.1 billion KRW in the second quarter, up 14% year-on-year. Operating profit fell 52% to 6.4 billion KRW. Sales of some items declined, and operating expenses increased due to higher labor costs, expenses to strengthen market competitiveness, and commission fees, causing the operating profit margin to drop to 2.7%, down 9.9 percentage points year-on-year and 6.1 percentage points quarter-on-quarter. Chong Kun Dang Bio's sales increased 7.7% to 37.4 billion KRW, but operating loss turned to 600 million KRW. Sales and profits declined due to reduced demand and sales from global pharmaceutical companies caused by the spread of COVID-19.

Chong Kun Dang Health's second-quarter sales rose 34.2% year-on-year to 148.9 billion KRW. Operating profit decreased 54% to 2 billion KRW. Although sales growth of health functional foods was maintained due to increased COVID-19 impact, advertising expenses and commission fees increased with new product launches, causing the operating profit margin to fall sharply to 1.3%. About 45% (141 billion KRW) of Chong Kun Dang Health's first half sales of 312.5 billion KRW came from probiotic sales. Mi-hwa Seo, a researcher at Yuanta Securities, said, “Excluding probiotics (including Lacto-Fit), growth continues in Promega (Omega-3) and iClear (eye health) products, and the health supplement product line is being diversified through new product launches.”

This year, Chong Kun Dang Health is estimated to record sales of 618.5 billion KRW and operating profit of 49 billion KRW, with an operating profit margin of 8%. Researcher Mi-hwa Seo stated, “Although operating profit will decrease in the second quarter due to increased selling and administrative expenses from focused marketing of new products, profit margin improvement is expected in the third quarter due to the Chuseok effect and expanded marketing of existing high-margin products.”

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