Will Food and Beverage Stocks Recover in the 4th Quarter?

[Asia Economy Reporter Song Hwajeong] As the poor performance of the food and beverage sector continues, stock prices have also remained sluggish. Attention is focused on whether stock prices will recover as the situation is expected to improve in the fourth quarter.

According to the Korea Exchange on the 2nd, the KOSPI Food and Beverage Index fell 4.75% last month. This slightly exceeds the KOSPI decline rate (-4.08%) during the same period. During this time, major stocks such as CJ CheilJedang fell 9.7%, Nongshim 5.36%, Orion 7.11%, Binggrae 4.84%, and HiteJinro 0.6%, all showing weakness.

The continued poor performance is interpreted as weighing down stock prices. According to financial information provider FnGuide, the consensus operating profit for the KOSPI food and beverage sector in the third quarter was 994.3 billion KRW, down 1.97% from a month earlier. NH Investment & Securities expects the operating profit of the food and beverage sector in the third quarter to turn to a decline compared to the previous year. The estimated third-quarter sales of 15 major food and beverage companies increased by 4.3% year-on-year to 16.1815 trillion KRW, while operating profit is estimated to have decreased by 1.5% to 1.3293 trillion KRW. Jomijin, a researcher at NH Investment & Securities, explained, "There is a burden from the high base of the previous year until the third quarter, and the cost burden of raw material inputs is rising sharply," adding, "Some companies that were expected to improve performance due to the easing of COVID-19 were instead affected by strengthened social distancing measures."

However, recovery is expected to appear from the fourth quarter, and investment attractiveness is projected to increase toward the end of the year. Researcher Jo said, "The second quarter is the lowest point of performance, and the base effect will end after the third quarter," adding, "International grain prices are expected to turn downward in the fourth quarter, and the mid- to long-term profit spread due to cost burden pass-through will improve, so the investment attractiveness of the food and beverage sector will rise toward the end of the year."

The stock price of the food and beverage sector is excessively undervalued, and a future stock price rebound is expected. Researcher Jo said, "Even considering the performance uncertainties continuing until the third quarter, it is an excessively undervalued phase," adding, "Factors causing performance slowdown are gradually disappearing, and mid- to long-term performance growth factors due to margin cap recovery and overseas growth rate recovery are re-emerging."

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