Rising Prices? Food and Beverage Stocks Expected to Benefit from Price Increases

KOSPI Returns Outperform Since Early Year
Performance Expectations Rise Amid Product Price Increases

On the 15th, ramen is displayed at a large supermarket in downtown Seoul. With rising recognition through Korean dramas and movies, ramen is gaining global popularity. According to the industry, Nongshim's cumulative overseas sales of Shin Ramyun in the third quarter have surpassed domestic sales. Samyang Foods' overseas sales accounted for 57% of total sales last year. Photo by Moon Honam munonam@

[Asia Economy Reporter Minji Lee] Investor sentiment has been focused on food and beverage stocks since the beginning of the year, as expectations for improved earnings rise due to price increases.

According to the Korea Exchange on the 7th, food and beverage stocks in the KOSPI market have risen 0.48% since the start of the year, outperforming the KOSPI index (-8%). While all sectors except insurance and medical precision showed sluggish stock performance due to fears of US interest rate hikes, food and beverage stocks showed relatively favorable performance. By individual stocks, Lotte Chilsung (18%), CJ Freshway (14%), Hite Jinro (10%), Farmsco (9.5%), Nongshim (8%), and SPC Samlip (8%) showed significant gains.

The surge in investor sentiment toward food and beverage companies from the beginning of the year is due to heightened expectations for earnings improvement. Companies have been responding to sharp increases in raw material prices such as corn, wheat, and raw sugar caused by inflation, as well as rising freight costs due to supply chain disruptions, by raising selling prices since last year.

In the securities industry, it is expected that product price increases by food and beverage companies will continue one after another, so the benefits of price hikes are anticipated to persist this year as well. Last month, beverage company Lotte Chilsung raised carbonated drink prices by 6.8%, and dairy companies also decided on an average 8% price increase for major products. Starting next month, ice cream companies and sauce (average 9.5% increase) sellers will also implement price hikes.

Price increases directly translate into earnings growth, and ramen and dairy companies that raised prices once in the second half of last year are expected to announce earnings exceeding market expectations for the fourth quarter of last year. In Nongshim’s case, separate operating profit for the fourth quarter of last year is expected to increase by up to 6 billion KRW compared to the same period last year.

Recently, there are also forecasts that liquor companies, burdened by increased costs due to prolonged social distancing, will raise soju prices. Although Hite Jinro, which holds a 60% market share in soju, stated that it is not currently considering a price increase, the market sees a high possibility of a price hike as the last soju price increase was four years ago (May 2018).

It is also positive that the rise in grain prices, which is closely related to food and beverage companies’ stock prices, is expected to be limited compared to last year. Grain prices surged sharply in May-June last year, severely damaging food and beverage companies’ profits, but currently prices have fallen about 20-30% from their peak, so the price burden is not significant. Eunju Shim, a researcher at Hana Financial Investment, said, "At a time when interest rate hikes are accelerating, the possibility of a rise similar to last year is limited, and global inventory levels are maintained at a stable level compared to the beginning of the year," adding, "Considering the grain input lag period (5 months), grain input prices in the first half of this year are expected to decline compared to the previous quarter."

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