[Click eStock] "Dongwon F&B, 1Q Earnings Expected to Decline"... Target Price Down

[Asia Economy Reporter Lee Jung-yoon] Hana Financial Investment downgraded the target price of Dongwon F&B from 280,000 KRW to 240,000 KRW on the 1st, citing expectations that the company's first-quarter earnings this year will fall short of forecasts. However, the investment rating of "Buy" was maintained.

Dongwon F&B's consolidated sales for the first quarter of this year are estimated at 853.7 billion KRW, up 3.1% year-on-year, while operating profit is expected to decline by 17.3% to 37 billion KRW. The decline in consumer sentiment due to the spread of Omicron and the sharp rise in raw material prices such as tuna fish prices are also expected to have negatively impacted the earnings. Eun-joo Shim, a researcher at Hana Financial Investment, explained, "The headquarters' processed food sales are estimated to decrease by 7.3% year-on-year due to the spin-off of Dear Food and sluggish sales of dairy products," adding, "Despite a 6.2% price increase for canned tuna, operating margin decline compared to last year is inevitable due to rising input fish and raw material costs."

Researcher Shim continued, "The input cost of tuna in the first quarter was $1,700, and the increased cost burden compared to last year is estimated at 5 to 6 billion KRW," and said, "Dongwon Home Food's top-line growth compared to last year will continue due to the recovery of B2B channels such as dining out, but margin decline compared to last year is inevitable due to the surge in raw material prices and the time lag in passing on price increases to B2B customers."

However, Dongwon F&B is expected to gradually recover its performance after the first quarter this year. Consolidated sales for this year are estimated at 3.6634 trillion KRW, up 4.9% year-on-year, and operating profit is expected to rise 3.8% to 135.3 billion KRW. Although operating profit in the first quarter is expected to decrease by 17.3% compared to last year, it is analyzed to increase by 11.2%, 9%, and 37.6% in the second to fourth quarters, respectively. Researcher Shim said, "In the first half, the burden of fish prices and raw material costs is expected to limit profit improvement compared to last year," adding, "Performance is expected to show a clear recovery trend in the second half."

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