[Click eStock] "Nongshim Faces Greater-than-Expected Cost Burden... Already Reflected in Stock Price"

[Asia Economy Reporter Lee Myunghwan] Hana Financial Investment announced on the 21st that it maintains a buy rating and a target price of 440,000 KRW for Nongshim. Although cost burdens are greater than expected, concerns about earnings decline have already been reflected in the stock price.

Hana Financial Investment projected Nongshim's consolidated sales and operating profit for the second quarter to be 703.8 billion KRW and 12 billion KRW, respectively. Compared to the same period last year, sales increased by 8.6%, but operating profit decreased by 30.5%. On a separate basis, sales and operating profit are estimated at 557.3 billion KRW and 8 billion KRW, respectively, representing increases of 10.2% and 10% compared to the same period last year.

Despite the low base last year, Hana Financial Investment expects that separate basis earnings will fall short of market expectations due to increased cost burdens from palm oil and packaging materials. Total ramen sales combining domestic and overseas markets are expected to increase by 10.5% compared to the same period last year.

Domestically, growth of around 10% compared to the same period last year is expected, supported by price increases and market share expansion. The domestic ramen market share by value is estimated to have increased by 0.7 percentage points to 55.5% compared to the same period last year. Exports also maintained double-digit growth compared to the same period last year. Snack sales are expected to increase by 7% year-on-year due to the price increase effect in March. Overseas subsidiaries are expected to grow mainly in the U.S., but profitability decline seems inevitable due to rising raw material costs.

Hana Financial Investment analyzed that Nongshim's cost burden is greater than initially expected. Aside from palm oil and soybean oil, prices of major auxiliary materials such as packaging have risen since April. The increase is said to be large enough to offset last year's ramen price hikes. If there are no additional ramen price increases, earnings from the second to fourth quarters of this year are expected to decrease by 30.5%, 13.1%, and 15.7%, respectively, compared to the same periods last year.

Since second-quarter earnings are expected to be lower than market expectations, short-term stock momentum is somewhat limited, Hana Financial Investment analyzed. However, the current stock price is evaluated as already reflecting these concerns. Sim Eunju, a researcher at Hana Financial Investment, said, "Concerns about earnings decline due to cost burdens have already been reflected in the stock price," adding, "Considering solid topline growth domestically and internationally, low-price buying from a mid- to long-term perspective seems valid."

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