Ramen Stocks in a Recession

Disposable Income Declines
Cost-Effective Ramen Sales Expand

[Asia Economy Reporter Hwang Junho] Recently, as financial conditions have tightened, a polarization in consumption patterns is expanding. In particular, due to the real wage decline caused by the interest rate hike trend, the slowdown in household credit growth, and the reduction in asset prices, disposable income has decreased, leading to a rise in the proportion of food expenses, highlighting a 'recession-type consumption' pattern. Among these, consumption of ramen, the best value-for-money product, is increasing, raising expectations for the performance of 'ramen stocks.'

According to the Korea Exchange on the 15th, Nongshim, the leading domestic ramen company known for products like 'Shin Ramyun,' closed up 4.73% the previous day. This marked the fourth time this month that the stock price ended higher. This implies that most days this month saw a decline in stock prices. However, it is notable that foreign investors have been net buyers for 14 consecutive trading days since the 25th of last month.

The basis for foreign investors' net buying lies in expectations for earnings growth. The rise in raw material prices such as palm oil and wheat, which had been weighing on the ramen industry's performance throughout the year, has passed its peak. Although cost burdens are entering a declining trend, the 11.3% price increase for ramen implemented in September remains in effect, boosting expectations for earnings growth. Already, Nongshim's Q3 sales this year reached 813 billion KRW (a 20.8% increase year-on-year), and operating profit was 27.3 billion KRW (a 6.2% decrease year-on-year), surpassing securities firms' forecasts.

Analyses from the securities industry are also positive. Kim Jungwook, a researcher at Meritz Securities, stated, "The sales effect of the ramen price increase is about 170 billion KRW," adding, "even considering the rise in overall costs, an increase in profit of about 40 to 50 billion KRW is expected." He further noted that concerns over a decline in domestic market share (M/S) due to competitors like Paldo and Ottogi also raising prices have diminished, and with continued sales growth from overseas subsidiaries expected, he set the target stock price 11.1% higher than before at 400,000 KRW.

It is not just Nongshim. Samyang Foods, which has the highest ramen sales proportion, is also expected to see a gradual increase in the operating rate of its Miryang factory, which began operations in May, due to recession-type consumption. Hong Jongmo, a researcher at Yuha Securities, adjusted his investment opinion to 'buy,' analyzing, "Samyang Foods has raised prices on snack products but has yet to decide on price increases for noodle products. If prices are raised, as it has the highest ramen sales proportion among major companies, it is expected to be the biggest beneficiary."

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