[Click eStock] "Nongshim, 3Q Earnings Surprise Despite Cost Burden... Target Price Up 8%"

[Asia Economy Reporter Myunghwan Lee] Shinhan Investment Corp. announced on the 15th that it maintains a buy rating on Nongshim and raises the target price by 8% from the previous 360,000 KRW to 390,000 KRW.

Nongshim's consolidated sales for the third quarter of this year reached 813 billion KRW, up 20.8% year-on-year, while operating profit decreased by 6.2% to 27.3 billion KRW. This figure exceeds market expectations by 39%. Despite a profit decline trend compared to last year due to raw material cost burdens, Shinhan Investment Corp. analyzed that favorable results were achieved thanks to domestic and overseas price increases, increased volume in the North American region, and efforts to optimize advertising and promotional expenses.

By business segment, domestic ramen sales increased by 12%, but market share slightly declined by 0.8 percentage points compared to the same period last year. However, this was attributed to the base effect of new products in the third quarter of last year and differences in the timing of price increases with competitors this year, with the sales trend focused on existing products continuing. Snack sales increased by 20% supported by price hikes and new product launches.

Shinhan Investment Corp. expects Nongshim to show profit improvement from the first quarter of next year due to a decrease in raw material prices. This is because major grain prices have been falling since June. From the fourth quarter of this year, grain prices are stabilizing, and from the first quarter of next year, the company can benefit from improved margin spreads due to product price increases and grain price declines.

Improvement in operating profit due to price increases is also a positive factor. Nongshim has raised prices for two consecutive years. Shinhan Investment Corp. estimates that the increase in operating profit from price hikes is about 50 billion KRW, and considering Nongshim's past separate basis operating profit, improvement in domestic operating profit can be expected.

Researcher Sanghoon Cho of Shinhan Investment Corp. said, "Sales volume increases and price hike effects are becoming visible domestically and internationally, and cost burdens are gradually easing, leading to upward revisions of earnings estimates," adding, "Demand in overseas markets is steadily increasing, and periodic price increases are possible, so high growth overseas is expected to continue next year."

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