[This Week's Food Industry] The Hot K-Food Craze... Will Samyang Foods' Performance Heat Up Too?

Record High Domestic and Export Performance in First Half... Stock Hits 52-Week High
Bright Outlook for Second Half with New Milyang Plant, Amid Grain Price Increases and Intensified Competition Variables

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to be your hands and feet, eyes and ears, delivering accurate information about companies. Each week, we focus on companies that rank high in stock inquiries on the financial information provider FnGuide, providing basic information as well as analysis of related companies such as partners, customers, and investors. We will explain the financial status, performance, and future value of companies in an easy-to-understand manner. We bring you the stocks of the week, also known as ‘Stocks of the Week,’ every week. This week, we analyzed Samyang Foods, which is showing growth riding the recent K-Food wave.

Samyang Foods has emerged as a hot topic stock in the domestic stock market. On June 29, its stock price fell to 103,800 KRW, the lowest since April this year, but by the close on the 21st, it rose to 178,300 KRW. This is a sharp increase of 71.77%. On the 18th, the stock price soared to an intraday 185,500 KRW, a 52-week high (closing price 181,400 KRW). Thanks to the heated K-Food craze, earnings forecasts are bright, and securities firms have been raising their target prices one after another.

Samyang Foods was established in September 1961 to engage in oil industry and food wholesale business. Currently, its business segments are divided into food manufacturing and sales, service provision, livestock and tourism, and others. Among these, the noodle snack business segment accounts for an overwhelming share of sales in food manufacturing and sales. As of the first half of this year, the noodle snack segment accounted for 94.4% of sales, the highest proportion. Frozen foods (4.0%), sauces and seasoning materials (3.3%), and others (1.4%) followed. The Nutrition segment, which sells white milk, raw materials, processed milk, and functional foods, recorded a sales share of 0.3%. Major products include Samyang Ramen, Buldak Bokkeum Myun (Hot Chicken Flavor Ramen), Big Cup Samyang Ramen, Big Cup Buldak Bokkeum Myun, Jjangu, and Satto Bap. The popularity of Buldak Bokkeum Myun is especially remarkable worldwide. Japan's largest ramen company, Nissin Foods, released a product similar to Buldak Bokkeum Myun, sparking controversy.

As of June 30 this year, Samyang Foods had a total of 7,533,015 issued shares, with the largest shareholders and related parties holding 45.22%. The largest shareholder is Samyang Round Square, holding 34.92%. Kim Jeong-su, Vice Chairman of Samyang Foods, holds 4.33%, and Jeon In-jang, former chairman of Samyang Foods and husband of Vice Chairman Kim, holds 3.13%. The eldest son, Jeon Byung-woo, CEO of Samyang Annie, holds 0.59%. The largest shareholder of Samyang Round Square is Vice Chairman Kim, who owns 31.98% of the total shares.

Record-Breaking Performance Thanks to Ramen... Both Domestic and Export Markets Smile in the First Half

The upward trend in Samyang Foods' stock price is attributed to its record-breaking performance. On a consolidated basis, second-quarter sales increased by 11.8% year-on-year to 285.4 billion KRW, and operating profit surged 61.2% to 44 billion KRW, delivering an earnings surprise. For the first half, consolidated sales rose 16.0% to 530.9 billion KRW, and operating profit increased 31.0% to 67.9 billion KRW. The improvement in performance is analyzed to be due to increased exports and rising market share of key domestic products. Demand for ramen category and the Buldak Bokkeum Myun series steadily increased, combined with last year's price hikes and the effect of exchange rate increases.

Looking at the noodle snack business division's sales in the second quarter, exports increased by 2.1% year-on-year to 186.6 billion KRW, and domestic sales rose 25.9% to 80.9 billion KRW. Sales in the sauce and seasoning materials segment increased by 30% due to the launch of the Buldak Chipotle Mayo sauce, and frozen food sales grew 46% thanks to expanded sales in the business-to-consumer (B2C) channel.

Thanks to the price increase implemented in November last year, domestic sales grew significantly. The domestic ramen market share in the first half was estimated to be over 11%. Expansion of sales of key brands and new products was observed, and the portfolio was reorganized with the launch of premium dairy brands and plant-based health brands. Strong sales in the sauce and seasoning materials segment and expansion of the frozen food business also drove overall domestic market sales growth.

Export growth was not large due to high performance in the previous year. However, exports account for about 65% of Samyang Foods' sales, which is known to be a high level compared to competitors. By country, growth in the US and Southeast Asia such as Malaysia was prominent. Sales growth rates based on localization by corporation were analyzed as 71% in the US, 15% in China, and 8% in Japan. Since February last year, the US and China sales corporations, which began full-scale operations, have settled in the market, improving profitability. In particular, the US corporation has completed entry into Walmart and Costco. Costco sales began in June this year, and high growth is expected. The Indonesian corporation was established in May and has no first-half results yet, but as it has started full-scale operations, it is expected to serve as a base in Southeast Asia. It is also expected to act as a hub for the halal market.

High Expectations for the Second Half Amid Various Positive Factors... Target Prices Raised

Although Samyang Foods received results exceeding expectations, expectations for second-half performance are even higher. Hanwha Investment & Securities forecast Samyang Foods' second-half sales to increase 22.8% year-on-year to 554.5 billion KRW, and operating profit to rise 64.1% to 63.3 billion KRW. Hanwha Investment & Securities and DS Investment & Securities recommended Samyang Foods as the top pick in the food and beverage sector. In China, expansion into large mart channels and convenience stores (CVS) is expected in the second half. The US corporation, which has been actively operating since its establishment in August 2021, is expected to enter Walmart and other stores besides Costco in the second half, anticipating high growth. The 11th anniversary event and marketing for Buldak Bokkeum Myun in the second half are also expected to accelerate growth.

Besides overseas growth, the establishment of the second factory in Miryang is also a positive factor. On the 11th of this month, Samyang Foods announced plans to build the second Miryang factory with an investment of 159 billion KRW. The company explained the investment purpose as "expanding production capacity and improving production efficiency." Kim Tae-hyun, a researcher at IBK Investment & Securities, said, "With the decision to build the second Miryang factory, diversification of ramen export regions and strengthening of domestic and international ramen market positions are expected."

Jang Ji-hye, a researcher at DS Investment & Securities, explained, "The second factory, with an investment of 159 billion KRW by May 2025, is expected to have five production lines with production capacity (CAPA) similar to the existing first Miryang factory. The operating rate of the first Miryang factory, which began full-scale operation in the second quarter last year, rose to 56.7% by the second quarter this year." Ebest Investment & Securities forecast that once the second factory expansion is completed, production volume and sales will increase from the current 2 billion units and 1.4 trillion KRW to 2.6 billion units and 1.8 trillion KRW, respectively.

The reinstatement of Vice Chairman Kim, the key figure behind the Buldak Bokkeum Myun success story, through a special pardon on Liberation Day, lifting employment restrictions, is also seen positively. Vice Chairman Kim emphasized the vision by stating, "Through the establishment of new overseas corporations, brand expansion, and diversification of sales portfolios, we will actively pioneer overseas markets and solidify the domestic market, overcoming difficulties." Vice Chairman Kim was sentenced to two years in prison with a three-year suspended sentence for embezzlement charges along with former Chairman Jeon in 2020 and was restricted from employment. Although he managed the company with special approval from the Ministry of Justice in 2021, the special pardon has completely lifted employment restrictions.

Thanks to the establishment of the second Miryang factory and Vice Chairman Kim's special pardon reinstatement, Samyang Foods' stock price rose by 40,800 KRW on the 14th of this month to 176,900 KRW. The stock price also rose more than 8% on the previous trading day. IBK Investment & Securities raised Samyang Foods' target price from 150,000 KRW to 170,000 KRW, and Hanwha Investment & Securities and DS Investment & Securities raised theirs from 160,000 KRW to 200,000 KRW and from 160,000 KRW to 190,000 KRW, respectively.

Concerns Over Ramen Price Cuts and Intensifying Competition

However, despite the rosy outlook, weaknesses exist. The government recommended lowering ramen prices due to falling grain prices. This led to the first ramen product price cuts in 13 years. The impact is expected to slow the sales growth of the noodle snack segment in the domestic market. Since the 1st of last month, Samyang Foods sequentially lowered the prices of 12 representative products, including Samyang Ramen, Jjajjaroni, Delicious Ramen, and Yeolmu Bibimmyun, by an average of 4.7%. However, Buldak Bokkeum Myun was excluded from the price cuts, and sales expansion is expected in the Nutrition and sauce and seasoning materials segments, so overall domestic sales are estimated to grow by about 7%.

Additionally, the increased volatility of grain prices is a concern. Although grain prices have fallen compared to the peak during the Russia-Ukraine war, uncertainty remains.

Competition in the ramen market is becoming increasingly fierce, which is also a threat. Samyang Foods explained, "As the industry enters maturity, companies are fiercely competing in price and service to secure market share," adding, "Imitation products and private brand (PB) products are expanding." Regarding the snack business, they said, "Currently, not only domestic confectionery companies but also global companies and small import-distribution companies have entered the domestic market, creating a more intense competitive environment than before."

Concerns also exist about slowing growth rates in overseas markets. In the US, noodles are not commonly consumed as a meal, making sales sensitive to economic fluctuations. Although non-noodle foods are common and products are diverse, noodle products experience seasonal sales differences in summer and winter, making them somewhat sensitive to economic changes overall.

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