Binggrae's Stock Price Falls Despite Heatwave Boost

The stock price of Binggrae, considered a beneficiary of the heatwave, has been declining for several consecutive days. As the company’s operating profit for the second quarter of this year failed to meet market expectations, forecasts for its performance in the second half have also been lowered. Concerns are mounting over the deterioration of profitability due to rising cost ratios.

According to the financial investment industry on August 21, Binggrae’s stock price has fallen by 13.8% so far this month. Individual investors have recorded a cumulative net purchase of 8.9 billion KRW, while institutional investors have shown a net selling dominance of 8.6 billion KRW.

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In the second quarter of this year, Binggrae posted consolidated sales of 409.6 billion KRW and operating profit of 26.8 billion KRW. Compared to the same period last year, sales increased by 1%, but operating profit dropped by 40%. With the company entering its seasonal peak, frozen and other product sales increased by 6% year-on-year, but refrigerated product sales fell by 6%. By region, the company continued to grow in the United States and Vietnam. Exports rose by 23% compared to the same period last year. In the United States, sales through Costco increased, resulting in a 33% year-on-year rise, while Vietnam saw a 20% increase. However, sales in China dropped by 21% due to weak performance in refrigerated products.

Operating profit was nearly 30% below the market expectation of 37.9 billion KRW. The cost ratio for the second quarter was 70.7%, up 4.3 percentage points from the second quarter of last year. Kim Taehyun, a researcher at IBK Investment & Securities, explained, "Input costs for cocoa, coffee, and blended skimmed milk powder have risen, and the expansion of ordinary wages has increased labor costs."

Concerns over deteriorating profitability in the second half of the year are weighing on the stock price. Jeong Hansol, a researcher at Daishin Securities, said, "We expect sales to increase in the second half of this year," but added, "Ongoing cost pressures make a decline in profitability inevitable." Daishin Securities estimates that Binggrae will achieve sales of 1.499 trillion KRW and operating profit of 90 billion KRW this year. This is about 28% lower than the previous operating profit estimate of 125 billion KRW.

The Yeouido securities industry believes that while short-term earnings forecasts will inevitably be revised downward due to deteriorating profitability, Binggrae still has growth potential in the mid- to long-term. Lee Kyungshin, a researcher at iM Securities, analyzed, "The rapidly growing overseas segment is likely to expand its contribution to operating results by securing local market dominance in the mid- to long-term. The company is expanding its product portfolio as its main products become established in key markets." He emphasized, "In terms of exports, the growth rate of the frozen segment is exceeding expectations due to increased shipments to the United States. Despite higher marketing costs for external growth, it is meaningful that the company is laying the foundation for mid- to long-term growth."

Jang Jihae, a researcher at DS Investment & Securities, also explained, "Although Binggrae’s overseas portion is in the 10% range, it continues to rise. The expansion of export regions and product lines is a positive factor."

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