Ottogi: Crucial to Secure Mid/long-term Growth Engines

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The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. — Ed.

Ottogi’s high-base and cost burdens should ease gradually after 4Q21. But, the firm will need to secure new growth engines by diversifying its regional and product portfolios and by advancing into new overseas markets.

Requires mid/long-term growth momentum

Keeping a Hold rating, we lower our TP on Ottogi from W600,000 to W510,000, reflecting earnings estimate adjustments. The effects of price hikes for some products should kick in from next year, driving up margins that have been dampened by higher raw material costs. But, amid a raw material cost downcycle, operating leverage effects for merchandise sales are limited. From a mid/long-term perspective, Ottogi will need to diversify its products, break into new overseas markets, and overhaul its governance structure.

Higher ASPs to translate gradually into stronger profitability

Ottogi should show consolidated 4Q21 sales of W656.5bn (+4.5% y-y) and OP of W26.1bn (-9.1% y-y). An amplified cost burden (from higher fat & oil costs and ramen material purchasing costs) should ease once the effects of price hikes kick in. But, earnings will likely remain lackluster for now on high-base effects. By business, growth at the firm’s oil & fat domain should continue on capacity addition, and its seasoning & sauce business is predicted to see a sales rebound in response to both a B2B sales recovery and ASP hikes. Sales at its ramen business are likely to grow at a double-digit pace on higher ASPs. We see 2022F consolidated sales of W2,842.1bn (+5.1% y-y) and OP of W177.8bn (+7.4% y-y), with ASP hikes spurring top- and bottom-line growth.

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