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Samyang Foods: Starting to Rebound Faster Than Expected

samyang-foods:-starting-to-rebound-faster-than-expected
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The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. — Ed.

We expect Samyang Foods’ earnings to rebound from 4Q21, backed by a partial easing in shipping congestion and by ASP markup effects. In 2022, the firm is to display a full earnings turnaround, supported by both production capacity expansion (thanks to new factory construction) and a subsidiary strategy focusing on sales channels in major regions.

Both domestic sales and overseas exports to strengthen

We maintain a Buy rating and a TP of W130,000 on Samyang Foods.In 2021, weighed upon by y-y high-base effects, raw material cost upticks, unfavorable forex conditions, and rising ocean shipping rates, the company’s profitability worsened significantly y-y. But, its export momentum should pick up again on its subsidiary strategy focusing on sales channels in major regions and new factory expansion. With ASP markup effects for domestic and exported instant noodle products to be felt in earnest from 4Q21, cost burden is also to ease. According to Korea Customs Service’s import & export data, exports are growing faster than expected, a factor which has led to a recent share price rebound. But, we view the firm as still boasting strong valuation merit, with its shares currently trading at a 2022F P/E of 11x.

Export momentum primed to accelerate

Samyang Foods’ exports should rise by roughly 20% y-y in 2022, boosting its share-price growth momentum. ASP hike effects should also materialize. Once its factory in Milyang is established, the company’s maximum annual ramen production capacity is estimated to climb by around 50%. Recently, the firm has also decided to establish Samyang America and Samyang Foods Shanghai. Via these subsidiaries, Samyang Foods can undertake direct sales and marketing activities, which should help to bolster both margins and inventory management.

To report largest-ever sales in 2022

Samyang Foods is projected to report 4Q21 sales of W189bn (+25.2% y-y) and OP of W16.6bn (+5.2% y-y). With shipping congestion partly easing, exports are quickly rebounding, particularly to China. With ASP markup effects to be reflected in earnest, exports are to drive overall earnings improvement. Meanwhile, we forecast that Samyang Foods will log consolidated 2022F sales of W720.9bn (+13.0% y-y) and OP of W80bn (+32.5% y-y). Even when considering heavier fixed costs during the early operation days of its new production plant, the firm is likely to enjoy profit leverage expansion based upon sales growth.

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