Shoppers browse snacks at a large discount store in Seoul. Yonhap News
Samyang Foods (003230.KS) and Nongshim (004370.KS) each posted operating profit growth above 40% in the second quarter, driven by strong overseas sales, yet their shares remain near where they started the year. Concerns about growth have deepened as ramen export growth has recently slowed.
Nongshim closed at 420,000 won on the 18th, down 4.23% from the previous session, according to the Korea Exchange. That is 1.98% below its start-of-year price of 428,500 won. Samyang Foods finished at 1.334 million won, up 5.12% on the day, but has gained just 4.55% since the start of the year.
The two companies’ second-quarter earnings improved sharply, in contrast to their share performance. Samyang Foods reported consolidated revenue of 770.3 billion won ($555 million), up 39% from a year earlier. Operating profit rose 47% to 176.2 billion won, meeting market expectations. Nongshim posted revenue of 956.1 billion won over the same period, up 10%, while operating profit rose 48% to 59.3 billion won, beating the market forecast of 51.3 billion won.
Overseas business drove growth at both companies. Samyang Foods’ second-quarter overseas revenue rose 47% from a year earlier to 645.8 billion won. Revenue at its U.S. unit rose 54% to 203.6 billion won, helped by new business partnerships and expansion into liquor and Asian distribution channels. Nongshim’s overseas revenue also rose 31% to 328.6 billion won. Its U.S. unit posted first-half revenue of 287.3 billion won, up 11%, while its European unit recorded 80.3 billion won in revenue in the first half alone.
The failure of the strong results to lift share prices stems from a recent slowdown in ramen export growth. South Korea’s ramen exports totaled $920 million in the first half, up 26% from a year earlier, but growth slowed to 8% in July. Samyang Foods in particular, which has seen steep gains over the past four years, saw its shares languish despite strong first-half results as export growth slowed.
Analysts said the recent export slowdown stems from a shortage of production capacity at major manufacturers rather than weakening demand for Korean ramen, leaving room for the stocks to rise. Nongshim plans to complete an export-dedicated plant in Noksan, Busan, in late October to expand its push into overseas markets including Europe. Samyang Foods will begin operations at its Jiaxing plant in China next year. As a result, Samyang Foods’ annual ramen production capacity is expected to expand from about 2.5 billion units this year to more than 3.7 billion units next year.
“The added production capacity from Samyang Foods’ and Nongshim’s new plants should resolve the slowdown in export growth,” said Jang Ji-hye, an analyst at DS Investment & Securities. “Given the overseas growth rates of Japanese ramen makers, their relative valuation appeal is even higher.”
AloJapan.com