Nongshim
The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
We raise our TP on Nongshim to W510,000. Thanks to a combination of stable domestic earnings and strong performances at overseas subsidiaries, the firm’s quarterly earnings continue to surprise. We expect ongoing EV growth based on a strengthening of OP.
Raise TP to W510,000
Adhering to a Buy rating, we raise our TP on Nongshim by 18.6% to W510,000. Our TP is derived by applying a P/E of 20x to 12-month forward NP (excluding minority interest). The TP reflects an upward revision of earnings forecasts and target P/E (19x → 20x).
Sales growth continues in major overseas markets, which is helping to push up profitability by easing the burden of fixed costs. Although the shares are trading at a P/E of 15.6x, which is relatively high for the industry, Nongshim is anticipated to display steady EV expansion based on its robust earnings stamina.
Exceeding expectations both at home and abroad
Nongshim reported consolidated 1Q23 sales of W860.4bn (+17% y-y) and OP of W63.8bn (+86% y-y), surpassing the market expectations by a wide margin.
Domestic sales climbed 14% y-y to W595.9bn, backed by y-y sales growth for all major items. Regarding ramen, despite the price hike in 2H22, we foresee little impact on demand, given that the price is still competitive.
At overseas subsidiaries, sales increased 24% y-y to W264.5bn. As of 1Q23, the sales portion of overseas subsidiaries reached 30.7% (+1.8%p y-y). Although sales in China were somewhat sluggish, sales grew in all other regions. Especially notable was the pace of sales growth (+40% y-y) at the US subsidiary. In breaking down the earnings surprise, we note that utilization rate acceleration at the second US plant accounted for half of the rise in consolidated earnings.