Tuesday, May 26, 2020
Novarex: Structural Growth to Follow Market Growth
Quantum Jump Expected in 2021
Novarex: Structural Growth to Follow Market Growth
  • By Jack Baek
  • March 5, 2020, 15:40
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The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.


Novarex is a domestic top-three OEM player for health functional foods. In 2021, we expect to see a quantum jump in the firm’s earnings, beginning with the expansion of its Osong plant. By expanding its share of the health functional foods market and attracting new overseas clients, the company should display higher growth rates than the market.

Boasts largest number of ingredients for product-specific health functional foods in Korea

Along with Kolmar BNH and Suheung, Novarex is a top-three domestic OEM/ODM for health functional foods. Most of the well-known health functional foods brands are customers of Novarex. The company possesses broad product lineups for a number of markets -- major products include lutein (eye health), plantarum (immune system), xanthigen (diet), astragalus extract (growth stimulant), boswellia (joints), and rexflavone (menopause).

It is noteworthy that the firm boasts not only beauty and diet products that have led recent health functional foods trends, but also immune products that have been garnering greater attention following the Covid-19 outbreak. Novarex’s rich product lineup acts as an entry barrier and enables the firm to easily respond to market changes. Against this backdrop, we expect the company to benefit from the ongoing market growth.

Novarex’s capacity is set to grow W200.0bn pa upon the expansion of its Osong plant in Mar 2021. The company plans to switch production of general formulation products from its Ochang plant to the expanded Osong plant. In addition, the firm’s cost ratio should improve on the establishment of automated processes and greater process efficiency.

Quantum jump expected in 2021

Novarex is predicted to record 2020 sales of W184.0bn (+15.6% y-y) and OP of W19.5bn (+19.0% y-y). The y-y growth is likely to be driven by: 1) market share expansions at existing customers (top-30 players, by sales); and 2) export growth led by the addition of new overseas clients.

While health functional foods are showing relatively high growth among consumer goods, major domestic players are trading at low valuations (P/Es at the low 10x-level) due to the limitations of the domestic market. That said, noting Novarex’s expanding overseas client base (already includes firms such as Amway, Unicity, and Mannatech), we believe that it is attractively valued.