People Tend to Avoid Dining out
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
Amid the Covid-19 crisis, continued solid demand for consumer staples is buoying the F&B sector. Concentrated upon B2C sales, Orion, and Nongshim should show the briskest short-term earnings momentum in response to increased demand.
Maintain CJCJ and Nongshim as sector top picks
Maintaining a Positive stance towards the domestic F&B sector, we continue to offer CJCJ and Nongshim as our sector top picks. In 2020, share-price downside factors will likely dissipate in response to both an anticipated domestic market earnings recovery and overseas market sales growth. Both short-term earnings prospects and the sector’s mid/long-term direction look promising.
Orion and Nongshim to enjoy brisk short-term earnings momentum amid Covid-19 crisis
Concentrated upon business-to-consumer (B2C) sales, Orion and Nongshim are likely to be the sector’s main beneficiaries of higher demand amid the Covid-19 crisis. Chinese subsidiaries of these two players suffered a blow in the initial stages of the Covid-19 emergence earlier in the year, but with the virus outbreak now easing in China, production and sales at the subsidiaries are now rapidly climbing on a surge in food consumption.
As the Covid-19 crisis deepens, people are tending to eat at home more often, avoiding dining out. As a result, domestic F&B companies have seen their B2C sales rise, with ASP also normalizing in line with reduced promotional activities. In contrast, it appears that sector B2B sales have been hit hard by the Covid-19 crisis.
Covid-19 outbreak to accelerate F&B consumption trend changes
We believe that Covid-19 will accelerate changes in F&B consumption trends, including those towards greater home meal replacement (HMR) consumption and online purchasing. The quality of HRM products and the convenience of online purchases have come under the spotlight, which should lead to new customer inflows and increased purchase frequency. Having unfolded at a gradual pace up until now, F&B industry trend changes are about to pick up speed amid the Covid-19 outbreak, with those players that have well-prepared for this paradigm shift to be the primary beneficiaries.