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Orion: Earnings Normalizing Faster than Expected
Stable Earnings Growth Expected to Continue
Orion: Earnings Normalizing Faster than Expected
  • By Yoon Young-sil
  • March 16, 2020, 17:54
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The author is an analyst of NH Investment & Securities. She can be reached at -- Ed.


Defying concerns, Orion’s overall corporate earnings improved in February. Despite the Covid-19 crisis, stable earnings growth is expected to continue, driven by high food consumption, increased online sales, faster (vs rivals) normalization of production, and robust sales of new products.

Food consumption remains solid even when economy is in trouble

We maintain a Buy rating and TP of W135,000 on Orion. With the Covid-19 crisis now easing in China, Chinese market consumption is rising rapidly, led by food products. Despite the Covid-19 crisis, we forecast that Orion’s steady earnings growth trend will sustain going forward on: 1) a faster-than-expected business normalization for its Chinese business; 2) rising food consumption on the home front; and 3) robust sales of new products at its Vietnamese and Russian subsidiaries. With the firm’s February sales performance dispelling concerns, we believe that it is time to let go of a conservative view towards its shares in light of expectations towards continued stable earnings.

Contrary to 1Q20 concerns, expect rapid normalization of earnings

On a consolidated basis, we project that Orion’s 1Q20 sales and OP will hike 6.1% y-y and 5.1% y-y, respectively. Given both Covid-19 effects and a weakening in Chinese New Year effects compared to last year, 1Q20 earnings growth y-y was predicted to be sluggish, but food consumption is appearing stronger than expected.

In February, sales at Orion’s Chinese subsidiary upped 53.2% y-y, with operating income turning (y-y) to positive territory. With the Covid-19 situation in China having been easing since mid-February, Chinese market food consumption is thought to be rising sharply. Orion is emerging from Covid-19-related production disruptions more rapidly than its competitors, and its local agent channel sales have normalized to almost the previous level, showing an eye-catching rise even without taking into account y-y low-base effect. And, online sales are estimated to have expanded by around 40% y-y. We expect these positive trends to continue in March.

In February, sales growth rates at Orion’s domestic arm picked up steam in line with increased food consumption, continued healthy sales of new products, and surging (clocking at about 90% y-y) online sales. Orion’s Vietnam business also showed fast-paced sales growth, helped by y-y low-base effect, high sales of snacks, and the popularity of new offerings. Sales at the firm’s Russian business also improved significantly thanks to the launch of new Choco Pie flavors and stronger operating leverage effects arising from sales growth.