The authors are analysts of Shinhan Investment Corp. They can be reached at email@example.com and firstname.lastname@example.org, respectively. -- Ed.
1Q20 consolidated OP forecast at KRW22.1bn (+32% YoY)
We now expect Kolmar BNH to have posted consolidated operating profit of KRW22.1bn (+32.4% YoY) on sales of KRW127.3bn (+19.5% YoY) for 1Q20. Sales of health functional foods likely increased 28.6% YoY to KRW73.4bn. Steady seller HemoHIM, which helps improve the immune system, has enjoyed solid growth amid the COVID-19 outbreak. Its sales are projected to have expanded by more than 30% YoY as in 4Q19. The key client Atomy is a network marketing company whose business is unaffected by the outbreak as more than 90% of its members purchase products for their own use instead of resale. The cosmetics division should have seen sales grow 4.7% YoY to KRW37.4bn.
Beneficiary of COVID-19; 2020 sales to grow 19% YoY and OP 16% YoY
The continuing spread of COVID-19 has stoked demand for health functional foods. The number of first-time consumers is on the rise. Considering that health functional foods are taken consistently over time, the market is expected to grow steadily even after the pandemic comes to an end.
For 2020, we forecast sales at KRW524bn (+19.4% YoY) and operating profit at KRW85.7bn (+15.8% YoY). Sales of health functional foods will likely reach KRW316.7bn (+24.8% YoY). Adding to the strong growth of HemoHIM, new products are slated for release. Kolmar BNH’s balsam pear extract, which helps lower blood sugar, is expected to be approved as a product-specific health functional food ingredient in 1H20. It hopes to get approval for 23 more ingredients by 2023. Annual production capacity should increase by KRW100bn with the completion of its third domestic plant in Eumseong.
Retain BUY and lower target price to KRW32,000
We retain our BUY rating on Kolmar BNH, while lowering our target price to KRW32,000 to reflect down-adjustment of target valuation due to the recent market correction. However, our earnings forecasts for 2020 are slightly revised upward. The COVID-19 outbreak presents an opportunity for the company to attract new customers. Excessive share price correction can be a good entry point.