Overseas Sales to Continue Climbing at Rapid Clip
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
Samyang Foods chalked up an earnings surprise for 1Q20, with OP topping consensus by 24% on rising domestic demand and greater exports. The growth trend is to sustain going forward in line with increasing numbers of product offerings and overseas customers.
Greater exports boosting EV
Adhering to a Buy rating, we raise our TP on Samyang Foods by 25% from W120,000 to W150,000, reflecting upward revisions to our earnings estimates and target multiple. We revise up our 2020E and 2021F EPS estimates by 13% and 9%, respectively. While our target multiple calculation method remains unchanged (a 15% discount applied to the average P/E for domestic peers, taking into account Samyang Foods’ high dependency on a single product category), with overall valuations at domestic peers having risen (13x → 15x), our target P/E multiple has been raised.
We note that Samyang Foods has benefited from rising demand for ramen amidst the spread of Covid-19. Going forward, we predict that sales growth momentum will sustain in line with the expansion of overseas distribution networks, the addition of new products in overseas markets, and rising brand awareness in local markets. Though its shares have performed strong of late, the firm continues to trade a 2020E P/E of less than 12x reflecting anticipated domestic and overseas earnings improvement.
Overseas market sales to continue climbing at rapid clip
Samyang Foods delivered an earnings surprise for 1Q20, posting consolidated sales of W156.4bn (+29.9% y-y) and OP of W26.7bn (+ 74.0% y-y). OP topped consensus by 24%, with improvement being led by: 1) higher domestic and overseas sales of major items; and 2) increased margins leverage.
Sales upped sharply by15.9% y-y on higher domestic demand for ramen amid Covid-19. OPM rose to a double-digit figure in response to eased promotional competition. OPM for the firm’s snack offerings improved by about 5%p y-y on stronger demand for high-margin products such as Sattobab and Jjanggu.
Samyang’s overall ramen exports increased 46.1% y-y—particularly prominent is the growth of exports to China (+50% y-y or more) and the US (+100% or more y-y). In addition, shipments increased to Southeast Asia and Europe.