Going Beyond Domestic Market
The authors are analysts of NH Investment & Securities. They can be reached at jack.baek@nhqv.com and kyeongkeun.kang@nhqv.com, respectively. – Ed.
Kolmar BNH’s exports began expanding strongly from 2Q20 in line with the aggressive advancement of Atomy, its major client, in the Chinese market. Noting the firm’s strong export momentum, we believe that it deserves a valuation premium versus peers. Representing 27% of 1H20 sales, we predict that the export sales portion will rise further in 2H20. Kolmar BNH is estimated to book more than W80bn in sales this year from Atomy in China.
Going beyond domestic market
Kolmar BNH is the number-one health functional food OEM/ODM player in Korea. The company has grown strongly alongside the rapid growth of its main client Atomy (multi-level marketing company). Recently, Atomy’s advance into China has drawn strong market attention. With the Chinese government’s issuance of a direct sales license having been delayed, Atomy has decided to seek a vendor permit for Internet shopping malls.
It is estimated that annual sales per Atomy member stands at a respective W100,000, W20,000, and W40,000 in Korea, China, and Taiwan. Though a muli-level marketing business does not look possible in China, we estimate that sales to Atomy China (exports from Kolmar BNH in Korea and sales from Kolmar’s plant in Yontai) will amount to W200bn in 2021. Basic assumptions for our estimates are: 1) an additional 1mn jump in Atomy’s China memberships (currently 3.8mn); and 2) China’s per member sales rising to Taiwan’s level.
In the domestic market, the firm has adopted a two-track strategy under which,in addition to receiving stable sales from Atomy, the firm is pursuing increased sales to non-Atomy clients. This strategy has proven successful so far, with the company’s non-Atomy sales portion climbing to 37% of late.
As an OEM/ODM player, Kolmar BNH is enjoying the benefits of domestic health functional food market growth, while being spared from the risk of individual product performance. Morover, its growing export portion should make the firm a more attractive investment in the sector.
Valuation premium justified
We forecast 2020 sales of W620.1bn (+41.3% y-y) and OP of W124.5bn (+67.9% y-y). Trading at a 2021F P/E of 19.2x, the firm’s valuations look somewhat high versus those of peers. However, we believe that a rising export portion well justifies a valuation premium for the company.