Korean Ramen Companies Gaining Global Market Share
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
We expect Korean ramen makers to enjoy an earnings rebound next year, as the full-fledged effects of domestic price hikes kick in. Domestic ramen companies have been expanding their distribution networks and undertaking product differentiation to target overseas markets, and overseas growth momentum is likely to be re-emphasized through capex expansion in 2022.
2022: Year of rebound for ramen company earnings
Domestic ramen makers have had a difficult year in 2021 due to adverse base effect and rising raw material costs. However, as most of them have raised their ASPs, margins at their domestic businesses are starting to improve from 4Q21, and international grain prices are set to fall in 2022. Thus, operating leverage is to increase in earnest. In addition, as domestic players are expanding their capex to respond to growing overseas demand, overseas momentum is to re-emerge. We recommend Nongshim and Samyang Foods as our sector top picks.
Korean ramen companies gaining global market share
Most of the Korean content that has gained global popularity of late features ramen. With a long history, ramen has become representative of Korean culture. Also, as it is easy to cook, even foreigners who are unfamiliar with ramen can easily access it. For a long time, domestic ramen makers have been striving to differentiate themselves through product quality and flavor diversification and via global distribution network expansion. As demand and consumer bases continue to expand, domestic players’ market share growth is set to continue.
Overseas market growth momentum to be highlighted again from capex expansion
As major companies plan to raise their capax to expand overseas sales, sales growth is likely to increase in 2022. At Nongshim, three production lines for ramen (bag and cup ramen) will be added at its US ramen factory in early 2022. As a result, the combined production capacity of its North American subsidiary (US and Canada; currently W450bn) is expected to grow by more than 40%. Meanwhile, Samyang Foods plans to complete its Miryang plant in 1Q22 and start full-scale production in 2Q21. As a result, the firm’s maximum annual ramen production is due to increase by about 50% y-y. Also, logistics issues are gradually easing from 4Q21, and export growth momentum is expected to re-emerge as ASP hikes are added.