Korea’s Leading Makgeolli and Medicinal Liquor Producer
The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.
Kooksoondang is Korea’s leading makgeolli (Korean rice wine) and medicinal liquor manufacturer. As earnings at the operating division have improved following price hikes for the firm’s makgeolli products, its 2022 OP is likely to exceed W10bn for the first time in 12 years. When also considering the value of investment assets (over W120bn) and cash equivalents (W43bn), as well as margin improvement, the stock appears greatly undervalued.
2022F OP to hit W10bn for first time in 12 years
After five years of operating losses (2015~2019), Kooksoondang reported an earnings turnaround in 2020, booking OP of W4.6bn. Looking ahead, we expect the firm’s OP to exceed W13bn in 2022. While the turnaround in 2020 stemmed from cost cuts, profit growth in 2022 should be driven by fundamental earnings improvement from price hikes and export growth.
In line with the renewal of its flagship product Kooksoondang Raw Makgeolli in Jun 2021, the company hiked the product’s price. In Dec 2021, the company also raised the price of its Kooksoondang Rice Makgeolli by 25% from W1,040 to W1,300. Following the price hikes for flagship products, the prices of other products are likely to be increased this year, as well.
With regard to exports, Prebio Makgeolli’s share of sales in Japan has risen sharply to 40% in recent years, and export destinations are diversifying to countries other than the US and China. While exports accounted for only 7% of total sales in 2014, this portion rose to 18% in 3Q21. In 2020, Kooksoondang accounted for 57% of overall makgeolli exports.
Focus on the value of non-operating assets
Kooksoondang’s investment asset value is similar to its current market cap. Major consolidated subsidiaries include G&Tech Venture Investment (VC) and related companies include Farm8 (smart farm). When non-operating assets such as cash equivalents (W43.2bn), financial assets (W47.8bn), and real estate investment (W19.3bn) are added, the firm’s book value climbs to W153.3bn.
Led by price hikes and export expansion, we forecast sound 2022 sales of W73.5bn (+13.7% y-y) and OP of W13.4bn (+34.5% y-y). The shares are trading at a 2022F P/E of 9.2x, suggesting deep undervaluation versus other alcoholic beverage players.