Top-line Growth in 2Q22; Margin Improvement in 3Q22
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY, target price of KRW135,000
We maintain BUY and TP of KRW135,000 on Orion. Our TP remains unchanged given the absence of any significant revisions to annual OPM estimates for 2022E-24E. Top-line growth should be solid, supported by rebounding offline demand in Korea and growing market share in Russia/Vietnam. However, the rising no. of confirmed COVID cases in Korea continues to deepen uncertainty. That said, Orion is mitigating risk by expanding into new sales channels, sustaining profit margins amid rising costs.
1Q22 review: OP of KRW108.6bn (+6.5% YoY) in line with consensus
Orion posted 1Q22 consolidated revenue of KRW653.2bn (+8.5% YoY, +4.3% QoQ) and OP of KRW108.6bn (+6.5% YoY, +6.7% QoQ; 16.6% OPM), which met the market consensus of KRW104.4bn. Domestic revenue grew 10.6% YoY thanks to recovering offline sales channels. China revenue remained flat YoY, as local consumption was undermined by a zero-COVID policy, and Vietnam revenue grew 23.7% YoY, driven by pie and snack sales. Russia revenue (+30.9% YoY) continued to grow rapidly with an extended pie lineup. Despite increasingly burdensome input and sales costs, Orion’s prioritizing of profitability kept OPM largely unchanged YoY.
Top-line growth in 2Q22; margin improvement in 3Q22
Industry conditions should remain challenging in 2Q22. For Korea, we expect revenue to grow, with offline sales rebounding after the significant easing of social distancing measures on Apr 18. In China, shipments to government organizations and O2O platform sales are growing, as Orion pies have been included in aid packages for people under lockdown. The addition of new sales channels seems to have sustained earnings amid setbacks created by sluggish consumption in Korea; we see earnings upside once China’s lockdowns end and product shipments normalize. As for Vietnam, rapid growth should be maintained with the release of new Choco Pie/C’est Bon products in 2Q22 (currently pending). In Russia, Orion countered RUB depreciation with a 20% price hike in April. Output capacity should be boosted once the new Russian plant in Tver comes online in 1H22.
Continual efforts to sustain profitability should help margins improve in 3Q22. Despite rising feedstock and utility costs, Orion has so far sustained margins via adjustments to product output mix, cuts to marketing costs and alternative sourcing. As such, we expect a sharp earnings recovery once costs begin to stabilize.