Samyang Foods: unfavorable external variables at play

The author is an analyst with NH Investment & Securities. She can be reached at [email protected] – Ed.

Samyang Foods PO 1Q21 fell 46% year on year, without consensus. As the company continues to face unfavorable forex market conditions, higher raw material costs, and rising shipping costs, lowering expectations in the near term is inevitable. However, emphasizing that these factors have nothing to do with the actual decrease in demand, we consider that the medium and long term growth of the company abroad remains valid.

Sustainable phase where the influence of macro-variables is important

While maintaining a buy rating, we are lowering our TP on Samyang Foods from 160,000 W to 130,000 W due to downward adjustments to our earnings estimates. Due to unfavorable foreign exchange market conditions, rising cost of raw materials, and rising ocean freight rates, lowering short-term expectations is inevitable in today’s difficult trading environment.

We note that the company’s recent profit issues have been further exacerbated by difficulties securing vessels amid a global logistics crisis – such a drop in profits is not related to a problem of declining local demand. . With over 50% of its sales coming from overseas exports, we believe that the positive expectations for the medium / long term growth prospects of Samyang Foods as a leading exporter in the F&B industry remain valid. . From a medium / long term perspective, overseas growth is expected to continue as the company’s exports continue to diversify to the United States and Japan, as well as to China.

â–¶ 1Q21 review: the overall cost burden increases

Samyang Foods recorded in 1Q21 a consolidated turnover of 140 billion W (-10.5% yy) and a PO of 14.4 billion W (-46.2% yy), the two figures lacking consensus on the overall cost increase and negative base burden in yy.

Having a high share of absolute sales coming from exports, Samyang has been negatively impacted by the unfavorable forex market conditions that persist since 2H20. In Korea, the effects of the pandemic (including the hoarding phenomenon caused by Covid-19) last year resulted in a high base load for sales. Overall exports to China (1Q21E: -10% yy), the United States (-20% yy) and Southeast Asia (-8 ~ -9% yy) also showed a decline of one year. In addition to the high base effect, the company encountered difficulties in securing maritime transport and therefore was unable to meet foreign demand, a development which in turn accelerated the deterioration of its profits.

Overall costs have also worsened yy. The COGS / sales ratio increased 4.5% per year due to higher raw material costs (focused on palm oil), and the SG&A / sales ratio increased 2.4% per year. year.

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