KB Securities noted on the 17th that Samyang Foods is expected to see increased revenue as it establishes a production corporation and builds a local factory in China, enabling it to fully produce its Chinese volume locally. The firm also analyzed that it could improve business efficiency by structuring a business strategy suitable for the characteristics of China.
On the previous day after the market closed, Samyang Foods disclosed its decision on investment in its Singapore corporation. The purpose of establishing the Singapore corporation is to carry out business in China through the establishment of a production corporation and the construction of a local factory.
Samyang Foods plans to acquire 90% of the equity in the Singapore corporation for a total cash payment of 64.7 billion won and intends to invest in a partitioning manner until December 31 of next year. As of the end of the third quarter of this year, Samyang Foods' cash equivalents based on separate standards amount to 321.5 billion won, while the consolidated cash equivalents total 432.8 billion won.
Currently, Samyang Foods is producing domestic and export volumes at its Wonju plant, domestic volumes at its Iksan plant, and export volumes at its Miryang plant. The local factory in China is expected to fully produce the Chinese volumes.
Research Institute Ryoo Eun-ae said, 'With the construction of the local factory in China, annual revenue from China is expected to grow to about 400 billion won,' adding that 'the cumulative revenue from China in the third quarter stands at 306.6 billion won, accounting for 24.5% of total sales.'
Through the establishment of the production corporation in China, it seems that the burden of labor and transportation costs, which account for 8.5% of total revenue, will also decrease. Research Institute Ryoo noted, 'The increase in revenue and the reduction of expense burdens are likely to lead to direct margin improvements,' adding that 'considering the high demand in China, the possibility of choosing a volume increase policy through price adjustments is deemed limited.'
Moreover, as the proportion of exports to Western countries increases, improvements in the sales mix are also anticipated. This is because the domestic plants are focusing on producing export volumes to the United States and Europe, where prices are higher, resulting in an expected rise in the average selling price (ASP). Research Institute Ryoo said, 'The export price to the United States and Europe is estimated to be about 20-30% higher compared to existing Asian nations, so the increase in the proportion of exports to Western countries is a direct factor in raising the ASP.'
He added, 'With about six months remaining until the completion of the Miryang 2 plant, the announcement of the expansion of the new factory in China will likely lead to a quicker-than-expected rise in the operational rate of the Miryang 2 plant.'