Hana Securities on the 11th analyzed that a recovery in lysine market conditions will be difficult until early next year. It kept a target price of 35,000 won and a "buy" rating. The previous trading day's closing price of Daesang was 20,900 won.
On a consolidation basis in the third quarter of this year, Daesang's revenue rose 3% on-year to 1.1454 trillion won, while operating profit fell 1.3% to 50.9 billion won. Operating profit fell short of Hana Securities' estimate of 56.1 billion won.
Sim Eun-ju, an analyst at Hana Securities, said, "Lysine, which drove earnings improvement in the first half, was sluggish due to deteriorating market conditions." Revenue in the food division increased 5.3% on-year, but excluding the effect of acquiring the livestock business previously operated by Daesang Networks, it was flat from a year earlier. Major processed items saw revenue increase by around 2% on-year.
Revenue in the materials division fell 15% on-year. In the case of lysine, the European anti-dumping tariff rate on Chinese products was set lower than expected, and Chinese volumes appear to be flowing back in.
Hana Securities estimated Daesang's fourth-quarter revenue on a consolidation basis at 1.0671 trillion won, up 2.2% from a year earlier, and operating profit at 31.3 billion won, down 9.3%. While the acquisition effect of the livestock business will increase revenue size, profit and loss will likely decline from last year due to factors such as ▲ fewer business days related to the Chuseok holiday ▲ sluggish lysine market conditions ▲ reflecting a deficit in the livestock division.
Sim said, "Considering Chinese companies' production cuts in the third quarter, we judge the bottom (in the lysine market) has passed, but our view is somewhat conservative until early next year," adding, "The key to next year's consolidated profit and loss is whether lysine market conditions improve." She added, "The short-term earnings momentum (upside potential) is limited."