LS Securities said on the 11th that despite the prolonged Middle East crisis and rising materials and supplies prices, profitability can be defended thanks to strong growth at overseas subsidiaries for Orion(271560). It raised its target price to 180,000 won from 170,000 won and maintained a "Buy" rating. The previous session's closing price was 137,500 won.
Park Seong-ho, a researcher at LS Securities, said, "Orion's preliminary stand-alone combined sales for July rose 17.0% on-year to 303.6 billion won, and operating profit increased 11.1% to 45.9 billion won," and noted, "While rapid growth at overseas subsidiaries continued, competitive pressure at the China and Vietnam subsidiaries resurfaced to some extent."
By subsidiary, Park said the domestic subsidiary offset limited deliveries to some discount stores and a sales gap at Homeplus Co. by expanding sales of new products. The domestic subsidiary's sales rose 6.2% on-year to 101.0 billion won. However, with higher materials and supplies prices such as eggs and potatoes and the burden of energy and labor costs due to high oil prices, operating profit fell 5.9% to 14.3 billion won.
At the China subsidiary, sales and operating profit increased 20.3% and 17.3% to 118.7 billion won and 19.7 billion won, respectively.
Park explained, "Excluding local currency effects, the sales growth rate is around 4%," adding, "Snack growth slowed due to competitors' discount sales to clear excess inventory around the 618 event, an online shopping discount event in China." He added, "However, improved channel mix in high-growth areas such as snack shops and e-commerce and improved manufacturing costs led to double-digit operating profit growth."
At the Vietnam subsidiary, sales rose 24.9% to 48.2 billion won and operating profit increased 20.0% to 7.8 billion won, helped by the resumption of exports as the Middle East crisis eased, increased exports to Mongolia, and the effect of shipping forward a portion of August volume (about 3.5 billion won). At the Russia subsidiary, operating profit also jumped 46.4% on-year to 4.1 billion won, reflecting solid growth in the pie category and the pass-through of lower cocoa input costs.
Park said, "Cost pressures will persist, but strong growth at overseas subsidiaries can more than offset expenses," and projected, "The intensified competition phase in China and Vietnam will ease in the second half, and with the start of the holiday season in the fourth quarter and the completion of capacity additions for one snack line in China and one pie line in Russia, strong shipment growth is expected." He added, "If profitability improvement is confirmed in the second half, a sustained share-price re-rating will be possible."