Samyang Foods(003230), buoyed by strong overseas exports, delivered results in the second quarter that met market expectations. Korea Investment & Securities Co. on the 18th projected that earnings improvement will continue in the second half as growth of Buldak spicy ramyeon remains solid in the United States and Europe. It kept a "Buy" rating and a target price of 1.85 million won.
Earlier, Samyang Foods said it posted second-quarter revenue of 770.3 billion won and operating profit of 176.2 billion won. Those figures were up 39% and 47%, respectively, from a year earlier. Operating profit met market expectations.
Growth in overseas markets drove the results. Sales in the United States and China rose 12% and 9%, respectively, from the previous quarter. U.S. sales topped 200 billion won in a quarter for the first time. In particular, the European subsidiary's sales jumped 46% from the previous quarter to 113.2 billion won.
Choi Go-un, an analyst at Korea Investment & Securities Co., said, "Even in mainstream channels where Buldak already has high penetration, broad-based growth appeared," and noted, "On top of that, by expanding a new customer base, it raised expectations for structural growth beyond next year."
Profitability also improved. Although 40.3 billion won was spent on advertising in the second quarter, pushing the ad-to-sales ratio up to 5%, the operating margin rose 1 percentage point from a year earlier to 23% thanks to a better average selling price (ASP) mix.
Choi also expected Buldak's global growth to continue in the second half. Choi said, "The ramp-up (normalization of production and higher utilization) effect at the Miryang Plant 2 will be reflected in the third quarter with a time lag, and export growth centered on the United States and Europe will offset cost pressures such as raw materials and logistics expenses."
In particular, profitability is expected to continue improving. Despite burdens from raw material costs and logistics expenses, the analysis said advertising expenses will fall back to around 4% of sales, easing cost pressure. It also said cost competitiveness will improve through the expansion of the Jiaxing plant in China next year. Accordingly, it projected Samyang Foods' third-quarter operating profit at 192 billion won, up 47% from a year earlier.
Valuation appeal is also coming to the fore. The closing price of 1.27 million won on the 14th is about 15 times the 12-month forward price-earnings ratio (PER), and it said applying a PER of 20 times is possible based on this year's earnings growth alone. Choi explained, "Compared with major ramen competitors in the United States—Japan's Nissin Foods and Toyo Suisan—Samyang Foods has higher sales growth and operating margin," adding, "The valuations of Japanese companies could support the floor for Samyang Foods' share price."