Consumer Staples | KOREA CONSUMER RELATED NOMURA FINANCIAL INVESTMENT Cara Song +82 2 3783 2328
[email protected] (KOREA) CO LTD Stacey Kim +82 2 3783 2333
[email protected] NEW THEME ANCHOR REPORT Finding younger markets Stocks for action Korea’s population isn’t getting any younger. With the absolute number of Koreans We recommend a switch from KT&G aged 25-49 having peaked in 2008, we believe the onus is on FMCG companies to and Hite to China plays such as Orion nurture new drivers before changing demographics start to impact growth in and Lock&Lock. Although Amorepacific established segments. To offset otherwise slowing volume growth, we look for Korean and LGHH have strong business players to expand addressable markets (tapping new segments and going for M&A), fundamentals, we are NEUTRAL, on shift to the premium end, and broaden footprints in China. Segments where growth unattractive valuations. prospects appear relatively good for Korean players are cosmetics and confectionary, Price Potential where we see resilient market volume expansion, a strong presence in China, and Stock Rating Price target upside success in premium brand strategies. But tobacco and liquor players with relatively Hite (103150 KS) REDUCE* 123,000 100,000 (18.7) weak brands and no growth base in China, such as KT&G and Hite, look exposed to KT&G (033780 KS) NEUTRAL 65,600 66,000 0.6 AP (090430 KS) NEUTRAL 1,130,000 1,120,000 (0.9) the effects of ageing in their home market. We like Lock&Lock and Orion for their LG HH (051900 KS) NEUTRAL 392,000 440,000 12.2 strong earnings prospects (30%-plus y-y in FY11F) underpinned by growth spurts in Orion (001800 KS) BUY 405,000 470,000 16.0 L&L (115390 KS) BUY 35,900 52,000 44.8 their China operations as well as relatively attractive valuations (20x FY11F P/E, 0.6x * Initiating coverage; pricing as of 4 January, 2011 FY11F PEG).