Nongshim (004370 KS ) Domestic Weakness Vs
Nongshim (004370 KS ) Domestic weakness vs. overseas growth Food & Beverage 3Q19 review: Growth in the US continues For 3Q19, Nongshim reported a 4.2% YoY increase in revenue and a 14.5% YoY decline in operating profit (W18.6bn; OP margin of 3.1%) on a consolidated basis (Korea, US, Results Comment China, Japan, Australia, and Vietnam). Operating profit was dragged down by: 1) November 14, 2019 increased marketing (advertising) spending due to ongoing competition in the domestic market; and 2) higher expenses related to expansion in China. In Korea, revenue inched up 0.6% YoY, and operating profit contracted 23.9% YoY (OP margin of 2.4%). By category, revenue growth was: 1) -0.6% for instan t noodles; 2) +3.7% for snacks; 3) +1.2% for beverages; 4) +10.1% for import brands; and 5) +4.3% for (Maintain) Buy exports. By instant noodle brand, revenue gained 2% for Shin Ramyun, 23% f or Chapagetti, and 7% for Yukgaejang, but revenue decreased for Ansungtangmyun and Target Price (12M, W) 320,000 Neoguri due to the impact of promotions by Paldo and Ottogi (007310 KS/Buy/TP: W960,000/CP: W572,000). Nongshim’s instant noodle market share slipped 0.7%p YoY to 54.4%. In beverages, sales of Baeksansoo grew 8.3% YoY, but sales of Capri Sun and Share Price (11/14/19, W) 243,000 Welch’s declined on unfavorable weather conditions (lower temperatures and frequent rainfall). Expected Return 32% At overseas subsidiaries (US, China, Japan, Australia, and Vietnam), revenue grew 17.3% YoY, but operating profit fell 11.7% YoY (OP margin of 5.8%).
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