Korean food stocks boast high value on strong overseas business

[Photo by Yonhap]

Stocks of South Korean food manufacturers are gaining attention as they are being highly valued against their assets thanks to strong overseas performance.

According to the Korea Exchange on Monday, three companies among the top 10 market-cap companies in the Kospi’s food and beverage index had a price-to-book ratio (PBR) exceeding 1 as of Friday. They are Samyang Foods Co. with 2.98, Orion Corp. with 1.44, and Hite Jinro Co. with 1.34.

The stocks share a common feature, which is that they have a high proportion of sales or growth potential in overseas markets.

In particular, Samyang Foods’ PBR nearing 3 can be compared to those of healthcare companies, which often reflect significant future growth potential.

Samyang Food surpassed 1 trillion won ($750 million) in sales and 100 billion won in operating profit for the first time last year.

The company gained attention for its future growth potential, especially with its overseas sales accounting for over 70 percent of its entire sales, led by its spicy instant noodle products.

Orion achieves stable sales in China, Russia, Vietnam, and India. Its cumulative sales from January to November last year amounted to 2.65 trillion won, with overseas sales accounting for 63 percent of the entire sales.

Hite Jinro’s overseas sales proportion is still in the 10 percent range, but it is showing growth in the U.S., Russia, and China.

Last month, it signed a contract to secure land for a production facility for soju, Korean distilled liquor, in Vietnam. When the construction of the facility is completed, it will be the company’s first overseas soju production base.

Over the past six years, Hite Jinro’s soju exports have increased by an annual average of 15 percent.

Many food stocks, however, are undervalued due to limited domestic market growth.

Analysts suggest that an improvement in PBRs requires fundamental improvements in companies’ financial conditions and profitability.

“Some small and medium-sized food companies have low PBRs, or expected price-to-earnings ratios compared to return on equity,” said Park Sang-jun, analyst at Kiwoom Securities Co.

He suggested, however, that some of them, including Dongwon F&B Co. and CJ Freshway Corp., have the potential for significantly higher shareholder returns if they effectively control their future investment scale.