"Thought It Was Over?"... Samyang Foods' Stock Slumps, One Big Play for Next Year [Weekend Money]

Food and Beverage Stocks Give Back Gains... Which Stocks Are Worth Buying at the Bottom?
KT&G Top Pick on Expectations for Expanded Shareholder Returns
"Samyang Foods and Lotte Wellfood Have Seen Excessive Share Price Corrections"
"Overseas Demand for K-Food Remains Solid"

Food and beverage stocks have remained sluggish since last month, but analysts say investors should look for “buy-the-dip” opportunities, particularly in stocks whose prices have undergone excessive corrections. Despite somewhat disappointing third-quarter results, overseas demand for K-food, including instant noodles, remains solid. KT&G was named the top pick, while Samyang Foods and Lotte Wellfood were highlighted as companies to watch.

According to Korea Investment & Securities, the combined market capitalization of the food and beverage companies it covers has fallen 9% since September, giving back most of its gains from August. “The decline is too steep to be viewed as a technical correction caused simply by profit-taking,” said Choi Seon-woon, a researcher at Korea Investment & Securities. “The second-quarter earnings surprise and domestic price increases in the second half of the year have not translated into expectations of structural earnings growth.”

Since July, consensus estimates for operating profit in the third and fourth quarters of this year have actually been revised down 3% for the food and beverage sector, excluding KT&G. The sector’s combined third-quarter operating profit is expected to rise 10% year on year, but most companies are expected to come in slightly below market expectations. “The outlook is somewhat subdued compared with the second-quarter earnings surprise, when profits increased 18%,” Choi said, pointing to weakening earnings momentum.

Lotte Wellfood and Binggrae, which led the strong second-quarter results, have seen their seasonal momentum weaken with the end of the peak ice cream season. Instant noodle exports in the third quarter also fell from the second quarter, failing to surpass their previous high. In addition, the won’s appreciation against the U.S. dollar, unlike in the past, did not enhance the food and beverage sector’s investment appeal. “A stronger won is generally favorable for most food and beverage companies because it lowers costs, but it is a headwind for earnings at companies with overseas momentum, which drive investment sentiment across the sector,” Choi said.

However, Korea Investment & Securities maintained its “overweight” rating on food stocks, saying overseas demand for K-food itself remains solid. In the short term, it sees KT&G as the standout pick.

“A more cautious approach is needed during the third-quarter earnings season, unlike in the second quarter. When external variables become volatile and momentum fades, KT&G becomes the clear choice within the sector,” Choi said. He cited the company’s high earnings stability and strong downside support for its share price. KT&G’s forecast price-to-earnings ratio for 2027 is 13 times, below the average of 15 to 16 times for overseas peers.

Expectations for expanded shareholder returns are also expected to grow toward year-end. KT&G began buying back KRW 360 billion worth of its own shares in late September. With its overseas capital investment cycle now having come to an end, the company has room to adopt a more active dividend policy, analysts said. They also expect it to raise its medium- to long-term overseas business targets alongside a new shareholder return plan. Choi also viewed growth in the overseas business positively, saying, “We are maintaining KT&G as our top pick because it has the most to talk about during the annual outlook season ahead of the new year.”

Yonhap News Agency

Choi also stressed that, given the still-solid fundamentals of overseas demand, now is the time to identify stocks to buy at low prices with a long-term perspective. He said many stocks have already undergone excessive price corrections. He named Samyang Foods and Lotte Wellfood as companies to watch.

“Even taking the stronger won into account, Samyang Foods can increase its earnings by around 30% annually,” Choi said. “In 2027, the key factor will not be the exchange rate but the impact of its new plant in China. If the ramp-up proceeds as planned, the market’s concerns about the company’s future growth can be overcome.” Samyang Foods’ current 12-month forward price-to-earnings ratio is 14 times, lower even than the valuations of its Japanese competitors. “If the share price corrects further, investors are likely to reach a renewed consensus that it has bottomed out,” he added.

Lotte Wellfood was also cited as an alternative. Overseas sales account for a share in the 30% range, lower than at Samyang Foods, so the company is relatively less exposed to the stronger won and could benefit from lower costs for imported raw materials. “The stronger won is positive, but the stock has been caught up in indiscriminate selling and now trades at just eight times its 12-month forward PER,” Choi said. “Sales in India and Kazakhstan are expected to grow by around 20% in the third quarter as well. It is a stock that can benefit both from a revaluation of its overseas business and from the weaker exchange rate.”

This content was produced with the assistance of AI translation services.