[Hidden Market Picks] Go long on Binggrae as outlook foggy till Q1 2018

2017.12.20 16:04:27 | 2018.01.25 11:28:20

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Binggrae (Kospi: 005180), a household ice cream and dairy name, won’t likely see business improvement until weather warms up next year.

The company is forecast to report an operating loss of 4.8 billion won ($4.4 million) on a consolidated basis during the fourth quarter ended December despite a 4 percent on-year gain in sales to 170.7 billion won. The company reported an operating loss of 2.3 billion won in the same period of last year.

The company’s sluggish performance mainly owes to a seasonal factor and cost burdens. The company generally experiences slow sales of its mainstay products including ice cream and dairy products in winter. On top of that, the company has to endure rising costs due to its growing reliance on outsourcing manufacturing of its products such as jelly and frozen rice. Higher marketing expenses for its flagship banana-flavored milk and yogurt products amid heated competition also ate into its bottom line.

By product, sales of milk, yogurt and beverages in the October-December period are expected to have risen 2.4 percent from the same period of last year on solid demand for processed milk and coffee drinks. Brisk sales of its premium ice cream Cledor also will help improve the company’s total frozen food sales by 7.2 percent to 43.4 billion won.

As the company has been upping investment in ready-to-eat or ready-to-cook meals as part of its efforts to diversify its business portfolio, the company is expected to see a fall in its operating profit until the end of the January-March period next year.

The company will likely see an improvement in its operating margin in the second quarter of next year on the mix of base effect and an expected rise in sales of newly launched products.

The company is forecast to register an operating profit of 31 billion won on sales of 860 billion won for full 2017. Its operating profit for 2018 is expected to climb to 39 billion won on sales of 898 billion won.

For more information, please contact Kim Tae-hyun, analyst, IBK Securities at +82 2 6915 5658, kith0923@ibks.com or visit Financial Supervisory Service (http://englishdart.fss.or.kr/). Company details and latest quarterly report can be searched under BINGGRAE or 005180.

Latest trading data is available via Korea Exchange under BINGGRAE or 005180.

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