Shares of processed food manufacturers in South Korea rally following the price hike announcement by the country’s No. 2 instant noodle maker Ottogi Corp., which would eventually lead to earnings improvement.

Ottogi shares jumped 6.1 percent over the previous two trading days after Ottogi said last Thursday that it would raise the price of ramyeon products by 11.9 percent on average starting August. The announcement buoyed stock prices of rival noodle companies including Nongshim by 10.3 percent and Samyang Foods 6.9 percent, as well as other food makers including CJ CheilJedang by 2.0 percent, Daesang 4.5 percent, Orion 2.5 percent and Lotte Confectionery 2.1 percent.

“Aggressive pricing is one of Ottogi’s traditional strategies to increase its market share in Korea,” said Park Sang-joon, an analyst from Kiwoom Securities. NH Investment & Securities estimated the 11.9 percent increase in the ramyeon price would boost Ottogi’s operating profit by 9 percent.

If Nongshim follows its suit and increases its ramyeon price by 5 percent, its operating profit would improve 19 percent.

“Past experiences have taught us that food price hikes can be a signal for valuation recovery of the food and beverage sector, which would contribute to a long-term earnings improvement,” said Cho Mi-jin, an analyst from NH Investment & Securities. “The price increase momentum would expand into food and beverage products in the second half, which would result in earnings improvement for the overall food industry.”

Cho pointed out that CJ CheilJedang is expected to benefit most from the price hike because it maintains its No. 1 position in the most food item categories.

By Kang Bong-jin and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]