20161005-三星证券-Packing_a_punch_43页_2mb

Sector Update Summary: Food & Beverage (OVERWEIGHT)

Core Content

This report highlights the growing importance of the Food & Beverage (F&B) sector in South Korea, particularly focusing on the demand for packaging materials driven by the rise in single-person households. It provides an analysis of market trends, key companies, and investment recommendations.

Main Trends

• Single-person households are increasing in number, with middle-aged men being the primary demographic driving this trend over the past five years.
• Bottled water and home meal replacements (HMRs) are experiencing significant growth, while traditional food items like rice and noodles are declining in demand.
• Beverage consumption is outpacing food consumption, with bottled water and soft drinks being major contributors.
• Technology and convenience are reshaping consumer behavior, leading to increased reliance on online shopping and ready-to-eat products.

Key Drivers of Growth

• Demographic shifts: Rising income levels and changing attitudes toward marriage and family are leading to more single-person households.
• Convenience: Single dwellers prefer ready-to-eat and ready-to-drink products, which are often packaged in convenient formats like PET bottles, cans, and flexible containers.
• E-commerce expansion: Companies are improving online shopping and delivery services to meet the needs of single-person households.
• Packaging demand: The growth of HMRs, bottled water, and other convenience products is increasing the need for specific packaging types.

Packaging Demand by Item

Key Companies and Investment Recommendations

• Samyang Corporation (145990 KS, KRW101,500):

  • Target Price: KRW140,000 (37.9% upside)
  • Reason: Acquired Asepsys Global and increased PET bottle market share to 50%. Samyang Packaging, a subsidiary, is expected to boost sales and net profit significantly in 2017. The company is recommended as BUY.

• Samryoong (014970 KS, KRW7,460):

  • Target Price: KRW11,000 (47.5% upside)
  • Reason: Its subsidiary SR Technopack is a major supplier of instant rice containers. Sales are expected to grow due to rising demand for instant rice and soup. The company is recommended as BUY.

• Dongwon Systems Corporation (014820 KS, KRW59,200):

  • Status: Not rated
  • Reason: A key player in the metal can market for tuna and other products. The company is considered a potential leader in industry consolidation.

• Samhwa Crown & Closure (004450 KS, KRW47,400):

  • Status: Not rated
  • Reason: Produces glass bottles and metal caps for the domestic beer industry, which is showing stable demand. The firm is also involved in PET bottle caps, making it a potential beneficiary of the growing beer and beverage market.

Industry Consolidation and Competitive Advantages

• Consolidation leaders are expected to benefit from economies of scale and strong brand positioning.
• Amcor (Australia-based) and FP Corp (Japan-based) are highlighted as case studies. Amcor has a strong presence in PET and rigid plastic packaging, while FP Corp is a key player in Japan's convenience store packaging market.
• Entry barriers for packaging firms include the unsuitability of PET for imports, the importance of hygiene in food containers, and licensing for certain alcohol lids.

Risks

• Oil prices influence earnings due to the reliance on plastic as a primary raw material.
• Environmental regulations are not considered a serious threat due to lower per-capita container consumption in Asia compared to North America.

Conclusion

• The beverage market is outperforming the food market in terms of growth, with HMRs and canned food also showing solid performance.
• Samryoong, Samyang Corporation, and Dongwon Systems are highlighted as promising packaging firms due to their strong market positions and growth potential.
• The report recommends BUY for Samyang and Samryoong, while Dongwon Systems and Samhwa Crown & Closure are seen as potential beneficiaries of industry trends.