20160803-三星证券-Reratings_on_the_cards_for_leading_HMR_players_50页_3mb

Sector Update Summary: Food & Beverage (HMR Market)

Core Content

This document provides an analysis of the Home Meal Replacement (HMR) market in South Korea, highlighting its current state, future potential, and key players. It outlines the investment case for three major companies: Shinsegae Food, Lotte Food, and Samlip General Foods (SGF), with target prices and ratings.

Main Points

• HMR Market Overview:
  The HMR market in Korea is in its early stages but is expected to experience structural growth due to changing social structures, rising convenience demands, and increased consumer preference for ready-to-eat meals.

• Market Growth Drivers:

  • Increasing number of single-person households.
  • Higher female labor participation.
  • Dual-income households and changing lifestyles.
  • Rising popularity of eating-out and takeout.
  • Growing consumer acceptance of HMR products.

• Market Size and Growth:

  • Korea's HMR market was valued at KRW2t in 2015, significantly smaller than the global market (KRW3,528t).
  • Korea's HMR market has grown at a CAGR of 17% over the past five years, outperforming the global CAGR of 5.2%.

• Current Market Challenges:

  • Intensifying competition has led to profit erosion.
  • Concerns over rising international grain prices.
  • Valuation premiums have disappeared after a sharp decline since 2H15.

• Investment Rationale:

  • Companies with strong distribution channels, brand power, and manufacturing capabilities are more likely to succeed in the HMR market.
  • Shinsegae Food is the top pick with a BUY rating and a target price of KRW220,000 (36.6% upside).
  • Lotte Food and Samlip General Foods (SGF) are also highlighted with BUY ratings and target prices of KRW1,000,000 (22.7% upside) and KRW225,000 (23.3% upside), respectively.

• HMR Market Structure:

  • The market is fragmented, with retailers, restaurant chains, and food manufacturers all vying for dominance.
  • Private brand (PB) products are becoming more prominent, especially in convenience stores and discount chains.
  • Peacock (by E-mart) is a leading HMR brand in Korea, supported by strong captive distribution channels and product quality.

• Competitive Landscape:

  • Chunil Food is a notable OEM (Original Equipment Manufacturer) in the HMR space, leveraging technology alliances and product diversification to improve profitability.
  • CJ CheilJedang and Ottogi are also active in the HMR segment with their own branded products.

• Future Outlook:

  • The HMR market is expected to grow further as competition intensifies and profitability improves.
  • SME restaurant restructuring and franchise expansion could lead to higher restaurant meal prices, which would benefit HMR manufacturers.
  • Wage increases in the restaurant industry may also contribute to higher HMR demand.

Key Information

• Shinsegae Food:

  • Rating: BUY
  • Target Price: KRW220,000 (36.6% upside)
  • Strengths: Strong brand power, agile strategy, captive distribution channels, expanding product line-up.

• Lotte Food:

  • Rating: BUY
  • Target Price: KRW1,000,000 (22.7% upside)
  • Strengths: Strong distribution channels, manufacturing know-how, potential for synergies with existing businesses.

• Samlip General Foods (SGF):

  • Rating: BUY
  • Target Price: KRW225,000 (23.3% upside)
  • Strengths: Strong dessert segment, alignment with SPC Group's growth strategy.

• Market Trends:

  • HMR consumption is rising due to lifestyle changes and convenience.
  • Peacock is a dominant HMR brand, with expansion into new distribution channels.
  • Convenience stores and discount chains are key players in HMR distribution.

• Challenges:

  • Intensifying competition threatens profitability.
  • Rising grain prices and market saturation are concerns.
  • Cost structures and transparency are barriers to accurate profitability analysis.

• Future Opportunities:

  • Structural growth is expected as social and demographic trends continue.
  • HMR firms with strong brand equity, distribution networks, and in-house production are likely to thrive.
  • The frozen food market is expected to grow significantly, supporting HMR expansion.

Conclusion

The HMR market in Korea is poised for long-term structural growth, driven by demographic and lifestyle changes. While past performance has been volatile, companies with strong distribution, brand power, and manufacturing capabilities are well-positioned to capture market share. Shinsegae Food, Lotte Food, and Samlip General Foods are identified as top contenders with promising investment potential.