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Brokerage firms are lowering their target prices for Nongshim and CJ Cheiljedang, as the two major Korean food firms are unlikely to meet market expectations for the final quarter of 2016.
Korea Investment & Securities said Wednesday it decided to cut its target price for Nongshim to 500,000 won ($435) a share from 550,000 won, saying the country's largest instant noodle maker could likely have underperformed in the fourth quarter.
The securities firm estimated the company's operating profit could have declined 15.8 percent to 24.3 billion won in the quarter from the previous year, lower than the market consensus of 26.4 billion won. Its instant noodle sales also are estimated to have dropped 4.2 percent.
"We expect Nongshim's net profit will fall by 4.3 percent this year as its competitors would remain reluctant for longer than initially thought to hike prices of their products," analyst Lee Kyung-joo said. "Reflecting this, we decided to slash our target price for Nongshim."
The company raised the price of flagship Shin Ramyun and other instant noodles by an average of 5.5 percent on Dec. 20. But Ottogi, Samyang and other makers are yet to follow suit. This has made it difficult for Nongshim to bolster sales.
Mirae Asset Daewoo Securities also lowered its target price for CJ Cheiljedang to 460,000 won a share from 500,000 won, citing increasingly downbeat investor sentiment toward food and beverage stocks.
"CJ Cheiljedang shares have recently shown a downward curve because of the won's weakness against the dollar," analyst Baek Un-mok said. "If the won-dollar rate drops by 10 won, the company is estimated to lose up to 5 billion won."
Korea's largest food company by sales, imports grain and other raw materials to produce a wide range of processed foods, so the weak won makes its imports more expensive.
Baek said the company's financial soundness will not improve much this year as it continues to expand production capacity at home and abroad and acquire other entities.
In 2015, CJ Cheiljedang had 8.15 trillion won in sales and 586.5 billion won in operating profit.
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