Maeil posts earnings surprise, Namyang continues to slump

Namyang Dairy Products headquarters in Gangnam-gu, Seoul

By Nam Hyun-woo

Maeil Dairies CEO Kim Seon-hee

The gap between Korea's No. 2 dairy firm Maeil Dairies and No. 3 Namyang Dairy Products is widening, as the latter is failing to win back consumer trust after a series of scandals, while the former is showing solid growth in products across its entire portfolio, analysts said Friday.

According to Maeil Dairies, it logged a 28.9 billion won ($23.85 million) operating profit in the second quarter of this year, up 52.4 percent from a year earlier. Its sales also grew by 9.1 percent year-on-year to 348.3 billion won.

Analysts described the numbers as an “earnings surprise,” buoyed by solid growth all across its portfolio.

“The operating profit was 40 percent greater than the market consensus,” KB Securities analyst Park Ae-ran said. “Growth in cup coffee products and organic brand Sangha Farm continued in the period, and improvements in marketing costs played a pivotal role for Maeil.”

In contrast, Namyang, which used to engage in a neck-and-neck race with Maeil over the No. 2 position, ended up posting disappointing numbers again in the second quarter.

Namyang Dairy Product Chairman Hong Won-sik

In its earnings report, Namyang said it recorded 560 million won in operating profit in the second quarter, down 63 percent from a year earlier. Sales also declined by 1.2 percent to 263.9 billion won.

Both milk and dry milk products led the decline in sales in the first half of this year. Milk products sales declined by 3 percent to 269.2 billion won from 277.2 billion won last year, dry milk sales also dropped by 3 percent to 110.3 billion won from 113.78 billion won last year. The company did not open sales details for the second quarter alone.

Namyang's share price is also tumbling. It had been moving between 610,000 won and 650,000 won in January, but has been shedding since then. It fell below 600,000 won to 584,000 won on May 9 and continued its slide to stand at 539,000 on Friday, down 1.28 percent from a session earlier.

Namyang attributed the drop in operating profit to “increased costs for R&D,” saying the decline in sales was not sharp. However, industry officials said it is not recovering from the prolonged slump as scandals continue to hit the dairy firm.

Since 2013, Namyang has been grappling with its tarnished reputation over its abusive business practices toward sales contractors. After logging operating losses in 2013 and 2014, the company showed slight recoveries in recent years, but its reputation again plunged after reports showing its Chairman Hong Won-sik pocketed a huge amount of dividends despite the company's operating losses.

Adding to this, Namyang was embroiled in a drug scandal, after Hwang Ha-na, the granddaughter of Namyang founder, was sentenced with a suspended jail term for using drugs together with former K-pop boy band JYJ member Park Yoo-chun.

Questions were also raised on Namyang products' quality, as an allegation emerged earlier this year that a substance assumed to be mold was found one of its juice products for children.

“Namyang seems to be making hard efforts to bolster its sales through new products and R&Ds, but a series of allegations outside of its fundamental is rather dragging the company down,” an industry official said.