Hitting the sweet spot in the confectionery market

A bag of immensely popular potato snacks has become an unexpected game changer for local confectionery shares.

Due to the success of the Honey Butter Chip, its manufacturer Haitai Confectionery and Foods has recovered the No. 2 spot in sales in the Korean confectionery market for the first time in five years. The firm’s share prices have also soared. 

Haitai share prices closed at 53,800 won ($45.6) on Monday, a whopping 250 percent above its May 11 initial public offering price of 15,100 won.

Before the release of the the Honey Butter Chip, analysts had predicted that it would become harder for confectionery companies to expect high growth due to limited domestic demand.

But contrary to their forecasts, growing demand for sophisticated and new flavors both at home and abroad are promising a brighter future for confectionery shares.

“An upward rerating potential can be found for firms that are aggressively expanding overseas sales after securing a solid foothold in many markets as well as those leading food trends in the domestic market,” said IBK Securities analyst Kim Tae-hyun.

Orion Corp. may have lost its No. 2 spot to Haitai, but it remains the country’s largest confectionery firm when overseas sales are combined. This is due to the brand’s strong popularity in China and Vietnam. 

“Despite the slowdown of Chinese economy, Orion is expected to continue its growth as the company seeks to enter the premium confectionery market by launching its ‘Market O’ brand in the second half of the year,” Kim said.

Orion’s earnings exceeded analysts’ consensus in the first quarter of this year, with 660 billion won in sales and 110 billion won in operating profit. “Overseas units showed significant increase in profitability,” said Park Ae-ran, an analyst at Hyundai Securities.

“Its diverse product lineup allows Orion to have flexibility to cope with the changes in the Chinese confectionary market,” she said.

Shares in Orion hit a three-month high at 1,013,000 won on Monday, helped by the positive earnings announced last Friday, before retreating back toward its opening levels

Lotte Confectionery of the Korean retail giant Lotte Group, is also drawing attention with its new chocolate cake ‘Mongshell Choco & Banana,’ which is creating a frenzy for banana flavored snacks.

The company is poised to be relisted on the Seoul bourse on Tuesday, after conducting a 10-for-1 stock split to lower the price of Korea’s most expensive equity.

The face value of common stocks will start at 500 won a share. The number of outstanding stocks will rise tenfold to 14.21 million.

By Park Han-na (hnpark@heraldcorp.com)