2Q review: Nong Shim on Aug 14 announced that its consolidated sales and operatingprofit grew a respective 1.7% and 47% y-y to KRW536.3b and KRW18.2b in 2Q, with thelatter meeting consensus estimates. We expect the firm’s US operating profit to stabilizeat over KRW3b/quarter amid distribution network expansion, and even though its Chinasales dropped 25% y-y for an operating loss of KRW3b (related with THAAD), sales inJuly rebounded to levels seen last year, which exceeded our expectation.    Competition at home remains fierce: Nong Shim saw ASP growth of 5.5% y-y in 2Q,which partially owes to a 2% y-y decline in 2Q16, while its discount-to-sales ratio rose1.5%pts y-y to 9.5% while the advertising-to-sales ratio fell to 3.4% (vs 4.8% in 2Q16). Wenote intense domestic noodle market competition last quarter, with three of thecompany’s main competitors suffering ASP declines on decreased sales portions ofJjambbong premium type.    Overseas operations to drive growth: Despite increased domestic competition, wekeep Nong Shim at BUY with an unchanged KRW390,000 target—which is equivalent to20x 2018 P/E, the average of its global peers—as: 1) a rapid rebound in China points tostrong brand power; 2) profit growth in the US and elsewhere overseas [except China]remains solid, and 3) domestic noodle competition is unlikely to continue heating up andlead to further ASP cuts. Moreover, US-North Korea tensions are positive for the stock asa defensive play.

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