Annual OP Likely to Rise in 2023
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
We lower our TP on CJ Logistics by 27% to W128,000 in light of rising courier costs and declining global forwarding profitability. In our view, share price decline already reflects the slowdown in parcel delivery volume growth. In 2023, profit expansion is to be achieved via delivery price increase.
Delivery traffic slowdown already reflected; profit growth possible through unit price hikes
We lower our TP on CJ Logistics by 27% from W175,000 to W128,000 on cuts to 2022E and 2023F EPS by 8% and 5%, respectively, as well as a hike in our risk-free rate assumption to 3.5%. The EPS downgrade reflects the decreased forwarding profitability of the global business division stemming from the rise in courier-related costs (shipping/labor costs) and drop in container freight rates.
By Sep 2022, cumulative domestic parcel delivery volume growth stood at 0.03%, having slowed significantly on e-commerce growth deceleration and an uptick in Coupang’s in-house delivery volume. Fears over slowing top-line expansion at the core parcel delivery business have led to valuation decline. Affected by worries over growth slowdown, CJ Logistics shares are currently trading at a P/B of 0.6x. However, annual OP looks likely to rise in 2023 on the back of a 5% hike in parcel delivery prices. We maintain a Buy rating, expecting both robust earnings stability amid increased macro volatilities and the start of shareholder return through dividends.
3Q22 review: Earnings meet consensus if excluding labor costs
CJ Logistics logged 3Q22 sales of W3.11tn (+9.4% y-y) and OP of W107.7bn (+2.2% y-y), with OP arriving short of consensus (W115.6bn). However, if excluding W10bn in incentive costs reflected in 3Q22, consensus was met.
The parcel delivery/e-commerce division posted 3Q22 sales of W914.1bn (+2.0% y-y) and OP of W41.6bn (-33.3% y-y; OPM of 4.6%), with profitability declining q-q due to both increased trunk line costs and greater e-commerce-related investment costs. In 3Q22, parcel delivery volume totaled 410mn packages (-4.9% y-y), but average parcel price came to W2,301 (+4.9% y-y). For 4Q22, parcel delivery volume and unit price growth (y-y) are forecast at -1.6% and +4.1%, respectively. OP should reach W113.4bn on slight market share improvement.