CJCJ
The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
We lower our TP on CJCJ to W400,000, as we reflect declining valuations for global peers. However, as an earnings bottom is being confirmed and cost burden is likely to ease in 2H23, we recommend buying the dip.
Lower TP to W400,000
We lower our SOTP-based TP on CJCJ by 13% to W400,000, as we adjust the value of each business unit to reflect valuation declines for global peers.
In our view, the recent share-price drop reflects group affiliate risks stemming from CJ CGV's rights offering. However, as CJCJ is not participating in the rights offering, we believe concerns are excessive and expect a rebound in corporate value led by earnings recovery.
2Q23 preview: Earnings to meet lowered consensus
We forecast consolidated 2Q23 sales of W7,279.2bn (-3% y-y) and consensus-meeting OP of W311.1bn (-38% y-y). Excluding results at subsidiary CJ Logistics, sales should fall 2% y-y and OP likely declined 46% y-y.
The food division is estimated to book sales of W2,741.9bn (+5% y-y) and OP of W137.1bn (-18% y-y). Domestic processed food demand is expected to show a slight recovery q-q, and the strong performance of the overseas business likely continued. Although cost burden still exists, it should ease towards 2H23.
At the bio business (including FNT), both sales and OP likely fell as sluggish market conditions linger longer than expected amid high-base effect. However, OPM should climb q-q on an increased sales portion for high-margin specialty products.