The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
Compared to 1H23, conditions are improving at CJCJ’s major business divisions, and it is expected that the firm’s consolidated OP will strengthen from 4Q23. The decision to sell CJ Selecta following the sale of Jixiangju should also have a favorable effect on the company’s EV.
To sell CJ Selecta after Jixiangju
We maintain a Buy rating and TP of W430,000 on CJCJ. Compared to 1H23, conditions at the firm’s major divisions are showing signs of recovery, and a full-fledged rise in consolidated OP is expected from 4Q23. From a turnaround perspective, we view now as being a solid time to increase exposure.
CJCJ’s decision to sell Chinese food subsidiary Jixiangju for W300bn and Brazilian feed raw materials manufacturing and sales subsidiary CJ Selecta for W480.5bn is also positive in terms of EV. Through such moves, it should be possible to secure new business investment resources and enhance financial soundness. In addition, reorganization of its business portfolio, which has been somewhat complex thus far, is also meaningful.
3Q23 preview: Gradually recovering
We expect CJCJ to report consolidated 3Q23 sales of W7.669tn (-4% y-y) and OP of W382.8bn (-21% y-y), in line with consensus. Excluding earnings from subsidiary CJ Logistics, sales and OP should slip 4% and 28% y-y, respectively.
Sales at the food business are estimated at W3.12tn (+2% y-y). Domestic processed food demand appears to be showing a slight recovery, and overseas business should continue to perform well, mainly in the US. Although cost burden improvement has been weaker than expected due to less-favorable-than-predicted forex rates, it should ease from 4Q23. At the bio domain, both sales and OP likely weakened amid this prolonged market slump. However, the uptrend in the portion of high-margin specialty products continues, and we see little need for additional concern, as we have already made conservative earnings estimates (bio sales: -20% y-y).