Parcel Delivery Volume Increasing

The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com. -- Ed.

 

While uncertainties are likely to linger at CJ Logistics’ global business in 2Q20, such uncertainties are short-term risk factors. We expect the firm’s mid/long-term sales growth to remain steady on increasing parcel delivery volume and the expansion of the fulfillment business. Expected profit improvement on the non-operating side due to cost reductions and the disposal of non-operating assets is also positive.

Short-term risk factors in play, but mid/long-term direction remains positive

We maintain a Buy rating and TP of W190,000 on CJ Logistics. Despite sound earnings at the parcel delivery business, we lower our 2020 OP estimate by 5% due to logistics disruptions at the global business. That said, NP adjustments should be limited on the disposal of non-operating assets and reduced non-operating costs.

In 2020, sales growth is expected to sustain on swelling parcel delivery volume and the expansion of fulfillment logistics for products available on NAVER’s Brand Store. The partnership between NAVER and CJ Logistics, which has been formed to compete with Coupang, should contribute to mid/long-term sales growth. In addition, we expect the effects of economies of scale to gradually expand on an improvement in automated logistics technology.

Earnings uncertainties at the global business have risen due to Covid-19, with delivery volume inevitably dampened by logistics disruptions at overseas subsidiaries (Chinese subsidiary in 1Q20 and other overseas subsidiaries in 2Q20) and movement restrictions. However, noting both that domestic e-commerce growth remains intact and that the impact of Covid-19 should contract in 2H20, we believe that the firm’s sales growth will strengthen further down the road.

1H20: Parcel delivery growth vs expanded uncertainties at global business

We forecast 1Q20 sales of W2,561.8bn (+5.3% y-y) and OP of W64.4bn (+41.9% y-y, OPM 2.5%). By business, sales growth likely broke down as: parcel +23% y-y, contract logistics -2% y-y, and global -1% y-y. And, parcel delivery volume and parcel delivery ASP likely expanded 22% y-y and 1% y-y, respectively.

Weak earnings at Chinese subsidiaries such as Rokin are inevitable in 1Q20 due to decreased logistics volume and fewer working days owing to Covid-19. In 2Q20, though operations at Chinese subsidiaries are normalizing, sale decline at the global business is unavoidable amid sluggish logistics volume at Southeast Asian and US subsidiaries. In 1H20, earnings improvement at the parcel delivery business will likely be offset by weak earnings at the global business.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution