Expectations for Profit Improvement Remain Valid
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com. -- Ed.
Excluding the effects of changes in accounting standards, CJ Logistics’ 1Q20 earnings satisfied consensus. Expectations for profit improvement remain valid, thanks to mid/long-term sales growth and improved cost efficiency. Global business risk should start receding in 2Q20.
Expectations for 2H20 earnings remain valid
We maintain a Buy rating and TP of W190,000 on CJ Logistics.
The firm has started its fulfillment business with NAVER. And, gradual earnings growth is expected at the parcel delivery and CL businesses in line with an anticipated increase in customer number.
In 1Q20, the global business recorded an operating loss of W7.4bn. In 2Q20, sluggish earnings will likely continue due to logistics disruptions at overseas subsidiaries (excluding China), but the scale of loss should decline q-q. In 2H20, with earnings at the global business set to normalize, earnings improvement at the parcel business and contributions from the fulfillment business should both be highlighted.
Excluding changes to accounting standards, 1Q20 results satisfy consensus
CJ Logistics recorded 1Q20 sales of W2,515.4bn (+3.4% y-y) and OP of W58.2bn (+28.3% y-y; OPM of 2.3%). Excluding one-off costs of W4.2bn at the global business due to changes in accounting standards, the firm’s results satisfied consensus.
Korea’s overall parcel delivery volume increased 19% y-y in 1Q20. However, amid falling market shares at major competitors (such as ePost), CJ Logistics’ parcel delivery volume jumped 26% y-y and its market share rose to 49.7% (+2.1%p q-q). With the trend of market share expansion set to sustain this year, CJ Logistics’ 2020E parcel delivery volume is expected to grow 14.5% y-y, a figure higher than the expected market volume increase of 12% y-y. However, it is regrettable that ASP slid 1% in 1Q20 due to a rise in delivery volume for small-sized parcels. The company is likely to focus on improving cost efficiency in an effort to offset this negative.
In 1Q20, no specific non-operating expenses were incurred. As the firm is efficiently managing expenses both on the operating and non-operating sides, its cost structure should improve gradually going forward. Over the mid/long term, its enterprise value is expected to improve on sustained sales growth and cost efficiency improvement.