COVID-19 Bolsters Demand for Home Meals
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
CJCJ posted an earnings surprise for 1Q20, with OP exceeding consensus by 28%. In addition to near-term earnings expansion in response to stronger food product sales, we expect the firm’s competitiveness to shine over the longer haul amid changes in consumption trends being accelerated by the Covid-19 crisis.
At start of major mid/long-term changes
Maintaining a Buy rating and continuing to include CJCJ among our sector top picks, we raise our TP by 19% from W320,000 to W380,000 in reflection of upward revisions to our earnings estimates. Our SOTP-derived TP is equivalent to an implied P/E of 11x. CJCJ’s y-y earnings improvement trend is to sustain going forward on visible efforts to improve profitability at the processed food division and higher ASPs at the company’s bio and feed businesses.
The Covid-19 pandemic has bolstered demand for home meals, contributing to the firm’s short-term earnings improvement. Also, the pandemic should accelerate ongoing changes in consumption behavior in the F&B industry, including expanding consumption of household convenience food (HMR) and online channel expansion. With CJCJ boasting strong competitiveness in terms of food manufacturing technology, production capacity, and sales power, it is expected to secure a competitive edge during this new industrial phase.
Defying Covid-19 crisis, delivers 1Q20 earnings surprise
CJCJ announced consolidated 1Q20 sales of W3,481.7bn (+23.9% y-y), OP of W220.1bn (+53.3% y-y), and NP (excl minority interests) of W439.3bn (+743.2% y-y). OP surpassed consensus by 28%. We mainly attribute the hefty jump in NP (excl minority interests) to gains on disposal of the firm’s Gayang-dong land holdings (W505.9bn).
The processed food division suffered from sluggish B2B sales due both to the Covid-19 effects and gift set return adjustments, but its overall profitability improved slightly on SKU demarketing and sales promotions.
Sales at the bio division upped 15.0% y-y, but its OP fell slightly by 2.5% y-y. Despite both decreased demand for high nucleic acids amid the Covid-19 crisis and weak feed additive prices, production yield increased.
Operating income at CJCJ’s feed business turned to the black y-y on a pork price upsurge in Vietnam (+65% y-y, +16% q-q) and increased shipments.