Cooperation with Platform Companies Strengthening
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com. -- Ed.
Amid ongoing parcel delivery volume growth, CJ Logistics’ global business earnings have been normalizing on a global economic recovery and consumption rebound in major markets. In addition, the firm’s cooperative relationships with platform companies continue to strengthen thanks to e-commerce market expansion. We raise our TP on the play.
Evolving from parcel delivery business player to major logistics partner with reduced global business risk
Adhering to a Buy rating, we raise our TP on CJ Logistics from W190,000 to W220,000 on hikes to 2020E and 2021F EPS by 2.8% and 7.8%, respectively.
In 2H20, domestic parcel delivery volume is expected to rise more than 20% y-y on the back of e-commerce market expansion and greater contactless demand amid Covid-19. In addition, the company’s position is improving, as it shifts from being a simple parcel business player to a logistics partner on expansion of the fulfillment market and strengthening cooperation with major e-commerce platform provider NAVER. Amid ongoing strong demand for parcel delivery services, parcel delivery firms’ bargaining power is strengthening as delivery service supply reaches its limits.
Global trade volume, which has been sluggish due to Covid-19, is gradually recovering, driving up air cargo demand and container shipping rates. We view the recent sound earnings of global logistics company FedEx as proving the current economic recovery. Helped by increased trade volume, CJ Logistics’ global business earnings are normalizing earlier than expected, driven particularly by sound earnings in China and the US, where consumption is robust. While the company’s global business earnings were previously seen as a risk factor, such risk is now fading.
3Q20 preview: Cost reduction efforts continue; NP to improve in earnest
CJ Logistics is expected to record sound 3Q20 earnings with sales of W2,868.7bn (+9.4% y-y) and OP of W102.3bn (+15.3% y-y) on an expansion in parcel delivery volume and recovery of global business earnings. As efforts to control non-operating expenses continue, NP (excluding minority interests) is forecast to reach W36.7bn (+510% y-y).
CJ Logistics’ shares are currently trading at a 2021F P/E of 23.4x, a level similar to the 2021F average P/E of its Asian peer group (22.0x). Nevertheless, we expect sales growth and profit improvement to sustain in 2021 at the firm’s parcel delivery and global businesses. Considering profit leverage effects and the possibility of mid/long-term dividend payouts, we believe that further upside potential exists.