Earnings Likely to Continue on Solid Uptrend in 2021
The author is an analyst of Shinhan Investment Corp. She can be reached at hpark@shinhan.com. -- Ed.
4Q20 consolidated OP in line at KRW296.6bn (+9.9% YoY)
CJ CheilJedang’s 4Q20 consolidated operating profit came in line with expectations at KRW296.6bn (+9.9% YoY). Results were mostly as expected. Domestic sales from processed foods increased 1% YoY, while overseas sales (including US subsidiary Schwan’s) jumped 6.9% YoY. The bio division met expectations with sales up 10.9% YoY. The food division saw operating margin rise 1.7%p YoY to 4.3%. Despite weaker profit from the domestic foodstuff business, improvement in overseas profit drove overall earnings growth in 4Q20. Net profit declined 65.6% YoY to KRW32.2bn due to goodwill amortization expenses booked for consolidated subsidiary CJ Selecta.
2021 outlook: OP to grow 5.8% YoY to KRW1.48tr
Earnings will likely continue on a solid uptrend in 2021, even with the YoY base raised by strong profit growth in 2020. Backed by rising portion of high-margin products in overseas food and bio sales, CJ CheilJedang should see full-year sales climb 3% YoY and operating profit 5.8% YoY in 2021.
For 1Q21, consolidated sales are forecast to grow 3.7% YoY and operating profit 11.3% YoY. The domestic food business will likely report sales growth of 0.2% YoY. Expectations remain intact for the Lunar New Year’s holiday demand. But we believe the growth rates will come in similar to 4Q20 levels, with the YoY comparison base raised by COVID-19-sparked growth in food demand from February 2020.
Retain BUY for a target price of KRW570,000
There is anticipation for price hikes across the food and beverage sector following the recent increase in grain prices, which was caused by a rebound in global demand and meteorological changes. Price hikes are underway at some companies, but we will need to check up on changes in prices by item. Waiting for confirmation of price hikes and remaining positive on stable earnings, we retain our BUY rating and target price of KRW570,000 for CJ CheilJedang.