Favorable Tailwind for Bio Business
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY and raise target price from KRW570,000 to KRW620,000
We raise our TP by 8.8% from KRW570,000 to KRW620,000 and maintain BUY for CJCJ given the current price and upside potential. Our TP revision reflects an upward revision for 2021E-23E NP (to control. int.) growth from 13.0% to 13.5% based on the prospect of improving profit margins resulting from Food’s stable growth at home and abroad as well as Bio’s ASP hikes.
2Q21 preview: OP of KRW419.5bn (+9.0% YoY) in line with market consensus (OP at KRW320.7bn excl. CJ Logistics)
For 2Q21, we estimate revenue of KRW6.35tn (+7.2% YoY, +2.7% QoQ) and OP of KRW419.5bn (+9.0% YoY, +8.9% QoQ; 6.6% OPM), which would meet the market consensus of KRW400.7bn. Factoring out CJ Logistics, revenue/OP would reach KRW3.66tn (+5.6% YoY)/KRW320.7bn (+6.3% YoY).
Food on track for stable growth at home and abroad
We expect 2Q21 Food revenue/OP to increase 1.7% YoY/8.1% YoY despite a high base associated with the pandemic and rising foodstuff COGS. Results for domestic processed food were stable on the back of recovering B2B sales amid increasing outdoor activity as well as continual growth in demand for ready-to-eat microwaveable cooked rice and other home meal replacements. In China, online dumpling sales continue to increase, while in Japan, the vinegar category keeps growing. As for Schwan’s, we forecast USD-based revenue inch up on recovering B2B demand but KRW-based revenue edging down on unfavorable currency dynamics.
Bio seeing full-fledged ASP upswing
For Bio, we see favorable industry tailwind, such as an increase in no. of farming pigs in China leading to ASP growth and higher sales volume. Also, a surge in corn prices in China is translating into price hikes for feed additives over a short period of time. Accordingly, we expect Bio revenue/OP to jump 16.0% YoY/7.2% YoY. In terms of Feed & Care, we expect revenue to increase (+7.5% YoY) as increasing prices for raw materials jack up animal feed ASP, but OP should remain little changed YoY (+1.3% YoY).