PHA Plant to Start Operations in 2H22
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY, target price of KRW620,000
We maintain BUY and TP of KRW620,000 on CJCJ. The processed food business has been gaining overseas market share while benefiting from domestic price hikes, and Bio has secured a mid-/long-term growth engine with the establishment of a PHA manufacturing base in Indonesia, paving the way for entry into the market of white biotechnology. We leave our TP unchanged given that there were no meaningful revisions to 2021E-2023E OP CAGR.
PHA plant to start operations in 2H22
CJCJ is constructing a PHA plant in Pasuruan, Indonesia, with annual capacity of 5k tonnes (to be completed year-end). The relatively inexpensive-to-build production line is expected to start mass production in 2H22, after receiving customer feedback following pilot operations. The company’s PHA has been certified biodegradable by four recognized authorities in Europe. Furthermore, it is considered highly durable and eco-friendly, combining the strong physical properties of aPHA and high biodegradability of scPHA.
Plans to expand PHA capacity to 300k tonnes by 2030
By year-end, CJCJ should have annual PHA capacity of 5k tonnes—the third largest capacity in the world. Management is looking to expand capacity further to 65k tonnes by 2025 and 300k tonnes by 2030. Currently, only two other companies can produce commercial-grade PHA (i.e., Danimer Scientific in the U.S., Kaneka in Japan). The PHA industry is protected by high entry barriers, as it requires strong cost competitiveness in securing an optimal microorganism strain and procuring biomass feedstock.
Stricter environmental regulations to help client acquisition
Efforts to curb the use of plastic products are ramping up globally. As of 2018, there were 89 countries regulating the use of plastic bags. Recently, Korea imposed stricter regulations on plastic bags and single-use cups, and Europe applied restrictions on a wider product range. As a result, major consumer good companies are striving to reduce plastic use, leading to steady demand growth for biodegradable plastics based on white biotechnology. Notably, CJCJ has signed a PHA supply contract for over 30k tonnes with Helian Polymers, a 3D-printing company based in the Netherlands.