Maintains Dominant Market Presence
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY; Lower target price by 11.3% from KRW620,000 to KRW550,000
We maintain BUY but lower our TP by 11.3% from KRW620,000 to KRW550,000 for CJ CheilJedang (CJCJ). We revise down 2021E-23E OP CAGR from 6.0% to 5.4% based on growing raw material costs (i.e., rising grain prices) and upward pressure on logistic and labor costs (i.e., spread of Omicron variant). This year’s performance should also be weighed down by high bases for Bio and Feed & Care (F&C). That said, we are impressed that major businesses have successfully defended margins, despite difficult market conditions, as the company maintains its dominant market presence.
4Q21 forecast: OP of KRW323.3bn (+9.0% YoY) in line with market consensus (OP of KRW210.9bn excl. CJ Logistics)
We forecast 4Q21 consolidated revenue/OP at KRW6.61tn (+7.5% YoY, -3.5% QoQ)/KRW323.3bn (+9.0% YoY, -25.4% QoQ; 4.9% OPM), with OP in line with the market consensus of KRW333.9bn. Excluding CJ Logistics, we estimate revenue/OP of KRW3.91tn (+12.7% YoY)/KRW210.9bn (+1.4% YoY).
Food: Success in defending domestic margin; Recovery in overseas B2B demand; Rise in market share for flagship products
Despite continual upward pressure on raw material costs, the domestic food unit defended margins in 4Q21 via markups in selling price and improvement in product mix. The unit also managed to boost B2B shipments thanks to the government’s phased-in return to normality scheme, which boosted revenue. At the global food unit, U.S. subsidiary Schwan’s enjoyed an increase in B2B sales, and revenue from major products in China and Japan continued to rise. However, profitability should decline slightly YoY because of burdensome logistic and labor costs amid the resurgence of COVID-19. We estimate Food’s overall revenue/OP to have jumped 8.6% YoY/18.5% YoY.
Bio: ASP hikes based on growing market presence
Despite rising raw material costs, we expect Bio revenue/OP to jump 22.1% YoY/39.7% YoY, as the unit has successfully passed through cost increases.
F&C: Market weighed down by pandemic
Meanwhile, F&C was affected by a downturn in the Southeast Asian livestock market amid the spread of Omicron and African swine fever. We forecast F&C OP to reach BEP, though revenue should advance 15.0% YoY thanks to animal feed price hikes. We estimate 4Q21 Vietnamese pig price at VND40,000 (-19.0% QoQ) and Indonesian poultry price at IDR17,000 (+12.6% QoQ).