Bio Industry Booming
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY, target price of KRW500,000
We maintain BUY on CJCJ. Our TP is unchanged at KRW500,000, as there were no material changes to 2022-24E OP CAGR. The company’s robust business model allows it to offset rising feedstock costs with increases in selling prices. In addition, the bio industry is booming.
2Q22 preview: OP in line at KRW458.9bn (-2.3% YoY); KRW348.1bn excl. CJ Logistics
We forecast 2Q22 consolidated revenue at KRW6.98tn (+10.6% YoY, flat QoQ) and OP at KRW458.9bn (-2.3% YoY, +5.3% QoQ; 6.6% OPM), which is in line with the market consensus of KRW466.0bn. Excl. CJ Logistics, we estimate revenue/OP of KRW4.23tn (+12.7% YoY)/KRW348.1bn (-8.4% YoY; 8.2% OPM). While rising feedstock prices add to cost burden, earnings should continue to increase as the company’s dominant market share sustains top-line growth. 2Q22E DPS remains unchanged at KRW1,000.
Food: Margins sustained despite COGS increase
Despite the heavier cost burden, Food should maintain top-line growth and solid margins on brisk processed food sales (Q↑) and price hikes (P↑) amid inflationary conditions. In the U.S., CJCJ focused on margins by raising prices to rapidly offset rising costs. Meanwhile, robust domestic demand for processed foods has remained intact since the reopening of the economy, bolstering online/CVS sales of core products (e.g., Hetbahn, dumplings). Accordingly, revenue/OP should grow 12.6% YoY/16.3% YoY.
Bio: Sellegta flourishing
We expect Bio to post top-line growth of 19.5% YoY (OPM: +0.3pp QoQ) given SPC price hikes at Sellegta and rising lysine prices amid a booming Chinese market for amino acid (used in animal feed).
Feed&Care: Costs rising
Meanwhile, Feed&Care margins are unlikely to improve given growing costs and slowly recovering Vietnam pork prices.