[Click eStock] "CJ Daehan Tongun, High Growth in Parcel Delivery Business Due to Increase in Contactless Consumption"

[Asia Economy Reporter Eunmo Koo] Hi Investment & Securities expects CJ Logistics to deliver second-quarter earnings that exceed market expectations, driven by high growth in the parcel delivery business due to untact (contactless) consumption and normalization in the global business segment.

On the 7th, Hi Investment & Securities estimated that CJ Logistics' second-quarter revenue would increase by 2.1% year-on-year to KRW 2.5878 trillion, and operating profit would grow by 15.9% to KRW 83.2 billion, surpassing market expectations.

In the parcel delivery segment, CJ Logistics' parcel volume growth rate is expected to exceed the market growth rate in the second quarter, resulting in an 18.8% increase in revenue compared to the same period last year. Researcher Junyoung Ha of Hi Investment & Securities stated in the report, "Although the average selling price (ASP) of parcels is expected to decline by 1.0% year-on-year due to an increase in small parcel volumes, the fixed cost dilution effect from volume growth will improve the gross profit margin to 11.5%."

In the global business segment, as China recovers from the impact of COVID-19, CJ Rokin's operating profit is expected to improve compared to the previous quarter. Ha estimated, "About two-thirds of the volume at CJ LA in the U.S. consists of daily necessities, so the U.S. lockdown in April likely had minimal impact." However, he projected that "Malaysia and India likely turned to operating losses in the second quarter due to the COVID-19 outbreak."

This year marks the beginning of a rapid improvement phase in net profit. Ha explained, "Net profit increases sharply once operating profit exceeds KRW 300 billion," adding, "CJ Logistics incurs approximately KRW 200 billion annually in non-operating expenses such as interest and donations. As operating profit is expected to reach about KRW 339 billion this year and KRW 417 billion next year, net profit will also rapidly improve to KRW 90 billion and KRW 136 billion, respectively."

Analysis indicates that the growth rate of the parcel delivery business is accelerating due to untact consumption. Ha noted, "Despite COVID-19, employment in delivery and warehouse jobs in the U.S. remains robust, and FedEx reported adjusted operating profit exceeding consensus by 74.1%, supported by increased online shopping," adding, "As contactless consumption becomes a global trend, parcel delivery companies in the U.S. are also exceeding market profit expectations."

In Korea, untact consumption is becoming a trend, and the parcel delivery business is expected to grow rapidly. Ha estimated, "CJ Logistics, having completed large-scale investments in parcel terminals ahead of competitors, will begin to fully realize the fixed cost dilution effect from increased parcel volumes this year," projecting, "Parcel delivery segment revenue will grow 18.2% year-on-year, and gross profit will increase by 39.4% this year." He also forecasted that the parcel delivery segment's share of total company gross profit will rise from 25.2% last year to 32.2% this year.