[Click eStock] "CJ Daehan Tongun, Earnings Recovery Starting from Q2"

[Asia Economy Reporter Song Hwajeong] NH Investment & Securities maintained its 'Buy' rating and target price of 220,000 KRW for CJ Logistics on the 20th, forecasting that although the company's performance in the first quarter of this year will be sluggish due to increased costs, a recovery is expected from the second quarter.

Jeong Yeonseung, a researcher at NH Investment & Securities, said, "Due to increased courier-related costs such as sorting personnel and trunk line expenses, CJ Logistics' operating profit in the first quarter is expected to increase by only 2.5% compared to the same period last year, resulting in sluggish performance." He added, "Considering the weak first-quarter performance and the sale of the Chinese logistics subsidiary Lokeen (assumed to be excluded from consolidation starting September), we have lowered the annual operating profit forecast by 10.2% to 362.5 billion KRW." Jeong also noted, "However, factoring in gains from the subsidiary sale and reduced interest expenses, net profit has been revised upward by 30% to 237.7 billion KRW."

From the second quarter, the effect of courier price increases is expected to be reflected, leading to a recovery in performance. A contract price increase of 250 KRW per small box has been underway since April. Jeong said, "Considering the contract situations for large cargo and individual clients, the average courier price increase is estimated at 200 KRW per box," adding, "From the second quarter, the impact of the courier price hike will be reflected, restoring the ability to generate operating profit of about 100 billion KRW per quarter."

CJ Logistics is expected to secure liquidity of 350 billion KRW through the sale of Lokeen and plans to use this to repay borrowings. Jeong explained, "The slimming down of non-operating expenses is ongoing, and the burden on valuation is decreasing due to net profit generation."

While the intensifying mid- to long-term competition triggered by Coupang is a concern, the focus should be on the momentum for performance improvement. Coupang announced plans to expand three logistics centers in the southeastern region with an investment of 300 billion KRW. Additionally, since the 2nd, it has been conducting a temporary free delivery event. Jeong said, "Coupang's improved delivery capacity and delivery fee reduction policies pose challenges to CJ Logistics' mid- to long-term strategy aimed at enhancing profitability through realistic courier pricing," but added, "CJ Logistics is expected to respond through profitability improvement and financial structure enhancement. The momentum for performance improvement due to the courier price increase is expected to be maintained."