[Click eStock] "CJ Gradually Recovers from COVID-19"

CJ Olive Young Expands Online Share... CJ Foodville Reduces Fixed Costs

[Asia Economy Reporter Gong Byung-sun] CJ showed solid second-quarter performance, supported by a reduction in losses at CJ CGV and improved profitability at CJ Freshway. There is a growing expectation that profitability will fully improve as the impact of COVID-19 gradually subsides.

According to Hi Investment & Securities on the 30th, CJ's second-quarter sales increased by 7% year-on-year to KRW 8.3362 trillion, and operating profit rose by 58.2% during the same period to KRW 567.5 billion. This was due to the improving profitability trend of CJ CheilJedang and CJ ENM, a reduction in losses at CJ CGV, and a significant increase in earnings at CJ Freshway.

Lee Sang-heon, a researcher at Hi Investment & Securities, said, “The performance improvement of CJ CGV and CJ Freshway is due to the base effect from COVID-19 and cost efficiency measures,” adding, “Based on the solid first-half performance, profitability is expected to improve this year.”

In particular, the expansion of CJ Olive Young’s online sales ratio is expected to drive profitability improvement throughout this year. CJ Olive Young, which already holds a 50% market share, increased its online sales ratio from 10.6% in 2019 to 17.9% last year and 23.4% in the second quarter of this year. Accordingly, CJ Olive Young’s separate sales in the first half rose 3% year-on-year to KRW 963.6 billion, and net profit increased 39.2% during the same period to KRW 34.8 billion. Going forward, it plans to offer an omnichannel service utilizing its nationwide store network, such as the “Oneul Dream” service that ships products purchased online and via mobile apps within three hours.

(Provided by Hi Investment & Securities)

CJ Foodville is expected to turn profitable this year. CJ Foodville, which owns dining franchise brands such as VIPS and Season’s Table, reduced its number of stores from 2,558 in the first quarter of 2019 to 1,525 by the end of last year. In particular, the number of directly operated stores decreased from 230 to 92 during the same period, significantly reducing fixed costs. The researcher explained, “Although sales will decline due to the reduction in the number of stores, the fixed cost reduction effect from the decrease in directly operated stores will take full effect starting this year,” adding, “Financial structure improvements such as debt reduction through asset sales are also positive factors.”

Accordingly, Hi Investment & Securities maintained its “Buy” rating on CJ with a target price of KRW 133,000. The closing price on the 27th was KRW 101,000.