[Click eStock] “CJ CheilJedang Expected to Miss 3Q Earnings Consensus”

Cost Burden Due to Raw Material Price Increase
Hana Financial Investment "Maintains CJ CheilJedang Target Price at 620,000 Won"

[Asia Economy Reporter Gong Byung-sun] Securities firms have predicted that CJ CheilJedang's third-quarter earnings this year will fall short of market expectations (consensus). It is interpreted that the rise in raw material prices negatively affected the performance.

On the 1st, Hana Financial Investment estimated CJ CheilJedang's third-quarter sales at 6.5614 trillion KRW, a 3.5% increase compared to the same period last year, and operating profit at 416.7 billion KRW, a 3.6% increase over the same period. This is 1.58% and 4.21% below the consensus of 6.6665 trillion KRW in sales and 435 billion KRW in operating profit, respectively.

Cost pressure in the domestic processed food sector is expected to have burdened the performance. The third-quarter domestic processed food results reflect price increases and Chuseok gift set sales. Nevertheless, Sim Eun-joo, a researcher at Hana Financial Investment, explained, "Cost pressure due to rising raw material prices is a burden," adding, "Operating margin is expected to be at last year's level."

The overseas processed food sector is expected to continue its growth trend. The acquired large U.S. food company 'Shuang's' B2B channel is rapidly recovering. CJ CheilJedang's U.S. subsidiary is also expected to show a high single-digit sales growth rate despite the high base last year.

The bio sector is positively influenced by strong amino acid prices. Recovery in China's pig farming numbers and demand for dining seasoning were effective. However, global maritime freight rates are rising sharply, making a quarter-on-quarter decline in operating margin inevitable.

(Provided by Hana Financial Investment)

Even if the third-quarter results fall short of consensus, Hana Financial Investment expects a more improved performance next year. Researcher Sim said, "If domestic processed food prices rise and raw material burdens ease, it will be positive for profits," adding, "The expansion of tryptophan production capacity from 40,000 tons to 46,000 tons and yield improvements will increase the core business division's profits by 10% compared to this year."

Accordingly, Hana Financial Investment maintained its investment opinion of 'Buy' and target price of 620,000 KRW for CJ CheilJedang. The closing price on the previous day was 409,500 KRW.