[Into the Stock] CJ CheilJedang Down for 6 Months... "Undervalued Stock, Time to Buy Now"

No Concern Over Profitability Decline
Performance Improvement Effects Visible This Year
Target Stock Price Has 50% Upside Potential Remaining

[Asia Economy Reporter Park Jihwan] CJ CheilJedang has been experiencing a downward sideways trend for over six months since reaching a historic peak last August. This is due to growing concerns over profit declines caused by rising raw material costs and the negative base effects in the bio and feed & livestock (F&C) sectors. However, stock market experts are recommending buying, analyzing that the current stock price is excessively undervalued relative to the scale of earnings.

According to the Korea Exchange on the 17th, CJ CheilJedang's stock price has been declining for more than half a year since hitting a record high of 498,500 KRW on August 6 last year. As of 10 a.m. on the same day, the stock price stood at around 380,000 KRW, down 23.8% from the peak.

The continued weakness in the stock price is due to delays in stabilizing international grain prices and lowered profit expectations amid rising inflation. KB Securities researcher Lee Seonhwa stated, "CJ CheilJedang is facing increased raw material costs due to rising grain prices, while logistics and labor costs have also increased due to the spread of the COVID-19 Omicron variant," adding, "We are revising down the estimated average annual operating profit growth rate from 6.0% to 5.4% for 2021?2023."

The negative base effect in the bio and F&C sectors, which enjoyed high growth until the first half of last year, is also a burden. The bio sector posted an operating profit of 270.9 billion KRW in the first half of last year but is expected to decline by 16.1% to 227.4 billion KRW in the second half. The F&C sector, which earned 145 billion KRW in the first half, is projected to see an over 85% drop in operating profit to 21.5 billion KRW in the second half due to the stagnation of the Southeast Asian livestock market caused by COVID-19 and African Swine Fever (ASF) outbreaks.

According to financial information provider FnGuide, CJ CheilJedang's total sales this year are expected to increase by 4.7% year-on-year to 27.1115 trillion KRW, but operating profit is forecasted to decrease by 18 billion KRW (-1.1%). Experts say that while a decline in profitability is unavoidable this year, it is not at a worrisome level. In particular, it is analyzed that the decline in profits will not be significant due to margin defense strategies in major business units based on an overwhelming market-dominant position. It is also expected that the meaningful performance improvement effect from major product price increases implemented last October will become visible starting this year.

The undervalued stock price is also a strength. The current average target price for CJ CheilJedang in the securities industry is 574,000 KRW, indicating more than 50% upside potential compared to the current price. The price-to-earnings ratio (PER) is 8.3 times, which is evaluated as the valuation being at the lower end of the historical band. NH Investment & Securities researcher Jo Mijin said, "The core business units' strength has leveled up," and added, "Even considering the overall earnings slowdown, the current stock price appears to be excessively undervalued." Lee Kyungshin of Hi Investment & Securities said, "Based on a burden-free valuation and business stability highlighted after expectation adjustments, an upward trend in the stock price is expected."