[Click eStock] CJ Daehan Tongun, Target Price Lowered "Lowest Multiple"

[Asia Economy Reporter Lee Seon-ae] On the 25th, Meritz Securities announced that it maintains a buy rating on CJ Logistics but has lowered the target price to 180,000 KRW. This adjustment is due to the impact of rising interest rates and increased financial costs from a 2.5 trillion KRW investment plan.

Researcher Bae Gi-yeon of Meritz Securities emphasized, "Although the target price is lowered, considering the profitability improvement of the parcel/CL business division and the elimination of operating losses in the global business division after deleveraging, the return on equity (ROE) for 2022 is expected to be 5.5% (+4.1%p YoY). Applying the implied price-to-book ratio (PBR) valuation, the appropriate multiple is judged to be 1.1 times."

CJ Logistics is currently valued at 0.66 times its 12-month PBR, marking the lowest valuation since 2013. The reasons for the stock price weakness are analyzed as the decline in market share of the parcel business division, which serves as a proxy for the stock price, and the completion of the global business division’s expansion and deleveraging that drove stock price increases from 2013 to 2018. If the improved profitability of the parcel business division, which dispels strike concerns, is confirmed and deleveraging is completed within the first half of the year, the stock price level will be suitable for bottom fishing.

The parcel business division’s performance in the fourth quarter is expected to record 977.5 billion KRW (+9.1% QoQ, +13.6% YoY). The operating profit margin is projected to be +7.0%, reflecting the continued impact of price increases. Although parcel delivery workers’ strikes are causing concerns about future performance deterioration, the decrease in parcel handling volume is estimated to be about -5% daily. With the effect of the corporate parcel price increase announced in 2021 reflected, the average price per box will rise by about 80 KRW, so even considering volume losses, the price increase is expected to drive performance improvement.

The parcel volume generated by the e-fulfillment division is about 5 million boxes in the fourth quarter, accounting for only 1% of the company’s volume. However, since it is recording growth rates of +60~110% each quarter, it is expected to lead CJ Logistics’ mid- to long-term recovery of market share to the 50% range.