[Click eStock] "CJ Freshway, Strong Dining-Out Demand Expected to Drive Earnings Recovery"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities on the 12th forecasted that CJ Freshway's performance in the food ingredient distribution sector will significantly improve due to the recovery of the dining-out market.

In the first quarter, the company reported sales of 564.3 billion KRW and an operating profit of 10.6 billion KRW, marking growth of 3.3% and 237.1% respectively compared to the same period last year.

Researcher Kyung-eun Lee of KB Securities said, "Despite the spread of Omicron, sales increased significantly as the dining-out market began to recover in earnest," adding, "We succeeded in defending margins even during the period of rising raw material costs."

This year, performance recovery is expected through the easing of COVID-19 quarantine measures and improvement in dining-out sentiment. Researcher Lee explained, "The recovery of the dining-out market is expected to lead the recovery in scale through improved performance in the food ingredient distribution sector and food service performance improvement via normalization of meal service volumes."

Effects from the restructuring of the food ingredient distribution business portfolio are also anticipated. Since the recent increase in the dining-out CPI continues, margin improvement to prepare for rising raw material prices is predicted. Since 2013, the correlation between the growth rate of the dining-out CPI index and CJ Freshway's operating profit margin is 72%.

The possibility of large-scale group meal service orders in the second half of the year is also high. Group meal service companies affiliated with large corporations have conducted exclusive contracts with their affiliates, but due to the Fair Trade Commission's structural reform efforts, eight large corporate groups have opened up group meal service contracts. Researcher Lee analyzed, "CJ Freshway, which has a relatively small scale of internal transactions among group meal service providers, is expected to benefit," but noted, "Rapid increases in raw material costs exceeding purchasing power remain a concern."