[Click eStock] CJ CheilJedang, Excessive Undervaluation Despite Elevated Status and Stability

[Asia Economy Reporter Lee Seon-ae] DB Financial Investment announced on the 9th that it maintains its investment opinion and target price of 550,000 KRW for CJ CheilJedang.

Researcher Cha Jaeheon of DB Financial Investment explained, "The brand power in the domestic and international food markets has increased, and with appropriate responses to cost burdens, the trend of performance improvement is expected to grow," adding, "The stability of the bio sector has been strengthened, and the quality of overseas profits, centered on the United States, has improved dramatically." He continued, "On the other hand, the company's stock price is historically undervalued with a price-to-earnings ratio (PER) of 9.0 times based on the expected 2022 performance," emphasizing, "Considering the elevated status and stability of profits, now is a very attractive investment timing."

The second-quarter performance showed a positive trend exceeding expectations excluding CJ Logistics. Sales excluding CJ Logistics increased by 22.3% to 4.5942 trillion KRW, and operating profit rose by 3.6% to 393.4 billion KRW. Both sales and operating profit surpassed market consensus by 12.6% and 20.8%, respectively, achieving positive results, and despite a high base effect from the same period last year, the company is maintaining a favorable performance trend.

Although the bio sector's selling prices are expected to stabilize downward due to product price declines, a full-scale spread expansion is anticipated from price increases and cost stabilization across the food and other business areas. Notably, sales growth of K-food products through the Schwann's distribution network in the U.S. remains strong even after promotional cost efficiencies, and market share gains in pizza, dumplings, and frozen ready meals in the U.S. region are solid. Approximately 70% of lysine profits are generated in markets with strong dominance such as the Americas, Indonesia, and the EU (not China), and the profit contribution from specialty products has increased, suggesting that future performance volatility in the bio sector will be significantly reduced compared to the past.

Researcher Cha stated, "The company's guidance for third-quarter sales growth in the mid-teens and operating profit margin around 8% is quite reasonable, indicating that the improvement in operating profit excluding CJ Logistics could accelerate significantly."