[Click eStock] "CJ Focuses on Olive Young's High Growth... Further Decline Is Limited"

DS Investment & Securities maintained a 'Buy' rating on CJ on the 18th, setting a target price of 110,000 KRW.

CJ Group's consolidated sales for the first quarter of this year reached 9.8 trillion KRW, with an operating profit of 329 billion KRW. While sales increased by 7.2% year-on-year, operating profit declined by 33.9%, showing somewhat weak profitability. The decrease in the group's operating profit was due to consumption stagnation at CJ CheilJedang, the group's core subsidiary, profitability deterioration caused by high exchange rates and rising raw material input costs, and ENM's return to losses due to increased production costs from expanding TVING original content. However, positive aspects confirmed in this performance include the reopening effect of Olive Young leading to offline recovery, increased profit margins through operational efficiency, and increased operating profit at CJ Freshway due to profitability-focused order activities and business structure optimization.

In particular, Olive Young's high growth stands out. Olive Young recorded sales of 829.1 billion KRW and net profit of 77.3 billion KRW in the first quarter. This represents increases of 42.3% and 104%, respectively, compared to the same period last year. Sales per store also rose by 39.4% year-on-year. Unlike before the pandemic, consumption patterns of foreign inbound customers appear to have changed somewhat, with increased spending per person, a higher proportion of foreigners from countries other than China, and a younger inbound age group, leading to a significant increase in the use of general franchise stores rather than high-priced duty-free shops. Especially for Olive Young, offline sales growth influenced by foreign inbound customers was confirmed. The offline sales growth rate in the first quarter was 36.7% year-on-year, maintaining high growth, which is understood to be due to the lifting of domestic social distancing measures as well as an increase in foreign inbound customers. While the proportion of foreign tourist consumption in Olive Young's total sales was 5% in 2018 before the pandemic, it increased to about 10% in the first quarter of this year.

Kim Suhyun, a researcher at DS Investment & Securities, stated, "Considering the recovery of CheilJedang and ENM's performance from the second quarter and the continued high growth benefiting from Olive Young's inbound customers, the downside risk in stock price is limited," adding, "Therefore, we maintain the 'Buy' rating."