[Click eStock] "CJ, Major Subsidiaries' Earnings Momentum Expected to Recover... 'Buy'"

Investment Opinion 'Buy', New Target Price Set at 125,000 KRW

Hanwha Investment & Securities on the 11th newly issued a 'Buy' investment opinion and a target price of 125,000 KRW for CJ, expecting a recovery in the performance momentum of its major subsidiaries.

Researcher Sujin Eom of Hanwha Investment & Securities said, "Among CJ's four major business sectors, the proportion of the new distribution sector centered on Olive Young is expected to gradually expand," adding, "Along with CJ CGV, which turned profitable based on provisional 2023 results, subsidiaries that experienced poor market conditions in 2023 are also expected to turn around this year."

The four core business sectors of CJ Group are Food and Food Services, New Distribution, Biotechnology, and Entertainment & Media. While sales in all four sectors are expected to increase from 2024 onwards, the new distribution sector led by Olive Young and CJ Logistics is anticipated to gradually expand its share of total sales. Researcher Eom analyzed, "Competitors of Olive Young, such as LOB's and Lalavla, saw a sharp decline in the number of stores since 2019 and had completely withdrawn all stores by the end of 2022," adding, "Effectively, Olive Young has enjoyed a monopoly position in the Health & Beauty (H&B) store sector since 2022." She further added, "From 2024 onwards, rather than increasing the number of stores, Olive Young will pursue organic growth by strengthening private brands (PB), discovering emerging beauty brands, and enhancing online channel competitiveness, thereby solidifying its position as a distribution leader."

Performance recovery of major listed subsidiaries is also expected. Although CJ CheilJedang and CJ ENM's provisional sales and operating profits declined compared to the previous year, they are forecasted to return to growth this year. Researcher Eom explained, "CheilJedang's performance improvement is expected this year, supported by overseas sales growth and strong sales in the wellness category driven by the health care trend," and "ENM recorded a surprise earnings performance in Q4 last year following the end of the Fifth Season union strike and the expansion of its content pipeline."

There is ample room for CJ's stock price to rise. Researcher Eom stated, "CJ's net asset value mostly consists of the value of its subsidiaries, with business value such as brand loyalty and rental income accounting for a small portion," adding, "Even when conservatively valuing CJ Olive Young's business value at half the price-to-earnings ratio (PER) of peer companies, the upside potential exceeds 30%. Strong growth in the new distribution sector among the four business sectors is expected, and other sectors are judged to have passed their downturn periods."