[Click eStock] "CJ, Unlisted Subsidiary Performance Improvement... Target Price Up"

On the 21st, SK Securities raised the target price for CJ from 100,000 KRW to 125,000 KRW, stating that "expectations for CJ Olive Young are reflected in the stock price."

On the same day, Kwansoon Choi, a researcher at SK Securities, explained, "This is the result of lowering the discount rate against the target net asset value (NAV) from 35% to 30% due to the improvement in the performance of unlisted subsidiaries."

He added, "We believe that the stock price of CJ already reflects some of this at a price-to-earnings ratio (PER) of 16 times applied to CJ Olive Young (assuming a NAV discount rate of 50%). If events such as the listing of CJ Olive Young or additional purchases of remaining shares materialize, it could be a factor for NAV increase and lead to a rise in CJ’s stock price," he analyzed.

The investment opinion was maintained as neutral. Researcher Choi explained, "The contribution of listed subsidiaries to NAV growth has been limited, and the current discount rate against NAV is 36.2%, which is historically low. Therefore, we judge that the valuation (stock price level relative to corporate value) is not very attractive."

CJ’s fourth-quarter performance last year showed sales of 10.6 trillion KRW, a 0.6% increase compared to the same period last year. Operating profit rose 74.7% to 573.4 billion KRW. Researcher Choi said, "Despite the negative growth of major listed subsidiaries such as CJ CheilJedang (-3.7%) and CJ ENM (-14.0%), sales slightly increased due to growth in major unlisted subsidiaries such as CJ Olive Young (38.0%) and CJ Foodville (2.2%). Operating profit also increased significantly due to the growth in operating profit of major subsidiaries like CJ CheilJedang (24.0%) and CJ ENM (787.7%)."

CJ Olive Young recorded an annual net profit of 347.3 billion KRW last year, a 66.9% increase compared to the previous year. CJ Foodville also maintained an improving performance trend among unlisted subsidiaries with a 25.6% increase in net profit. Researcher Choi stated, "CJ’s stock price rose 15.8% in March alone, achieving a high return. Although the increase in NAV of listed subsidiaries was not large, the performance improvement of major unlisted subsidiaries such as CJ Olive Young and CJ Foodville drove the rise in CJ’s stock price. In particular, CJ Olive Young was valued at 1.8 trillion KRW during the 2020 rights offering. Considering last year’s net profit of 347.3 billion KRW, there is sufficient reason for NAV to increase," he added. "If interest rate cuts materialize in the second half of the year, expectations for listing could become a factor for CJ’s stock price increase," he also noted.