[Click eStock] "CJ CheilJedang Bio Division Sale, Positive for Financial Structure Improvement"

Meritz Securities positively evaluated CJ CheilJedang's sale of its bio business unit on the 19th, citing reasons such as financial structure improvement and resolution of undervaluation.

CJ CheilJedang has selected Morgan Stanley as the lead manager for the sale of its bio business unit and is currently in contact with potential acquisition candidates. The main bidding is expected to take place as early as next month. Industry insiders estimate the price to exceed 6 trillion KRW.

Researchers Kim Jung-wook and Hwang Hong-jin of Meritz Securities stated, "Although value changes are possible during the actual sale process, the sale issue itself is positive news." They analyzed that the decision to focus and concentrate on food, especially K-food, began with the sale of non-core affiliates such as Jisongjwi (Chinese food) and Selecta (SPC, concentrated soy protein) since last year. They judged that the sale of the bio business would primarily improve the financial structure and secondarily lead to mergers and acquisitions (M&A) to expand the global food business, thereby resolving undervaluation factors in valuation.

The bio business unit recorded an operating profit of 636.7 billion KRW in 2022 and 251.3 billion KRW in 2023. It is projected to achieve 365.8 billion KRW in 2024. Excluding CJ Logistics, CJ CheilJedang's net debt in the third quarter was 5.7 trillion KRW, and the net interest expense for this year is forecasted at 312.1 billion KRW. The impact on net profit from the sale is expected to be offset between operating profit and interest expenses.

The valuation metric shows CJ CheilJedang's 12-month forward PER at 7.3 times, compared to the food, beverage, and tobacco sector average 12-month forward PER of 9.3 times, reflecting a 21% discount. It is expected that the discount factor relative to the sector average will be resolved as the sale progresses. Since 2010, CJ CheilJedang's maximum discount rate compared to the sector average was 67%, the premium rate was 128%, and the average was around 95%.