"CJ Shareholders Left Wanting More... Roller Coaster Ride on Olive Young Merger Rumors"

CJ Retraces Gains After Denying Olive Young Merger Rumors
Securities Firms Maintain Upward Targets Despite Fading Catalysts
Anticipation Builds for Temporary Visa-Free Entry Boost from Chinese Tourists

CJ, which recently saw a surge reminiscent of a blazing pillar of fire, gave back some of its gains, tempering investor excitement. This came in the wake of the company denying rumors of a merger with Olive Young, which had previously ignited investor sentiment. However, the influx of Chinese tourists and the potential legalization of treasury stock cancellation remain positive factors, leading to ongoing optimism among securities analysts.

According to the Korea Exchange on September 8, CJ closed at 175,600 won on September 5, up 6.10%. During trading, the price soared to 183,800 won, setting a new 52-week high, but then quickly dropped back to the previous day's closing price of 165,500 won. Amid this sharp volatility, program trading alone accounted for a net purchase of 21.2 billion won, while foreign investors bought 23.8 billion won worth of shares, marking seven consecutive trading days of net buying.

Having surged about 80% this year, CJ had been enjoying positive momentum as a beneficiary of new government policies such as revisions to the Commercial Act. However, shareholders were left disappointed on this day. The catalyst for CJ's stock price surge-the Olive Young merger rumor-fell through. Reports that CJ had begun a valuation process to determine the merger ratio with Olive Young, its cash cow, sent the stock up more than 11% during trading, but the company’s denial caused it to give back some of those gains.

In the market, more weight had been given to the scenario of a merger between CJ and Olive Young rather than an initial public offering (IPO) of Olive Young. The recent news that Lee Sunho, the eldest son of CJ Group Chairman Lee Jay-Hyun and Head of Food Growth Strategy at CJ CheilJedang, had moved to the holding company for the first time in six years, also fueled the merger speculation. In fact, Lee Sunho holds a 3.20% stake in CJ and an 11.04% stake in Olive Young. If Olive Young were to be merged into CJ, it was widely expected that this would significantly strengthen his control over the group.

Although the powerful catalyst for CJ’s stock price has been dismissed as “groundless,” some analysts argue it is too early to be pessimistic. The growth potential of key subsidiaries such as Olive Young and CJ Foodville is expected to drive a continued upward trajectory in corporate value. Previously, Olive Young posted its highest-ever quarterly results in the second quarter of this year, with standalone revenue of 1.4619 trillion won (up 21% year-on-year) and net profit of 144 billion won (up 15.2%). As a result, seven securities firms have raised their target price for CJ this month alone.

Park Sangjun, a researcher at Kiwoom Securities, said, “With the growing popularity of K-Content and K-Beauty, the number of foreign tourists visiting Korea continues to rise, and Olive Young’s second-quarter inbound sales to foreigners grew by more than 60% year-on-year. Starting September 29, the temporary visa-free entry for Chinese group tourists will further accelerate sales growth momentum.” CJ Foodville, which is expanding its bakery business in the United States, is also expected to see full-fledged sales growth once its new plant in Georgia is completed by the end of the year.

The estimated corporate value of Olive Young is about 8.8 trillion won, and considering CJ’s 51.2% stake, the value of its holding amounts to 4.5 trillion won. Choi Jungwook, a researcher at Hana Securities, commented, “CJ’s stock price does not yet reflect the growing value of its stake in Olive Young. In addition, policy benefits such as treasury stock cancellation and separate taxation of dividend income, which are currently being proposed in the political arena, are also expected.”