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CJ Corp: Mixture of Positives and Negatives in Play 

cj-corp:-mixture-of-positives-and-negatives-in-play 
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The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. — Ed. 

CJ Corp’s 4Q21 earnings should arrive in line with consensus. Slowing earnings momentum at CJCJ, low earnings visibility for affiliates reliant on customer foot traffic, and concerns over CJ ENM’s split-off plans are to offset positives such as a likely CJ Olive Young IPO and benefits at some affiliates from stricter social-distancing rules.

Benefits from pandemic rules and CJ Olive Young IPO vs concerns over CJ ENM split-off and foot traffic-reliant affiliates

In 2021, CJ Corp emerged rapidly from the Covid-19 crisis, chalking up estimated OP growth of 47% for the year. CJ CheilJedang (CJCJ) led earnings growth, enjoying both product mix improvement across all of its domains and acquisition effects (Schwan’s Company). Earnings growth strengthened at CJ Logistics and CJ ENM as stricter social-distancing beneficiaries, including higher parcel delivery, advertising, and OTT earnings. Unlisted subsidiary CJ Olive Young is looking attractive on online-oriented growth, healthier profitability, and 2022 IPO plans.

But, negativities for 2022 also exist, including weakening earnings momentum at CJCJ due to high-base effects for the bio business, earnings uncertainties for foot traffic-reliant affiliates such as CJ CGV, CJ Foodville, and CJ Freshway, and concerns over potential shareholder value damage due to CJ ENM’s plans to split off its content production arm.

We lower our TP on CJ Corp from W116,000 to W95,000, reflecting share price changes for listed affiliates, earnings forecast changes for unlisted affiliates, and the keeping of a target discount rate of 50%. We maintain a Hold rating due to a lack of share price catalysts at this time.

4Q21 preview: Earnings to satisfy consensus

We expect CJ Corp to post 4Q21 sales of W8.882tn (+9% y-y) and OP of W535.6bn (+58% y-y), with OP to satisfy the market projection.

Despite likely sluggish earnings at its feed business, we believe that CJCJ benefited from high ASPs at the bio unit and rising sales of core processed food products. CJ Logistics and CJ ENM are to report robust earnings, helped by a strong delivery business (CJ Logistics) and robust media earnings (CJ ENM). CJ Olive Young is expected to post strong earnings by strengthening online to offline (O2O) services and a widening portion of online sales (despite a limited expansion of offline stores). But, earnings at CJ CGV, CJ Foodville, and CJ Freshway were all likely dampened by the continued consumer tendency towards avoiding public facilities.

 

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