The Upcoming 'Untact Era'... CJ Daehan Tongun Grows Despite COVID-19 Challenges

1Q Operating Profit 61.6 Billion Won... 36% Increase YoY
Benefiting from Increased Online Shopping Due to COVID-19
'Untact Era'... Trend of Ordering Fresh Food and High-End Products

[Asia Economy Reporter Minwoo Lee] CJ Logistics achieved solid results despite the economic slowdown triggered by the novel coronavirus disease (COVID-19). This was due to a surge in logistics volume as online shopping transactions rapidly increased amid the pandemic. The company is widely regarded as a major beneficiary of the 'untact' (contactless, social distancing) era.

On the 21st, Mirae Asset Daewoo forecasted that CJ Logistics would record sales of 2.528 trillion KRW and an operating profit of 61.6 billion KRW in the first quarter of this year. Sales are expected to increase by 3.9% and operating profit by 35.8% compared to the same period last year. The company is seen to have performed well despite the recession caused by COVID-19.

Looking at the details, sales in the global division declined by 6.3% year-on-year due to sluggishness in China. The contract logistics (CL) division also saw a modest increase of 1.9% during the same period. However, the parcel delivery division recorded sales of 778 billion KRW, up 27% from the first quarter of last year, preventing an overall slowdown in sales.

Regarding operating profit, temporary performance setbacks in the China business segment (CJ Loginet, CJ Speedex, Chinese subsidiaries, etc.) are expected to result in figures below the previous forecast of 69.7 billion KRW and the market consensus of 76.6 billion KRW. Nevertheless, excluding the effects of safety management costs and minimum wage increases, operating profit rose by 5.0% year-on-year, indicating a generally solid performance.

The outlook is also not unfavorable. The e-commerce market is expected to structurally grow as the 'untact' era accelerates. Researcher Jaehun Ryu of Mirae Asset Daewoo explained, "The 26% increase in online shopping sales in the first quarter compared to the same period last year was largely due to the trend of avoiding outdoor activities caused by COVID-19, but even if the pandemic subsides, a sharp drop in sales is unlikely. This is because the expansion of e-commerce consumption items to fresh foods and high-priced goods is acting as a catalyst for a structural change in consumption patterns."

CJ Logistics' logistics volume handling capacity has also increased. The expected logistics volume for CJ Logistics in the first quarter of this year is 308 million boxes. This is a 6.7% increase compared to the fourth quarter of last year, which was the highest quarterly volume ever recorded. On a daily basis, the volume is about 6 million boxes. The peak logistics volume in February and March is estimated to have reached 9 to 10 million boxes per day. This is close to or exceeds the previously expected handling capacity (6 to 7 million boxes).

In particular, whereas in the past a surge in logistics volume resulted in significant cost burdens due to trunk vehicle and temporary workforce increases, these issues are now largely resolved thanks to the smooth operation of the Gonjiam Mega Hub Terminal. The automation of nationwide sub-terminals and the activation of contactless delivery have also improved parcel delivery workers' processing capabilities.

Mirae Asset Daewoo gave CJ Logistics a 'Buy' investment rating with a target price of 210,000 KRW. The closing price the previous day was 133,500 KRW. Researcher Ryu said, "As China's domestic market gradually recovers from the impact of COVID-19, the decline in Chinese performance is expected to narrow from the second quarter. Growth in the parcel delivery division will also expand further, sustaining the relative strength of the company's stock price."

This content was produced with the assistance of AI translation services.