CJ Logistics, 'Parcel Delivery' Infrastructure in the Untact Era

Increase in Delivery Volume Due to Social Distancing
Successful Fundraising Based on Performance Stability

[Asia Economy Reporter Hyungsoo Park] As confirmed cases of the novel coronavirus infection (COVID-19) surge worldwide, a deterioration in the second-quarter earnings of major domestic listed companies this year is inevitable. The Yeouido securities market estimates that the net profit of major listed companies in the second quarter will decrease by more than 10% compared to the same period last year. Despite the COVID-19 impact leading to a global economic downturn, companies related to non-face-to-face (untact) services are performing relatively well. We looked into companies expected to improve their earnings as untact consumption increases.

Amid the prolonged COVID-19 situation, CJ Logistics (CJ Daehan Tongun) continues a stable growth trend based on its parcel delivery business. Although the global business division is inevitably sluggish due to a decrease in cross-border cargo volume, the increase in parcel delivery sales driven by the entry into a non-face-to-face (untact) society offsets this.

Domestic securities firms estimate that CJ Logistics achieved sales of KRW 2.5311 trillion and operating profit of KRW 63.1 billion in the first quarter of this year. This represents an increase of 4.05% in sales and 39.2% in operating profit compared to the same period last year.

CJ Logistics is the largest asset-based logistics company in Korea providing comprehensive logistics services. It operates business divisions including contract logistics (CL), parcel delivery, global, and construction. Starting with the acquisition of China's Rokin Logistics in 2015, it has acquired multiple overseas logistics companies. In early 2018, it expanded its parcel delivery business infrastructure by establishing a large-scale hub terminal. As of the end of last year, the largest shareholder was CJ CheilJedang, holding a 40.16% stake.

CJ Logistics has built the largest logistics infrastructure and network in Korea centered on nationwide logistics bases. It has export-import and local logistics networks in major global economic regions such as China, Southeast Asia, and the United States. Based on its top-tier domestic market position, it has secured numerous high-quality clients. Looking at last year's performance by business division, sales in the global and parcel delivery divisions increased by 21.5% and 10.6%, respectively, compared to the previous year.

With the global spread of COVID-19 this year, concerns about a contraction in the logistics market were high. As governments worldwide declared emergencies, logistics movement was hindered. CJ Logistics' global and CL divisions likely saw a decrease in first-quarter sales compared to the same period last year. The CL division experienced declines in both finished vehicle shipments and bulk ship unloading volumes. The global division faced its first sales decline since 2012 due to the suspension of operations at overseas subsidiaries, including those in China.

On the other hand, CJ Logistics' parcel delivery division saw a faster improvement in performance as consumers, mindful of COVID-19, purchased necessary goods through online shopping. The parcel delivery division created conditions for sustained growth as new customers, including those in their 50s, experienced online shopping amid increased purchases by existing online shoppers. Parcel delivery sales are likely to exceed KRW 3 trillion this year.

Kim Pyeongmo, a researcher at DB Financial Investment, explained, "Due to social distancing, parcel volumes increased by about 30% in February and March compared to the same months last year due to increased online shopping." He added, "As a result of the volume increase, CJ Logistics' parcel delivery division sales are estimated to have grown by 26% compared to the same period last year."

Based on earnings stability, CJ Logistics recently issued corporate bonds worth KRW 200 billion. The funds will be used to repay the 92-1st and 89-3rd unsecured bonds maturing this year. Initially planning to raise KRW 150 billion, the bond issuance scale was increased due to strong demand during the subscription forecast.

As of the end of last year, CJ Logistics' consolidated debt ratio was 149.23%. This is slightly lower than the 151.3% debt ratio at the end of 2018. During the same period, consolidated borrowings decreased from KRW 2.8746 trillion to KRW 2.0918 trillion. The proportion of current borrowings among total borrowings fell from 36.53% to 22.96%.

CJ Logistics conducted large-scale logistics infrastructure investments and mergers and acquisitions (M&A) between 2016 and 2018. During this expansionary investment phase, shortfalls were addressed through borrowings, causing borrowings to increase rapidly. Borrowings increased by about KRW 700 billion in 2018 alone.

Kim Jonghun, senior researcher at Korea Ratings, analyzed, "Significant investment expenditures are expected for expanding infrastructure such as the parcel delivery network of overseas acquired companies and new logistics facilities." He added, "Since there is a time lag until investment results materialize after the short-term investment burden, temporary deterioration in indicators may appear." However, he predicted, "In the medium term, cash flow will improve through increased cargo volume handling, cost reduction, and enhanced operational efficiency," and "financial indicators will gradually recover."

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