CJ CheilJedang Smiles at COVID-19 Performance... "Achieving Investment Results and Financial Stabilization"

As the number of new confirmed cases of the novel coronavirus infection (COVID-19) surges again, the time spent indoors is increasing. Moreover, with the outbreak of a cluster infection at a Starbucks in Paju, more consumers are refraining from using not only coffee shops but also restaurants, leading to rapid growth in the markets for ramen, instant rice, and home meal replacements (HMR). Until last year, the domestic ramen market was stagnant, but in the first half of this year, it recorded 1.13 trillion KRW, growing 7% compared to the same period last year. Asia Economy examines the business status of food companies such as CJ CheilJedang, Ottogi, and Shinsegae Food, whose performance expectations have risen amid the spread of the 'home-staying' culture due to COVID-19.

[Asia Economy Reporter Yoo Hyun-seok] CJ CheilJedang, which had liquidity concerns due to large-scale mergers and acquisitions (M&A) and investments, is now stretching out. In the food sector, HMR sales have increased due to COVID-19, and in the bio sector, profitability is improving with the sale of high-margin products, leading to overall performance growth. Additionally, the company has restored financial soundness through a high-intensity financial structure improvement implemented since last year.

◆ HMR Sales Soar Due to COVID-19 = CJ CheilJedang achieved consolidated sales of 11.7518 trillion KRW and operating profit of 660.8 billion KRW in the first half of this year. Compared to the same period last year, sales increased by 11.6% and operating profit by 86.5%. In the second quarter alone, sales were 5.9209 trillion KRW and operating profit was 384.9 billion KRW, up 7.4% and 119.5% respectively from the previous year. The operating profit also significantly exceeded the market forecast of 261 billion KRW.

CJ CheilJedang is broadly divided into food, bio, Feed&Care (feed + livestock), and logistics sectors. Among these, the food sector showed remarkable performance improvement. In the second quarter, food sales reached 2.191 trillion KRW and operating profit 126.4 billion KRW, increasing 13.7% and 195.6% respectively compared to the same period last year. This was thanks to increased sales as people used HMR instead of dining out due to COVID-19. The HMR sector recorded sales of 126 billion KRW, growing 20%. The bio and Feed&Care sectors also showed notable profitability improvements. Bio recorded an operating profit of 110.9 billion KRW, up 86.8%, due to expanded sales of high-margin products. Feed&Care turned profitable as the high pork prices in the Vietnam region continued.

The outlook for this year is also positive. According to the corporate information firm FnGuide, the securities market forecasts CJ CheilJedang’s sales and operating profit for this year to be 24.4559 trillion KRW and 1.3179 trillion KRW, respectively, expected to improve by 9.41% and 47.94% compared to last year.

◆ Financial Structure Stabilizes After Aggressive Investments = Since 2016, CJ CheilJedang has pursued M&A and new factory expansions. Especially, it invested 1.5 trillion KRW in Schwans, which was completed last year, and such aggressive investments worsened the financial structure. The net borrowings, which were 5.8381 trillion KRW in 2016, increased to 10.5918 trillion KRW in the first quarter of last year. The debt ratio, which was 160.1%, also rose to 193.8%.

The deterioration in financial structure was reflected in the credit rating as well. Korea Ratings changed CJ CheilJedang’s unsecured bond rating outlook from AA 'stable' to AA 'negative' last year. However, since last year, the company has been improving its financial structure through asset sales and securitization, reducing concerns. As of the first half of this year, the debt ratio decreased to 164.1%, and net borrowings fell to 8.6138 trillion KRW.

The credit rating has also improved. In June, Korea Ratings changed the rating outlook back to 'stable.' It evaluated that cash flow is improving due to increased cash generation from sales growth and reduced investment scale, and the trend of reducing borrowings is expected to continue. Jang Ji-hye, a researcher at Kakao Pay Securities, said, "CJ CheilJedang shows profit leverage not only from the expanded demand for home dining due to COVID-19 but also from proactive investments, overseas base expansion, SKU adjustments, and cost control through promotional efficiency." She added, "Structural performance improvements are appearing across all business divisions."

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