[Click eStock] CJ CheilJedang Expected to Benefit from Strong Demand for Feed in China

Rising Prices of Feed Amino Acids to Continue for a While
Expectations for Improved Performance in Bio Division↑
Food Service Business Also Strong...Top Beneficiary in Food and Beverage Sector

[Asia Economy Reporter Minwoo Lee] As the number of pigs raised in China recovers from the sharp decline caused by African Swine Fever (ASF), CJ CheilJedang, which produces feed-grade amino acids, is expected to be a major beneficiary.

On the 3rd, Kiwoom Securities forecast that CJ CheilJedang will record consolidated sales of 6.293 trillion KRW and operating profit of 413 billion KRW in the third quarter of this year. This represents increases of 7.4% and 51.3%, respectively, compared to the same period last year. It is analyzed that the surge in demand for convenience foods due to the impact of COVID-19 has improved profitability, mainly in the processed food division.

Along with this, benefits from the surge in feed production originating from China are also expected. As the recovery of the pig population in China, which sharply declined after ASF, accelerates, the total feed production in China has continued to grow by 10% year-on-year since July this year. In particular, production centered on swine feed, which accounted for the largest share of China's feed production until 2018, is rapidly increasing. Since July, China's swine feed production has maintained a high growth rate of over 30% year-on-year. In September, swine feed production nearly reached the average monthly production level of 2018. This is why strong demand for feed-grade amino acids added to compound feed is expected in the mid to long term.

The feed-grade amino acid boom period is expected to begin from the fourth quarter of this year. Especially, strong demand is anticipated for lysine, threonine, and tryptophan, which are essential amino acids used in swine feed. Prices of these three amino acids have been rising since the beginning of the year and continued to increase steadily even during the off-season after the National Day holiday. Considering that Chinese feed companies typically stockpile feed-grade amino acids before the Lunar New Year, it is forecasted that the price increase of feed-grade amino acids will be strong in November and December this year.

Accordingly, CJ CheilJedang's bio business division is expected to perform well. Sangjun Park, a researcher at Kiwoom Securities, explained, "In the past, the price strength cycle of feed-grade amino acids driven by demand from China usually lasted about 2 to 3 years. Considering that the second half of this year marks the beginning of the feed-grade amino acid boom cycle, the earnings estimates for CJ CheilJedang's bio division for 2021-22 are likely to be revised upward, centered on lysine and tryptophan." Currently, the sales proportion of lysine and tryptophan in CJ CheilJedang's bio division is estimated to be about 25% and 10%, respectively. Excluding Selecta (with an 18% sales share), the total sales proportion of feed-grade amino acids is estimated to be in the low 50% range.

Additionally, there are signs that nucleic acid demand is reviving due to the recent recovery of the dining-out market in China. Researcher Park said, "Nucleic acid is the product with the highest profit contribution (estimated over 30%) in CJ CheilJedang's bio division, and regionally, China accounts for the highest sales proportion (estimated 60-70%). The recovery of the dining-out market in China (recovery in seasoning demand) is likely to positively affect the price and sales volume recovery of nucleic acid for CJ CheilJedang."

Against this backdrop, Kiwoom Securities maintained a 'Buy' investment rating and a target price of 610,000 KRW for CJ CheilJedang, continuing to regard it as the top beneficiary (Top Pick) in the food and beverage sector. The closing price on the previous day was 358,500 KRW.

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