[Into the Stocks] Starting Now?... CJ CheilJedang's 'Sprint'

[Asia Economy Reporter Ji Yeon-jin] CJ CheilJedang is racing ahead without hesitation. Despite expectations that this year would face a high base burden after last year's record-breaking performance amid the COVID-19 pandemic and the normalization of 'staying at home,' the company continues its sales growth. Its emergence as a beneficiary of 'inflation,' a key stock market keyword this year, has also contributed to boosting its stock price.

According to the Korea Exchange on the 12th, CJ CheilJedang's stock price on the KOSPI market has risen 14.79% so far this month until the previous day. On the same day, it traded at 461,500 KRW, up 1.6% from the previous day during the morning session, but turned downward in the afternoon.

CJ CheilJedang showed a sharp rise earlier this year as expectations for strong Q4 results of last year were reflected. After reaching an intraday high of 474,000 KRW on January 25, it declined but has been rising continuously since the beginning of this month.

◆ The Normalization of Staying at Home... Target Price Raised to 700,000 KRW = On the 11th, the financial investment industry collectively raised target prices for CJ CheilJedang. NH Investment & Securities raised its previous target from 600,000 KRW to 700,000 KRW, while five other securities firms including Daishin Securities (630,000 KRW), IBK Investment & Securities (580,000 KRW), Cape Investment & Securities (600,000 KRW), and Kiwoom Securities (650,000 KRW) also raised their targets. The lowest target price among them is 550,000 KRW by Meritz Securities.

The momentum for the target price increase was the first-quarter earnings. The company reported sales excluding CJ Logistics of 3.6711 trillion KRW in Q1, a 5% increase year-on-year. Operating profit during this period rose 56% to 342.3 billion KRW, significantly exceeding the forecast (262.4 billion KRW). The industry had expected a high base burden this year due to the surge in home meal replacements (HMR) and processed food sales as staying at home became routine during the COVID-19 pandemic last year, but steady domestic demand still translated into profits.

Typically, food companies experience margin reductions when grain prices rise, making raw material price increases a variable affecting stock prices. Since Q3 last year, grain prices have sharply increased, causing CJ CheilJedang to face rising raw material input costs. Although such cost increases initially reduce profits, they lead to price hikes, which in turn improve profitability. In fact, CJ CheilJedang raised the price of its instant rice product Hetbahn starting February this year, contributing to the Q1 earnings surprise. Park Sung-jun, a researcher at Kiwoom Securities, predicted, "With price pass-through power demonstrated across all CJ CheilJedang business units, combined with quantitative growth centered on convenience foods and global business, the profit levels of all business units are expected to continue growing."

Data provided by NH Investment & Securities

◆ Future Food Sources Following Hetbahn and Bibigo Dumplings... White Bio = CJ CheilJedang operates mainly through three business divisions: food, bio, and logistics. The food division is currently driving performance by developing hit products like Hetbahn and Bibigo dumplings that appear on the tables of the entire nation, while the logistics division, which acquired CJ Logistics, is thriving due to increased non-face-to-face demand after COVID-19. The bio division has recently attracted attention for developing eco-friendly plastics.

Last year, the company's Q2 operating profit increased by 119.5% to 38.5 billion KRW. Excluding CJ Logistics, operating profit rose to 30.2 billion KRW, an increase of 185%. At that time, the bio division's operating profit was 17.5 billion KRW, surpassing the food division's operating profit of 12.6 billion KRW. The bio division's operating profit last year was 531.5 billion KRW, more than double the previous year's 260 billion KRW. Because of this, some analysts believe the base burden for Q2 this year is much greater than the previous quarter.

CJ CheilJedang's bio business develops and manufactures food additives such as nucleic acids, MSG, and arginine, as well as feed additives including lysine, threonine, tryptophan, valine, methionine, and plant-based proteins. It holds the world’s number one position in lysine, nucleic acids, tryptophan, and valine sectors, and is expanding into white bio businesses such as biodegradable plastics using these technologies.

Last year, the company developed a marine biodegradable plastic material called PHA, an eco-friendly plastic decomposed by amino acid microbial fermentation. Currently, only three companies worldwide?CJ CheilJedang, Japan's Kaneka, and the U.S.'s Danimer?possess the technology and capability for mass production. A 5,000-ton annual production facility is being prepared in Pasuruan, Indonesia, and the industry expects production to start after completion by the end of the year. Ebest Investment & Securities Research Center stated, "As the processed food (HMR, etc.) and meal delivery markets grow, the problem of plastic containers also increases," adding, "PHA can be synthesized with other raw materials, allowing it to respond to a wide spectrum of physical properties depending on the demands and regulatory environment of the downstream industries, and market expansion is expected with relatively low supply volatility."

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