[Click eStock] "CJ Daehan Tongun, Limited Stock Price Increase Despite Freight Rate Rise"

Korea Investment & Securities Report
Target Price Lowered by 15%

[Asia Economy Reporter Minji Lee] On the 12th, Korea Investment & Securities maintained a buy rating on CJ Logistics, stating that despite improvements in freight rates, factors limiting the stock price rise are more significantly reflected. They set a target price of 200,000 KRW, down 15% from the previous target.

This year's parcel delivery price increase has exceeded expectations. Due to accumulated cost burdens from improving working conditions and infrastructure investments, the parcel delivery industry is ceasing volume competition. Additionally, with the expansion of non-face-to-face consumption causing demand to outpace supply, shippers are also accepting the price hikes. CJ Logistics' parcel delivery rates rose by 11% in the second quarter compared to the same period last year, and the upward trend is intensifying. The parcel delivery operating profit margin is expected to increase from 3.6% in 2019 to 6.1% in the second quarter of this year and 6.5% in the second half.

However, despite these positive factors, the current stock price has fallen about 12% in a month, hitting a 52-week low. The 12-month forward PER stands at 19 times, the lowest level in the past decade. The stock price decline is presumed to be due to the premium once enjoyed as an e-commerce beneficiary disappearing faster than the profit growth rate.

The premium on parcel delivery growth has diminished as the importance of e-commerce platforms represented by Coupang and Naver has increased, leading to relatively harsher evaluations of parcel delivery companies. Furthermore, during the price increase process, the expansion of labor union risks demanding improved working conditions has reflected the drawbacks of the labor-intensive parcel delivery industry in the stock price. Choi Goun, a researcher at Korea Investment & Securities, explained, “Compared to shipping and air cargo, which are expected to have record-breaking performances in the same transportation sector, the leverage effect of parcel delivery freight rates is not significant.”

Considering steady profit growth, further stock price adjustments are limited, but for valuation recovery, strengthening cooperation with the e-commerce industry and fulfillment, as well as profitability improvement through overseas business restructuring, must occur. Researcher Choi Goun said, “CJ Logistics is the undisputed No. 1 parcel delivery company domestically and ranks within the global top 20 third-party logistics companies, possessing logistics competitiveness that can deliver results beyond parcel delivery price increases in the long term. Even looking at short-term performance, profit growth is stable until 2022, and the PBR as of 2022 is already below 1, indicating that further stock price adjustments seem excessive.”

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