National Pension Service Adds CJ and Hanwha, Reduces Construction Holdings

CJ, Strong Performance in Food and Entertainment
Hanwha Green New Deal Theme in Focus
Subsidiaries' Good Earnings Boost Group Stock Purchases

Earnings Shock at Korea Kolmar and Others
Reducing Holdings in Stocks with Delayed Recovery

[Asia Economy Reporter Park Jihwan] The National Pension Service (NPS), a major player in the domestic stock market, has been actively purchasing group stocks such as Hanwha and CJ, whose core businesses and subsidiaries have shown remarkable earnings growth since December. On the other hand, it has reduced its holdings in construction sector stocks like GS Construction and IS Dongseo, which are evaluated to lack long-term growth potential despite relatively favorable earnings forecasts for next year, as well as Korea Kolmar, whose earnings recovery is expected to be delayed due to the spread of the Omicron variant.

According to financial information provider FnGuide on the 21st, among the stocks in which the NPS holds more than 5% equity, it increased its stakes in three companies this month up to the previous day: Hanwha (7.67% → 7.78%), CJ (7.58% → 7.61%), and Hyosung Chemical (9.86% → 9.97%). These companies are commonly expected to sustain clear earnings improvements going forward. In particular, Hanwha and CJ, both holding companies, were chosen due to their strong core business performance, noticeable earnings improvements in subsidiaries, and proactive moves to secure future growth industries.

CJ is showing steady growth with balanced earnings improvements across its four core business sectors within the group: food, biotechnology, logistics/distribution, and entertainment/media. CJ’s consolidated operating profit for Q4 this year is forecasted to reach 524.1 billion KRW, a 54.97% increase compared to the previous year. Annual operating profit for next year is expected to rise 12.5% to 2.2594 trillion KRW from this year’s estimated 2.0077 trillion KRW. The earnings growth is driven by strong performance in CJ CheilJedang’s food and bio businesses, increased cargo volume at CJ Logistics, robust advertising and content sales at ENM, and growth at TVING. Additionally, last month’s announcement of the 2023 group mid-term vision, which includes a decision to invest up to 10 trillion KRW over the next three years in four growth engines across the group (culture, platform, health, sustainability), is also seen as a positive factor.

Hanwha’s earnings improvement is being demonstrated as a result of a focused and profitability-oriented business restructuring. Last year, Hanwha boldly consolidated its trade division, which had low future growth potential, and divested from less competitive businesses such as steel and food. Instead, it built a portfolio aligned with green new deal themes like solar power and hydrogen. Lee Bongjin, a researcher at Hanwha Investment & Securities, said, "Hanwha’s net income attributable to controlling shareholders is expected to increase 299% to 85.3 billion KRW this year from 21.4 billion KRW last year."

In the case of Hyosung Chemical, the expectation of a full-scale earnings improvement starting next year is cited as a reason for the NPS’s choice. Hyosung Chemical’s sales next year are expected to increase 23% from this year’s forecast to 3.1743 trillion KRW, marking the first time it will enter the 3 trillion KRW sales era. Operating profit is also projected to grow by over 50%, reaching approximately 300 billion KRW, according to securities analysts.

The NPS reduced its portfolio weights in GS Construction (13.55% → 13.06%), Shinsegae Food (10.88% → 10.68%), Korea Kolmar (8.69% → 8.27%), DL (8.82% → 8.26%), Kumho Petrochemical (6.86% → 6.67%), and IS Dongseo (6.15% → 5.60%). Although construction stocks like GS Construction and IS Dongseo are expected to perform reasonably well through the first half of next year, securing additional growth drivers remains a challenge. Lee Kwangsoo, a researcher at Mirae Asset Securities, said, "Next year, the construction sector faces concerns over increased volatility in the real estate market and delays in overseas construction orders. While profits may increase, concerns about growth potential are likely to arise." Korea Kolmar posted an operating profit of 12.8 billion KRW in Q3 this year, down 32% from the same period last year, marking an earnings shock that fell 44% short of market expectations (23 billion KRW). Although expectations for earnings recovery rose with the implementation of the 'With Corona' policy last month, securities firms anticipate that the spread of Omicron will somewhat delay the recovery.

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