[Click eStock] CJ CheilJedang Faces Raw Material Cost Burden Due to Grain Price Rise... Target Price Down 13%

[Asia Economy Reporter Kwon Jae-hee] Daishin Securities maintained a 'Buy' rating on CJ CheilJedang on the 24th but lowered the target price from the previous 630,000 KRW to 550,000 KRW. The burden of rising raw material costs due to increased grain prices appears to have pulled down the target price.

CJ CheilJedang achieved profitability improvement despite market concerns that the improvement was temporary, relying on the external variable of the COVID-19 pandemic. Based on its solid market position, it is expected to maintain the current margin level in the food division despite cost pressures such as rising raw material and logistics costs.

Furthermore, if grain prices and logistics costs reverse and decline, margin spread expansion is also expected.

In the Americas region, synergy with Schwan's is expected to accelerate as the company increases the shelf presence of dumplings in distribution channels through Schwan's. It is anticipated to continue additional growth by expanding products centered on its flagship dumplings.

The market position in the bio sector is also expected to strengthen.

PHA production at the Pasuruan plant in Indonesia, completed in December 2021, is scheduled for the second quarter of 2022. Additionally, by cross-producing and pre-purchasing raw materials at regional production bases in Indonesia, China, North America, and South America, the company is expected to minimize cost burdens and strengthen its market position.

Han Yoo-jung, a researcher at Daishin Securities, commented, "The lower bound of the bio operating profit margin is around 10%, which is a positive sign of reduced downside and volatility compared to the past," adding, "However, the target price was lowered due to the burden of feed raw material costs caused by rising grain prices."

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