[Click eStock] "CJ CheilJedang, the Biggest Beneficiary of Inflation"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] Hana Financial Investment on the 10th issued a 'Buy' rating and a target price of 620,000 KRW for CJ CheilJedang.

CJ CheilJedang's consolidated sales for the first quarter of this year amounted to 6.9799 trillion KRW, and operating profit was 435.7 billion KRW, up 13% and 13.1% respectively compared to the previous year. This exceeded market expectations. Sales and operating profit excluding logistics and large containers recorded 4.3186 trillion KRW and 364.9 billion KRW respectively. Despite increased cost burdens, the effect of price hikes was prominent. Additionally, with a sharp rise in grain prices, the substitute 'Lysine' is understood to have demonstrated operating margins at levels seen during past boom periods.

By business segment, ▲ domestic and overseas processed food sales increased by 11% year-on-year, and overseas processing (including Swanson) rose by 14.6%. Despite cost burdens, margins were defended due to the effect of price increases. However, materials inevitably saw a significant decline in margins compared to the previous year. ▲ Bio recorded a surprise, with strong amino acid market conditions maintained due to rising grain prices. The strong Lysine market contributed profits rising to boom period levels. Due to the strength of soybean meal, the profit contribution of 'Selecta' is estimated to have increased by 16 billion KRW year-on-year. ▲ Biological resources saw margins decline compared to the previous year despite feed price pass-through, due to high pork prices in Vietnam last year.

CJ CheilJedang is expected to record double-digit sales growth and an 8% profit margin in the second quarter compared to the previous year. This is about 10% above market expectations. The background for this outlook includes ▲ continued high growth in domestic processed food sales, ▲ overseas processed food showing double-digit growth in both grocery and B2B channels as the 'Swanson' channel synergy is fully realized, ▲ bio market conditions expected to continue for at least three quarters, and ▲ biological resources expected to improve as Vietnam pork prices recover compared to the previous quarter.

Sim Eunju, a researcher at Hana Financial Investment, analyzed, "CJ CheilJedang is the biggest beneficiary of rising inflation," adding, "It is considered a top large-cap stock as it continuously improves average selling price (ASP) while expanding domestic and international dominance."

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