[Click eStock] CJ, Accelerated Reopening Benefits and Significant Undervaluation

[Asia Economy Reporter Lee Seon-ae] Hana Securities announced on the 29th that it maintains a Buy rating and a target price of 130,000 KRW for CJ. This is based on the judgment that the stock is significantly undervalued amid the acceleration of benefits from the lifting of social distancing and reopening.

CJ's third-quarter sales reached 10.9 trillion KRW, approaching 11 trillion KRW in quarterly consolidated sales for the first time ever. CJ CheilJedang's sales increased by 21.7%, and despite rising grain prices, operating profit also rose by 20.0% due to product price increases and cost efficiency. CJ CGV's sales increased by 150%, with performance recovering in most countries except China, and operating profit turned positive for the first time in a quarter since COVID-19. CJ Olive Young also saw sales surge by 33.2% and net profit by 59.3%, clearly benefiting from the lifting of social distancing. On the other hand, CJ Foodville's sales increased due to the recovery of the dining-out industry, but operating losses continued due to rising cost burdens, and CJ ENM's operating profit decreased despite sales growth due to increased costs in the commerce division and increased production costs for TVING in the media division.

Choi Jung-wook, a researcher at Hana Securities, said, "Although CJ's stock price has recently outperformed the KOSPI due to turnaround expectations for CJ CGV and sharp performance improvements at CJ Olive Young, the current market capitalization of 2.3 trillion KRW compared to the actual NAV of 5.8 trillion KRW is still considered significantly undervalued."

CJ's stake in CJ CGV increased sharply from 39.96% at the end of Q2 to 48.52% at the end of Q3 because CJ participated with 150 billion KRW in a third-party allotment capital increase. This was a measure to improve CJ CGV's financial structure, where CJ participated in the capital increase using 150 billion KRW repaid early through the exercise of a call option from the 200 billion KRW of hybrid capital loans lent to CGV. Since the interest rate on the hybrid capital loan was scheduled to increase by an additional 2.0% points from the end of this year, CGV will benefit from reduced financial costs and decreased borrowings while increasing capital. As CGV's performance improvement trend is expected to continue, there are currently no plans for additional investments. Recently, CGV's stock price has risen sharply around the Q3 earnings announcement, accounting for about 6.8% of CJ's total NAV, making it the fourth largest subsidiary after CheilJedang, Olive Young, and ENM. With the increased stake, it is expected to contribute to the rise in equity value due to the stock price increase. In addition to the capital increase, CGV issued convertible bonds worth 400 billion KRW; although there is a possibility of dilution of CJ's equity value in the future, the efforts to improve the financial structure are viewed positively.

CJ Olive Young's sales and net profit surged again in Q3, accelerating benefits from the lifting of social distancing. Moreover, major competitors LALAVLA and LOHB's have begun withdrawing from the domestic H&B market, increasing CJ Olive Young's store count to 1,289 at the end of Q3, up 24 stores from the end of the previous year (the initial plan was to increase by 5 stores). CJ Olive Young is pursuing a growth strategy through online and offline synergy rather than simply expanding offline store numbers to increase market share. Data on regional consumer patterns collected through offline stores is being utilized online to enhance the O2O channel, creating conditions for growth in both online and offline sectors.

Although the online sales ratio has stagnated at around 24% since Q3 last year, this is a result of the simultaneous online and offline growth strategy, and concerns about the stagnation of the sales ratio are considered excessive. The market's interest in the online ratio stems from concerns about the profitability and scalability of offline stores. However, CJ Olive Young's stores are mostly small stores of about 14 pyeong (approximately 46 square meters), not large flagship stores, and they serve not only their own sales growth but also function as logistics hubs for online services in specific regions.

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