[Click eStock] CJ, CJ Olive Young's Explosive Growth Continues 'Holding Company Value Up'

On the 11th, DS Investment & Securities upgraded its investment opinion on CJ to "Buy" and raised the target price from 110,000 KRW to 130,000 KRW. Based on the closing price on the 8th (83,400 KRW), the upside potential reaches 55.9%. This is based on the judgment that if CJ merges with CJ Olive Young, it could enjoy a premium as a business holding company. Even if CJ Olive Young opts for an initial public offering (IPO), given its current growth rate, it is analyzed to have a significantly positive impact on CJ's valuation. DS Investment & Securities assessed CJ's minimum fair value to be at least 3.5 trillion KRW (130,000 KRW per share).

Kim Suhyun, a researcher at DS Investment & Securities, explained the minimum fair value by stating, "We applied a steep 80% discount to the value of the listed subsidiary and simply applied a 5x multiple to brand royalty, dividend income, and net profit from leasing." He added, "The valuation of CJ Olive Young was conservatively measured at 2.6 trillion KRW (considering the shareholding ratio) by applying a 15x multiple to the 2023 net profit rather than the 2024 forecast."

Sales to foreign tourists at CJ Olive Young are estimated to be explosively increasing every month. The sales amount to foreigners at CJ Olive Young reached 39 billion KRW as of August 2023, which is more than a 350% increase compared to January 2023. The proportion of foreign sales has risen from 5% in the past to 10% currently, and if group tours from China fully resume, this proportion is expected to increase further. Although inbound foreign customers will be the core growth driver until 2024, the sales growth rate per store has already exceeded 30%, based on excellent curation capabilities. Additionally, with online sales joining in, online sales growth is recording 46%.

Moreover, it was pointed out that besides the IPO, a merger between CJ Olive Young and CJ is also possible. CJ Olive Young is a key means for management succession. It is the only subsidiary that has explosively grown over the past seven years by mobilizing the group's full capabilities. With the added benefit of the Chinese inbound effect, net profits for this year and next year are expected to reach 342 billion KRW and 479 billion KRW, respectively. The initially expected IPO valuation of 4 trillion KRW by the group is easily surpassed, and a 5 trillion KRW valuation is also possible. Researcher Kim stated, "However, in this case, a complex process involving CJ Olive Young's IPO → sale of old shares by the third generation of CJ Olive Young → purchase of CJ shares by the third generation or preparation for inheritance tax will occur." He added, "As an alternative, a merger between CJ Olive Young and CJ could be considered to avoid this complicated process." He further explained, "If CJ Olive Young merges at a value of 4 to 5 trillion KRW, the third generation (Lee Sunho, head of CJ CheilJedang) could additionally secure about 18.3% to 22.9% of CJ shares." He concluded, "The originally planned IPO of CJ Olive Young this year has been canceled, and the changes necessary for the third generation succession, including CJ Olive Young's IPO, will take place next year."

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