CJ CheilJedang Passes Bio Trough, but Overseas Food Remains Uncertain [Click eStock]

Marketing Expenses Expected to Rise for New Market Expansion
"Overall Performance Improvement Likely in the Second Half"

CJ CheilJedang's first-quarter performance this year fell short of expectations, with improvements in the domestic food business offset by sluggish results in overseas food and bio businesses. While the bio segment has passed its lowest point, analysts note that profitability in the overseas food business remains uncertain.

On May 13, KB Securities lowered its target price for CJ CheilJedang by 3.4% to 280,000 won, citing these factors. The previous day's closing price was 212,500 won, down 5.76% from the day before. The brokerage maintained its 'Buy' investment rating.

For the first quarter of this year, CJ CheilJedang reported consolidated sales of 7.1111 trillion won and operating profit of 238.1 billion won. Compared to the same period last year, sales increased by 6.0%, but operating profit declined by 17.2%. Operating profit missed the market consensus by as much as 10.7%. This is attributed to decreased profitability in the overseas food business and sluggish performance in the bio segment.

The operating margin for the overall food business was 4.7%, up 0.3 percentage points year-on-year. However, operating profit from overseas food decreased slightly due to increased advertising and promotional expenses targeting new overseas markets.

The bio business division recorded sales of 988.7 billion won and operating profit of 5.5 billion won. Sales rose by 5.7% compared to the same period last year, but operating profit plummeted by 92.4%. While sales increased thanks to higher volumes of specialty products such as arginine and nucleic acids, profit dropped significantly as prices of major feed amino acids fell.

Although the bio segment is expected to recover gradually after passing its trough, overall profitability improvement is not anticipated until the second half of the year, as marketing expenses to expand overseas markets continue. Eun-Ae Ryu, an analyst at KB Securities, said, "Specialty amino acids, including arginine, achieved record sales in the first quarter, and spot prices of methionine will be reflected in the second quarter due to competitor shutdowns in the first quarter. In the second half, as definitive tariffs on Chinese lysine are enforced in Brazil, CJ CheilJedang’s lysine prices are expected to rise."

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