CJ, Has the Stock Hit Bottom... Unusual Rebound Observed

The stock price of CJ Group, the holding company of CJ, has been rapidly rebounding since the beginning of this month. It appears that investment sentiment has improved due to expectations that the performance of key affiliates such as Olive Young, CJ CheilJedang, and CJ ENM will improve.

According to the financial investment industry on the 11th, CJ's stock price rose 14.8% over six trading days from 93,900 KRW at the end of last month to 107,800 KRW. Considering that the KOSPI rose 4.9% during the same period, the return relative to the market is 9.9 percentage points.

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Based on adjusted stock prices, CJ surpassed 300,000 KRW in August 2015 but fell to around 60,000 KRW by July last year. After eight years of sluggish stock performance, it has shown a meaningful rebound trend this year. The recent stock price increase is based on the analysis that the performance of CJ Group's key affiliates has bottomed out. CJ ENM recorded consolidated sales of 4.3684 trillion KRW and an operating loss of 14.6 billion KRW last year. Sales decreased by 8.8% year-on-year, and operating profit turned to a loss. For the fourth quarter, sales were 1.2596 trillion KRW, and operating profit was 58.7 billion KRW. With a 787.7% surge in fourth-quarter operating profit compared to the previous year, expectations for this year's performance have risen. CJ ENM has set a plan to improve profitability in its core businesses this year. CJ ENM's stock price rose 15.7% over two days following the earnings announcement.

Despite profitability deterioration in the bio and feed & livestock (F&C) sectors, CJ CheilJedang is expected to steadily increase profits centered on its food business division. Ha Hee-ji, a researcher at Hyundai Motor Securities, explained, "We expect profitability improvement due to cost stabilization in CJ CheilJedang's food business division. Although the industry recovery is slow, we believe it has passed the bottom and will gradually improve."

The rapid growth of Olive Young also positively influences CJ's stock price. Olive Young recorded cumulative sales of 2.8 trillion KRW and net income of 274.2 billion KRW up to the third quarter of last year, increasing by 39.6% and 79.7%, respectively, compared to the same period the previous year.

Yang Ji-hwan, a researcher at Daishin Securities, analyzed, "If CJ Olive Young pursues an initial public offering (IPO), investor interest will increase." He added, "To increase shareholder returns such as dividend expansion and share buybacks, affiliate performance improvement and dividend increases are necessary. The sale of existing shares through CJ Olive Young's IPO is also a way to secure funds."

The financial investment industry estimates CJ Olive Young's corporate value to be around 5 trillion KRW. CJ holds a 51.15% stake in Olive Young. Kim Soo-hyun, a researcher at DS Investment & Securities, said, "Olive Young is currently valued at over 5 trillion KRW. If the decision on whether Korea HNB Holdings, the second-largest shareholder of Olive Young, will recover its investment is made in the first half of this year, the outline of listing or merger with CJ will become clear."

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