Korea Investment & Securities said on the 2nd that CJ CheilJedang's decision to sell its feed subsidiary CJ Feed & Care is expected to improve profitability of consolidation results. It maintained a Buy investment rating on CJ CheilJedang and a target price of 320,000 won. CJ CheilJedang's previous day's closing price was 234,500 won.
Earlier, CJ CheilJedang was reported the previous day (1st) to be selling 100% equity in its feed and livestock subsidiary CJ Feed & Care to Dutch feed corporations Royal De Heus for around 1.2 trillion won.
Korea Investment & Securities estimated that Feed & Care was valued at 1 trillion won to 1.2 trillion won. Feed & Care's liability is understood to be about 800 billion won, and CJ CheilJedang is set to receive 10.9 billion won up front through this transaction and an additional 0 won to 350 billion won over the next three years depending on whether the earn-out conditions are met.
Kang Eun-ji, an analyst at Korea Investment & Securities, said, "CJ CheilJedang will see about 800 billion won in liability reduced through the sale of Feed & Care, improving its financial structure, and profitability of consolidation results will improve through business portfolio efficiency."
Feed & Care was a business with high earnings volatility depending on grain prices and the livestock industry, and the sale was also seen positively in that it could increase earnings visibility going forward.
Given Feed & Care's low earnings contribution and profitability, and interest expense savings from financial structure improvement through the sale, the impact on earnings per share (EPS) will be limited, Kang said.
CJ CheilJedang has also been steadily pushing efforts to streamline its portfolio and secure profitability, such as selling Youtell, its Chinese subsidiary in the bio division, recently.
Kang analyzed, "The sale of Feed & Care is a positive event that will allow focus on that investment point when demand for processed foods recovers going forward."