Kiwoom Securities said on the 3rd that CJ's corporations are likely to be re-rated on the back of strong sales growth at its unlisted subsidiaries Olive Young and Foodville. It maintained a "Buy (BUY)" rating and raised the target price to 260,000 won. The previous trading day, Olive Young's share price was 211,000 won.
Park Sang-jun, an analyst at Kiwoom Securities, said, "CJ CheilJedang, the main listed subsidiary, is seeing profitability slow due to falling amino acid selling prices," but added, "In contrast, Olive Young and Foodville, the main unlisted units, are expected to continue strong sales growth."
In particular, Olive Young is expected to see robust sales thanks to the trickle-down effect from a recovery in export conditions and strength in the domestic stock market. Park said, "Since mid-Feb., factors such as improved South Korea-China relations, deepening China-Japan tensions, and a weaker won will drive an increase in foreign customer sales as an additional momentum for earnings improvement."
Olive Young is expanding store openings in global tourist commercial districts, and its inbound sales ratio is understood to exceed 20%. Accordingly, a sales growth rate of more than 20% is expected in the first half of this year.
Foodville is also expected to post growth by expanding its overseas business. Foodville completed a plant in Georgia, U.S., at the end of last year and is accelerating the acquisition of local franchisees. According to media reports, it plans to expand the number of stores in the U.S. to around 300 by the end of this year.
However, short-term profitability pressure appears unavoidable. Park said, "With an increase in fixed costs due to the expansion of production staff and franchise sales personnel, profitability could temporarily decline in the short term," but added, "The Tous les Jours business in the U.S. has high per-store efficiency and superior profitability compared with the domestic franchise business, so profitability will gradually improve over the medium to long term."