Hanwha Investment & Securities on the 2nd said CJ CheilJedang could see improved results as the global amino acid market grows and supply order is reshaped. It kept a Buy rating and raised the target price to 300,000 won from 210,000 won. CJ CheilJedang's previous session closing price was 220,000 won.
Hanwha Investment & Securities analyzed CJ CheilJedang, saying, "As the likelihood of a reshuffle in supply order in the global amino acid market increases, if progress appears in improving the financial structure, further revaluation is also likely."
CJ CheilJedang's bio division produces amino acids (animal protein) used in feed, with microorganisms as raw materials. Major feed amino acids such as lysine and tryptophan go into pig and cattle feed.
Hanwha Investment & Securities assessed the global amino acid market as an industry that is structurally growing. Han Yu-jung, an analyst at Hanwha Investment & Securities, explained, "The amino acid market is a structurally growing industry based on livestock production efficiency and the spread of low-protein blends."
In this situation, the ramp-up of sanctions on Chinese products in the global amino acid market was cited as an opportunity for CJ CheilJedang to improve earnings.
The analyst explained, "As we enter a phase where oversupply from China is easing, the formal rollout of anti-dumping and countervailing duties (CVD) on Chinese lysine and valine in the United States and Europe is increasing the likelihood of normalizing supply order."
Anti-dumping and countervailing duties (CVD) are imposed to protect domestic industries from unfair trade practices and are levied when it is determined that China distorted the market through improper subsidies or oversupply.
Another advantage is the high share of overseas sales amid a weak won. The analyst said, "As of last year, overseas accounted for 51% of food sales, with the United States at 43%, and most bio sales also come from overseas," adding, "In a weak-won phase, relatively strong earnings defense can be expected."
However, the debt ratio is a burden for CJ CheilJedang, but the analyst said it could ease later as the company has unveiled plans to improve its financial structure.
The analyst said, "Excluding CJ Logistics, net debt remains high at the 6 trillion won level, which is a burden," adding, "However, it has presented plans to improve the financial structure, including asset securitization and production site efficiency. If these plans materialize into reduced net debt and improved cash flow, it could lead to easing financing cost burdens and an additional re-rating of the share price."