Hana Securities said on the 19th that CJ CheilJedang's bio segment profit and loss will recover faster than expected due to the U.S.-Iran war. It maintained its investment opinion at "Buy" and raised its target price to 370,000 won from 300,000 won. The previous trading day's closing price of CJ CheilJedang was 228,500 won.
Hana Securities cited the following reasons why the pace of improvement in bio profit and loss could accelerate: ▲ pass-through of higher amino acid selling prices due to war-triggered rises in grain prices ▲ short- to mid-term windfall gains for CJ CheilJedang from a rival's methionine supply chain issues ▲ price hikes and volume increases following North America's anti-dumping tariffs on Chinese lysine after Europe ▲ potential increases in lysine sales on the back of a recovery in China's hog prices and consumption in the second half.
Taking this into account, it projected the bio segment could contribute around 50 billion won in profit in the second quarter. On an annual basis, it forecast a contribution of 200 billion to 250 billion won. Based on profit and loss recovery from an improving bio market, it estimated second-quarter operating profit on a consolidation basis at 275.7 billion won, down 21.9% from a year earlier. For the second half of this year, it expected a meaningful year-over-year increase in earnings, aided by last year's base effect.
CJ CheilJedang posted first-quarter sales of 7.1111 trillion won and operating profit of 238.1 billion won on a consolidation basis this year. Sales fell 1.4% from a year earlier, and operating profit also decreased 28.5%. Excluding logistics, consolidated sales and operating profit came to 4.0271 trillion won and 148.5 billion won, down 7.7% and 39.7% from last year, respectively.
Hana Securities assessed that while profit and loss slightly missed market expectations, the results suggested the potential for improvement starting in the second quarter.
First, domestic processed food sales rose 9% year over year, driven by the impact of gift set sales and strong sales of new products. Most of the increase came from the gift set effect, but the growth rate was still seen as outperforming rivals. Given the view that downside pressure on domestic consumption is limited, it also said sales could rebound more strongly than competitors in the short to mid term.
Bio sales increased 10.4% over the same period. With selling prices for key amino acids, including lysine, rising quarter over quarter, sales growth beat market expectations. As the quarter-over-quarter uptrend in amino acid prices is expected to continue this year, the first quarter is seen as the bottom, with a sharp recovery in fundamentals anticipated.
Sim Eun-ju, a researcher at Hana Securities, said, "As market conditions shift rapidly due to the war, CJ CheilJedang's bio segment profit and loss are expected to recover faster than anticipated," adding, "The current share price implies a 12-month forward price-earnings ratio (PER) of only 8 times, and considering the upward trend in earnings, it is time to respond with a buy."