20171109-三星证券-In-line_3Q,_but_margins_disappoint_7页_369kb

CJ Korea Express (000120) 3Q Analysis Summary

Core Content

CJ Korea Express reported its 3Q results on November 9, 2017, showing in-line sales and operating profit growth, but margin contraction and declining ASPs led to a revised target price.

• Sales: Increased by 25.7% year-over-year (YoY) to KRW1.87t.
• Operating Profit: Rose by 3.8% YoY to KRW62.6b.
• Net Profit: Declined by 55.9% YoY to KRW10.8b.
• Operating Margin: Slipped to 3.3%, down 0.7% YoY.
• Net Profit Margin: Dropped to 0.6%, down 55.9% YoY.
• Current Price: KRW156,500.
• Target Price: Revised to KRW200,000, down 9.1% from previous estimate.

Main Points

Sales Growth

• Overall Sales: 25.7% YoY growth, aligning with expectations.
• Parcel Delivery Sales: 19% YoY growth to KRW531b, driven by mobile shopping growth of 36% YoY.
• Contract Logistics (CL) Sales: 5% YoY growth to KRW620.1b, despite a 41% YoY drop in shipping sales.
• Global Sales: 60% YoY growth to KRW722.1b, attributed to new orders from overseas subsidiaries and consolidation of Darel and IBRAKOM.

Margin and ASP Analysis

• Gross Margin: Decreased across all divisions.
  • Parcel Delivery: 9.5%, down 1.1% YoY.
  • Contract Logistics: 11.4%, down 0.8% YoY.
  • Global Operations: 11.1%, down 0.7% YoY.
• Parcel Delivery ASPs: Fell 3.7% YoY due to an increasing small parcel portion.
• Reasons for Margin Pressure:
  • Increased parcel delivery volume.
  • Consolidation of new subsidiaries.
  • Initial outlays for Thailand operations.
  • Reduced utilization of self-propelled barges.
  • Ongoing restructuring.

Forecast Revisions

• Operating Profit: Revised down by 12% for 2017 and 8% for 2018.
• EPS Growth:
  • 2017E: 32.0% decline.
  • 2018E: 11.7% decline.
• Target Price: Cut by 9.1% to KRW200,000 based on a residual income model.

Key Information

Valuation Metrics

• P/E Ratio:
  • 2017E: 62.9.
  • 2018E: 32.7.
• P/B Ratio:
  • 2017E: 2.3.
  • 2018E: 2.1.
• EV/EBITDA:
  • 2017E: 13.2.
  • 2018E: 10.7.
• ROE:
  • 2017E: 2.5.
  • 2018E: 4.6.

Business Segments

• Parcel Delivery:
  • Market Share: 45.3% (Jan–Sep 2017).
  • Gross Profit: KRW199.7b, up 16.2% YoY.
  • Gross Margin: 10.7%, down 1.1% YoY.
• Contract Logistics:
  • Gross Profit: KRW67.6b, up 12.0% YoY.
  • Gross Margin: 11.4%, down 0.8% YoY.
• Global Operations:
  • Gross Profit: KRW81.7b, up 39.4% YoY.
  • Gross Margin: 11.1%, down 0.7% YoY.

Performance Trends

• One-Year Performance:
  • CJ Korea Express: -21.6%.
  • Kospi Index: -38.4%.
• Market Cap: KRW3.6t/USD3.2b.
• Shares Outstanding (float): 22,812,344 (37.1%).
• 52-Week High/Low: KRW199,500/KRW152,000.
• Avg Daily Trading Value (60-day): KRW5.7b/USD5.1m.

Investment Outlook

Despite margin pressures, the stock is still rated BUY due to:

1. Expected Market Share Gains: Driven by terminal automation and mobile shopping growth.
2. Profitability Improvements: Anticipated from contract logistics and cold chain performance.
3. M&A Activities: Expected to enhance top-line growth and ROE.

Summary of Forecast Revisions

Valuation Summary

Financial Highlights

• Net Income: Increased to KRW10.8b in 3Q, but declined significantly YoY.
• Cash Flow:
  • Operating Cash Flow: KRW178b.
  • Free Cash Flow: KRW-255b.
• Balance Sheet:
  • Total Assets: Increased to KRW6,113b.
  • Total Liabilities: Increased to KRW3,171b.
  • Total Equity: Increased to KRW2,941b.
  • Net Debt: Increased to KRW1,915b.

Conclusion

While CJ Korea Express reported strong sales growth, margin contraction and declining ASPs in parcel delivery negatively impacted profitability. Despite these challenges, the company is still rated BUY due to market share gains, contract logistics expansion, and M&A activities. The revised target price of KRW200,000 reflects updated forecasts, but the long-term growth potential remains positive.