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CJ Freshway (051500) Summary

Core Content

CJ Freshway is a company that has been analyzed by Samsung Securities. The report outlines the company's financial performance, market position, and future outlook. It highlights the company's strategic moves to gain a first-mover advantage in the B2B sauce market through its subsidiary Songlim Food, which has shown strong growth in sales and operating profit. Despite challenges such as the upcoming minimum wage hike and regulatory risks in the catering sector, the analyst maintains a BUY recommendation with a 12-month target price of KRW48,000.

Main Points

• Current Price and Target Price: The current price is KRW35,550, and the target price is KRW48,000, which is a 35% increase.
• Market Position: CJ Freshway's stock has been down 25% from its previous peak due to external factors like minimum wage hikes and regulatory risks.
• Performance: The company is expected to report in-line 3Q results, with sales and operating profit rising by 6.8% and 43.5%, respectively, year-over-year.
• Segments:
  • Food Material Distribution: Expected to grow by 4.7% in 3Q, driven by new clients and expansion.
  • Catering: Rose by 10% due to more business days and the earlier Chuseok holiday.
  • Overseas and Other Divisions: Jumped 60% in 3Q due to the inclusion of Songlim Food and a catering operation in Vietnam.
• Subsidiary Songlim Food: A leading B2B sauce player with a wide range of products and clients, including major franchises. It has shown a CAGR of 18% in sales and 32% in operating profit over the past five years.
• Financial Growth: The company is projected to show growth in revenue and net profit over the next few years, with EPS increasing significantly.
• Valuation Metrics: The analyst's target price is based on a 22x 2018 P/E ratio, which is a 10% premium to the average of its global peers.

Key Information

Financial Performance

• Revenue: Expected to grow from KRW2,328b in 2016 to KRW3,006b in 2019.
• Net Profit (adj): Projected to increase from -KRW6b in 2016 to KRW30b in 2019.
• EPS (adj): Expected to rise from -KRW393 in 2016 to KRW2,662 in 2019.
• EBITDA Margin: Projected to increase from 1.9% in 2016 to 2.7% in 2019.
• ROE: Expected to grow from -2.4% in 2016 to 11.9% in 2019.

Valuation Metrics

• P/E (adj): Expected to decrease from 23.9 in 2017 to 13.4 in 2019.
• P/B: Projected to decrease from 2.2 in 2016 to 1.7 in 2019.
• EV/EBITDA: Expected to decline from 15.6 in 2016 to 8.1 in 2019.
• Dividend Yield: Maintains a consistent 0.6% dividend yield.

Strategic Moves

• Songlim Food: A key subsidiary that is enhancing its manufacturing infrastructure to supply more pre-cooked meal items and tailored products to restaurants and HMR makers.
• Synergy Creation: CJ Freshway aims to leverage Songlim Food's capabilities to offer customized sauces, which should help in gaining a first-mover advantage in the B2B sauce market.
• Wage Hike Impact: The upcoming 16.4% minimum wage hike is expected to increase labor costs, but the company is prepared to offset this through higher catering ASPs and improved utilization.

Analyst's View

• The analyst believes the risks mentioned are largely price in and that the company's efforts to boost top-line growth and restructuring in provincial regions justify the target price.
• The recommendation remains BUY, highlighting the company's strong potential for growth and its strategic positioning in the B2B sauce market.

Financial Ratios

Investment Rating

• BUY: Expected to increase in value by 10% or more within 12 months and is highly attractive within the sector.
• HOLD: Expected to increase/decrease in value by less than 10% within 12 months.
• SELL: Expected to decrease in value by 10% or more within 12 months.

Compliance Notice

• The analyst did not own any shares or convertible debt instruments of the company as of Oct 17, 2017.
• Samsung Securities' holdings would not exceed 1% of any company's outstanding shares if convertible debt instruments were converted.
• The report is prepared without undue external influence and reflects the analyst's views accurately.
• All material is under copyright and cannot be altered, reproduced, or distributed without permission.

Disclaimer

• This report is for informational purposes only and is not an offer or solicitation to buy or sell any securities.
• The information is not tailored to individual client circumstances and should not be considered as investment advice.
• Samsung Securities disclaims any liability for losses or damages arising from the use of this report.
• The report is based on publicly available information and is subject to change without notice.
• Past performance is not indicative of future results.
• Foreign currency exchange rates may affect the value of securities mentioned.