Global Korean Food Demand Will Drive Major Long Term Upside Potential

Catalysts

About CJ Cheiljedang

CJ Cheiljedang is a global food and bio company that produces branded Korean food products, amino acids, and animal nutrition solutions with an expanding international footprint.

What are the underlying business or industry changes driving this perspective?

• Acceleration of global penetration for Korean food, supported by fast mainstream channel expansion in the U.S., Europe, Japan, China, and Oceania, is described as a factor expected to sustain mid to high single digit top line growth and operating leverage in the Food business, lifting group revenue and operating profit.
• Rising global appetite for convenient, ready to heat meals such as frozen rice, shelf stable rice, Mandu, noodles and other Korean street food formats is expected to structurally expand CJ Cheiljedang's premium product mix, supporting higher average selling prices and improved net margins.
• AI driven process innovation and optimized global manufacturing allocation in BIO, combined with easing input costs such as raw sugar, are cited as factors that may deepen cost advantages versus peers and potentially expand margins if amino acid pricing stabilizes and earnings recover from a depressed base.
• Strengthening positions in high value TasteNrich solutions, nucleotides and soy protein offerings, aligned with growing demand for clean label flavor systems and alternative protein, are expected to support a mix shift toward higher margin specialty BIO products and may contribute to a multi year rebound in segment operating profit.
• Recovery in feed demand, normalization of livestock prices in key markets, and strategic focus on nonintegrated and higher quality feed customers are described as providing a path for Feed and Care related operations to move from a drag to a modest contributor, potentially reducing earnings volatility and supporting steadier consolidated net income.

Assumptions

This narrative explores a more optimistic perspective on CJ Cheiljedang compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming CJ Cheiljedang's revenue will grow by 4.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.2% today to 3.3% in 3 years time.
• The bullish analysts expect earnings to reach ₩1111.4 billion (and earnings per share of ₩72094.4) by about December 2028, up from ₩47.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₩624.2 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.9x on those 2028 earnings, down from 69.9x today. This future PE is lower than the current PE for the KR Food industry at 9.8x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent oversupply and intense price competition from Chinese producers in amino acids such as lysine and tryptophan, along with continued price declines in nucleotides, could structurally depress selling prices in the BIO segment and delay any recovery in specialty margins, undermining the assumed rebound in group earnings and operating profit.
• If domestic Korean Food demand remains soft, with gift set sales stagnating and processed food growth limited to low single digits despite broader economic support measures, the company may struggle to offset this with overseas growth, constraining top line expansion and limiting operating leverage on fixed costs, which would cap revenue growth and operating margins.
• Sustained cost pressures from higher tariffs, inflationary raw material prices and rising labor and logistics costs in key markets like the U.S., combined with heavier promotional spending in Japan and Europe, could offset efficiency gains from AI driven process innovation and cost optimization, preventing the expected improvement in net margins and earnings.
• Prolonged weakness in livestock prices and demand in markets such as Vietnam, driven by abnormal weather and cyclical downturns, along with the transition of Feed and Care to discontinued operations, may reduce a future source of earnings recovery and create uncertainty around balance sheet deleveraging, weighing on consolidated net income and financial stability.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for CJ Cheiljedang is ₩360000.0, which represents up to two standard deviations above the consensus price target of ₩295411.76. This valuation is based on what can be assumed as the expectations of CJ Cheiljedang's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩360000.0, and the most bearish reporting a price target of just ₩230000.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be ₩33740.9 billion, earnings will come to ₩1111.4 billion, and it would be trading on a PE ratio of 6.9x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of ₩206250.0, the analyst price target of ₩360000.0 is 42.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.