On Wednesday, Shinhan Investment Corp. forecasted an improvement in CJ CheilJedang’s operating profit due to rising oil and grain prices. The firm maintained its Buy rating with a target price of 260,000 KRW (approximately 190 USD).
Shinhan Investment Corp. analyst Jo Sang-hoon noted that while the stock has been underperforming due to prolonged weakness in the bio sector, stemming from increased Chinese supply and intensified competition, the upturn in oil and grain prices is expected to be a key driver for overall operating profit improvement.
Jo elaborated that CJ CheilJedang has established vertical integration across the grain value chain, encompassing procurement, processing, and bio-material conversion. This allows them to maintain more stable input costs compared to competitors during volatile periods. Their business model transforms agricultural raw materials like corn and sugars into high-value products, such as feed-grade amino acids through fermentation, rather than merely consuming grains as a cost input.
He further explained that the rise in grain prices can be passed on to amino acid product prices, potentially turning higher raw material costs into improved profitability for the bio sector. It anticipates a broad recovery in the bio business, particularly in feed-grade amino acids, starting in the second half of the year, following signs of improvement since Q1.
Jo also highlighted that favorable factors such as price increases driven by rising oil and grain costs, coupled with anti-dumping duties imposed on Chinese lysine by the U.S. and Brazil, are expected to contribute positively to the expansion of the bio segment’s profit contribution.
