[Edaily Reporter Kim Kyung-eun ] On the 18th, Hana Securities lowered its target price for CJ Corp.(001040)from 240,000 won to 200,000 won—a 16.7% reduction—citing the need for improved profitability across the group’s affiliates. The firm maintained its “Buy” rating.

Choi Jeong-wook, an analyst at Hana Securities, stated in a report released that day, “We reflected in our valuation the decline in equity value resulting from falling stock prices of major listed subsidiaries, as well as the decline in equity value due to lower profitability at unlisted companies Olive Young and Foodville.”

CJ Corp.’s second-quarter consolidated revenue totaled 11.5 trillion won, a 3.7% increase year-over-year. Operating profit fell 14.1% to 531.8 billion won, falling significantly short of market expectations. This was due to deteriorating profitability as cost pressures increased, despite continued revenue growth at most major affiliates.

CJ CheilJedang Corp(097950)Revenue reached 4.2 trillion won, a 10.2% increase year-over-year, but operating profit fell 18.4% to 161.9 billion won. Although sales of domestic processed foods and global food products grew, profitability was dragged down by increased logistics and packaging costs resulting from rising oil prices.

CJ LOGISTICS(000120)Parcel delivery volume increased by 12.1%, but operating profit fell by 11.8%. This was influenced by a decline in per-package rates, investments in service upgrades, and cost pressures stemming from the Middle East.

CJ Freshway Corporation(051500)Although revenue and market share growth were positive, operating profit fell by 14.2% due to spending on online advertising and promotional expenses aimed at acquiring new customers.

In contrast, CJ ENM CO., Ltd.(035760)saw its operating profit rise by 16.9%, driven by Tving’s return to profitability for the quarter. CJ CGV(079160)also reported a 576.5% increase in operating profit, thanks to the recovery of the domestic film market and a reduction in losses from its theater business.

The performance of unlisted affiliates CJ Corp. Olive Young and CJ Foodville also fell short of expectations. CJ Corp. Olive Young’s second-quarter revenue reached 1.8 trillion won, a 23% increase year-over-year. This was driven by a surge in sales from inbound foreign tourists due to the increase in foreign visitors entering the country. However, second-quarter net income totaled only 130 billion won. The net profit margin is estimated to be around 7.5%. Even excluding the increase in corporate tax expenses, the net profit margin remained at around 8.4%.

Olive Young’s operating profit margin is estimated to have fallen below 11%. Analysts attribute this to a significant decline in the gross profit margin (GPM), driven by changes in the product mix and lower commission rates, as well as increased selling and administrative expenses resulting from the expansion of its U.S. operations and “Olive Better” marketing campaigns.

Analyst Choi noted, “Olive Young launched its U.S. brick-and-mortar stores and dedicated online store in the second quarter, and starting this month, it also began a business-to-business (B2B) venture in collaboration with Sephora,” adding, “The global expansion strategy will clearly serve as an additional growth driver.”

However, he cautioned, “If the situation where a decline in gross profit margin (GPM) is accompanied by rising selling, general, and administrative expenses (SG&A) continues, concerns over poor performance could persist for the long term,” adding, “Some attention must also be paid to restoring the operating profit margin through cost-efficiency efforts.”

CJ Corp. also saw a 16.2% increase in second-quarter revenue, but incurred significant investment costs associated with store expansion in the U.S. The increase in second-quarter net income was driven by corporate income tax benefits, and the operating profit margin is estimated to be only in the 1–2% range.

Analyst Choi emphasized, “Overall, while most subsidiaries are experiencing revenue growth, profitability is deteriorating due to rising cost burdens,” adding, “The key question will be when the global expansion strategy will offset these cost burdens and trigger a full-scale surge in profit growth.”