June 11, 2012 Company Report
CJ Korea Express (000120 KS) Transportation
Daewoo Securities Co., Ltd. Ride the express to future growth Jay JH Ryu +822-768-4175 Initiate coverage with Buy rating and TP of W90,000 [email protected]
We initiate our coverage on CJ Korea Express (Korex) with a Buy call and a target price of W90,000. We applied a residual income model (RIM) in deriving our target price, which corresponds to a P/B (intangible assets not adjusted) of 1.1x. Our target multiple appears reasonable, as we expect: 1) the firmÊs pricing power to recover on the back of its structural advantage in the parcel delivery sector; 2) margins to gradually improve; and 3) its traditional logistics businesses to continue steady growth. It should also be noted that we see strong upside potential to the companyÊs parcel Buy (Initiate) delivery rates in 2013, following the expected completion of parcel delivery Target Price (12M, W) 90,000 logistics terminals and the launch of same day delivery services. Although Share Price (06/07/12, W) 67,700 prospective M&As with foreign logistics firms represent attractive top-line growth Expected Return (%) 32.9 in the long term, we did not factor this into our conservative valuation. EPS Growth (12F, %) 23.8 Market EPS Growth (12F, %) 18.9 A marriage between two giants P/E (12F, x) 14.8 The joint operation of Korex and CJ GLS under the CJ Group umbrella is likely to Market P/E (12F, x) 9.3 speed up industry consolidation, eventually helping to boost the currently low KOSPI 1,847.95 parcel delivery rates. Even if the pricing power of large logistics firms struggles to Market Cap (Wbn) 1,544 quickly recover, we believe KorexÊs same day service targeted at the Seoul Shares Outstanding (mn) 23 metropolitan area could be a game changer that improves the companyÊs sales mix Avg Trading Volume (60D, '000) 26 and thus drives up the blended ASP for parcel delivery service. Avg Trading Value (60D, Wbn) 2 Dividend Yield (12F, %) 0.0 We believe the higher rates, combined with a possible merger between Korex and Free Float (%) 36.1 CJ GLS, will enable the firm to sustain 10% of EPS growth ushering in a new 52-Week Low (W) 61,400 period of strong growth for the logistics company. If done correctly, its M&A with 52-Week High (W) 152,500 CJ GLS could lead to additional multiple expansion, but we are ruling this out for Beta (12M, Daily Rate of Return) 1.0 now. Price Return Volatility (12M Daily, %, SD) 3.3 Foreign Ownership (%) 2.6 Aggressive investment is essential to avoid valuation trap Major Shareholder(s) CJ CheilJedang et al. (40.17%) We believe Korex intends to invest around W1.8tr in acquiring some twenty foreign Treasury shares (23.77%) logistics firms through 2020, in addition to W2.3tr in infrastructure spending. Asiana Airlines et al. (17.39%) Estimated at W450bn annually, the firmÊs planned investments are sizeable, but Price Performance seem manageable given their sound cash flow. (%) 1M 6M 12M The companyÊs advance into overseas markets has yet to yield visible results, but Absolute -8.5 -11.4 -37.9 we are bullish on its basic strategy of starting with small-sized forwarding Relative -3.0 -7.7 -25.9 companies before carefully moving on to bigger M&A targets. If the acquisition Key Business price proves reasonable, M&A events should be seen as opportunities rather than Main business divisions: TPL, stevedoring, risks, with the potential to lead to multiple expansion via a higher ROE. parcel delivery, inland transportation, forwarding, and logistics consulting. § Earnings & Valuation Metrics Share price FY Revenues OP OP Margin NP EPS EBITDAFCF ROE P/E P/B EV/EBITDA 160 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 140 12/10 2,555 155 6.1 69 3,003 266 2 3.7 31.4 1.2 12.1 120 12/11 2,588 123 4.7 85 3,703 199 -376 4.1 20.3 1.0 12.1 100 12/12F 2,718 160 5.9 105 4,584 237 -237 4.6 14.8 0.8 10.6 80 60 12/13F 2,976 186 6.2 112 4,928 266 -134 4.7 13.7 0.8 10.0 40 12/14F 3,350 213 6.4 128 5,592 296 -83 5.1 12.1 0.7 9.4 5/11 9/11 1/12 5/12 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
I. Investment summary ...... 3 1. Ride the express to future growth ...... 3
II. Valuation ...... 4 1. Valuation: Initiate coverage with Buy rating and TP of W90,000 ...... 4 2. Peer valuation ...... 5
III. Parcel delivery business to take a leap forward...... 7 1. Growth of the parcel delivery business...... 7 2. Market competition ...... 8
IV. Logistics unit to drive growth and margins...... 9 1. Largest ground carrier in Korea ...... 9 2. Recovering cargo volume and sustained market share gains...... 10
V. Earnings forecasts...... 12 1. 1Q12 Review...... 12
VI. Merger into the CJ Group and its impact...... 14 1. Acquired by the CJ Group at high premium...... 14 3. Higher parcel delivery profitability and greater market share ...... 15 4. Merger with CJ GLS and treasury shares...... 16
VII. Risks...... 17 1. Overseas expansion: Opportunities as well as risks ...... 17 2. Will capex expansion be positive or negative? ...... 18
2 June 11, 2012 CJ Korea Express
I. Investment summary
1. Ride the express to future growth
Initiate coverage with a We initiate our coverage on CJ Korea Express (Korex) with a Buy call and a target price of Buy rating and a TP of W90,000. We applied a residual income model (RIM) in deriving our target price, which W90,000 corresponds to a P/B of 1.1x. Although KorexÊs shares may not seem attractive, currently trading at a P/B of 0.8x based on a 2012F ROE, we believe that our target multiple is reasonable, as the firmÊs top and bottom lines are anticipated to improve from 2013.
ASP expected to Earnings from KorexÊs parcel delivery business are recovering, brightening the companyÊs increase on market long-term outlook. The parcel delivery industry has undergone restructuring since 2008, integration and same- gradually relieving downward pressures on delivery rates. We expect industry consolidation day delivery service to continue, with Korex being placed under the CJ Group umbrella (to which CJ GLS belongs). Average market rates (and KorexÊs rates) are already edging up. KorexÊs market share is steadily rising, and should rise further if Korex and CJ GLS integrate their systems, leading to earnings improvements. Once the Gwangju parcel terminal (in Gyeonggi Province) is completed after 2013, the company is anticipated to launch same-day delivery services, which should command a higher rate vs. current services, leading to an ASP improvement.
Logistics unit to The logistics unit is also anticipated to see its profitability finally improve on the back of a larger freight experience profitability volume, market share gains and higher delivery rates. Revenues declined in 2000, but the freight improvement volume has since steadily increased as the market has picked up. Although stevedoring rates remain depressed due to intensifying competition, Korex should still be able to achieve economies of scale on gradual market share gains. The TPL unit is also performing strongly, securing nearly W20bn worth of orders in the first quarter alone. As the unit is steadily attracting prime customers, profitability should continue to recover. We believe that the unitÊs healthy 1Q earnings signal further earnings improvement going forward.
Aggressive investment Meanwhile, Korex recently announced its long-term plan to invest W1.8tr in acquiring plan, both an opportunity overseas companies, and W2.3tr in expanding facilities by 2020. This amounts to roughly and a risk W450bn per year, which is significant even considering the companyÊs large cash holdings and strong cash generating capabilities. Such an aggressive move is risky, but could provide an opportunity to improve shareholdersÊ value (by raising the ROE). Given the risky nature of the large-scale investment, the company will need to make selective and strategic investment decisions under the target return guideline of at least 5~10%.
Earnings to recover in We expect KorexÊs earnings to continue to recover in 2012, and then, start to surge in 2013. Operating 2012 and pick up full profit is forecast to rise from W159.6bn in 2012, to W186bn in 2013, and W213bn in 2014. OP margin, swing from 2013 ROE and net profit should improve to 6.4%, 5.1%, and W124bn, respectively, in 2014.
In 1Q12, Korex reported consolidated revenues and operating profit of W661.5bn (up 0.3% YoY) and W38.2bn (up 35.9% YoY), respectively, on an OP margin of 5.8%. The companyÊs earnings improved across all segments, with the TPL segment achieving top-line growth, and the parcel delivery segment raising its rates. We expect this trend to continue throughout the year.
Bright future ahead Under the CJ Group umbrella, Korex is believed to have secured a foothold for its long-term growth. The parcel delivery segment should be able to gain market share after the merger (or system integration) with CJ GLS, and expand overseas, mainly delivering parcels for CJ Group. The merger ratio and the method have yet to be decided, but the merger seems highly likely over the long run, given the low possibility of treasury stock overhang. Indeed, we believe that opportunities will be wide open for Korex.
KDB Daewoo Securities Research 3 June 11, 2012 CJ Korea Express
II. Valuation
1. Valuation: Initiate coverage with Buy rating and TP of W90,000
We initiate our coverage on Korex with a Buy call and a target price of W90,000, based on a residual income model (RIM), which suggests a fair 2012F P/B of 1.1x and a P/E of 19.6x. Given our expectation of sustained ROE improvement from 4.6% in 2012 to 5.1% in 2014 and the firmÊs steady earnings growth thus far, we believe the stock (current price of W67,700) is trading at a modest discount.
We based our target price on the residual income model in order to more actively reflect future earnings growth, as we believe short-term earnings are not an effective gauge in determining a stockÊs over or undervaluation. We expect Korex to see ROE improvement from 2013 on the back of a marked growth in net profits.
We project the stockÊs ROE to meaningfully improve from 2013 and beyond, in light of: 1) a projected rise in parcel delivery rates, supported by industry consolidation, the completion of several parcel delivery logistics terminals and the launch of same-day delivery services; 2) the potential for M&A-led top-line growth; and 3) a possible expansion in overseas markets. In short, we anticipate the company to soon enter a new period of robust growth.
Although current dynamics suggest an immediate rise in parcel delivery rates is unlikely, we still expect KorexÊs average rate to rise on a better sales mix as a result of its same-day delivery service offering. Looking ahead, although the approach to and timing of its M&A with CJ GLS could offer upside potential to our target multiple and earnings estimates, we are ruling this possibility out for now.
Table 1. Valuation: Residual income model (Wbn, W,%, x) 2012 2013 2014 2015 2016 Debt (beginning) 735 836 915 985 1,064 Equity (beginning) 1,834 2,088 2,284 2,458 2,656 Net income 94 112 130 168 203 Capital charge (141) (160) (175) (189) (204) Excess earnings (47) (48) (45) (20) (1) Discount factor 0.9 0.9 0.8 0.7 0.7 PV of excess earnings (126) (32) (42) (36) (15) (1) CV (104) PV of CV (72) Equity (beginning) 1,834 Operating asset value Basic assumption (Adjusted) Non-operating asset value 603 Beta 0.7 Debt 225 Risk Premium 6.0% Shareholder value 2,045 Risk Free Rate 3.3% Outstanding shares (Â000) 17,389 COE 7.6% Perpetual Growth 3.0% Sustainable ROE 7.6% Target price 90,000 Target P/B 1.1 Current price 67,700 Target P/E 19.6 Upside potential 32.9% Source: KDB Daewoo Securities Research
Korex shares have traded at a P/B of 0.7~2.2x since 2006. The shares only traded above 1.4x when expectations for the M&A were high. Given that the companyÊs P/B valuation stood at around 0.7x during a previous down cycle, the current P/B of 0.8x appears undemanding.
Since the ROE is expected to improve full swing from 2014, we believe that the shares are likely to trade at a P/B of 1.0x or higher.
KDB Daewoo Securities Research 4 June 11, 2012 CJ Korea Express
Table 2. Sensitivity analysis (%, W) Cost of equity 6.0 6.5 7.0 7.6 8.0 8.5 9.0 1.0 117,076 106,165 96,920 87,550 82,147 76,171 70,922 2.0 119,553 108,204 98,640 88,986 83,437 77,310 71,939 Perpetual growth rate 3.0 122,827 110,746 100,691 90,000 84,887 78,567 73,043 4.0 128,094 114,392 103,406 92,672 86,620 80,019 74,286 5.0 141,330 121,354 107,781 95,546 88,917 81,832 75,773 Source: KDB Daewoo Securities Research
Figure 1. P/B band of CJ Korea Express Figure 2. ROE vs. P/B of CJ Korea Express
(W'000) (%) (x) 210 15 ROE (L) 2.5 2.2x P/B (R) 180 10 2.0 150 1.4x 120 5 1.5 1.1x 90 0 1.0
60 0.7x 0.5x -5 0.5 30
-47.9% 0 -10 0.0 04 06 08 1012F 12 02 04 06 08 10 12F 14F
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
2. Peer valuation
As with Nippon Express with a similar ROE, KorexÊs ROE and P/B are low relative to those of its peers. However, we believe the shares of Korex are more attractively valued in light of higher profitability and long-term growth potential.
If parcel delivery rates are increased, and the sales mix is improved over the long term, the companyÊs ROE will likely double to around 9% in 2014. As such, the company will likely become one of the most undervalued stocks in the industry within two to three years. Furthermore, overseas investments and additional capex will likely further boost ROE.
Table 3. Peer valuation (x, %) OP margin P/E P/B ROE 11 12F 13F 11 12F 13F 11 12F 13F 11 12F 13F CJ Korea Express 4.8 5.9 6.2 20.3 14.8 13.7 1.0 0.8 0.8 4.1 4.6 4.7 Hanjin 2.5 2.8 2.9 - - 25.7 0.3 0.3 0.3 -3.9 -0.1 1.2 Nippon Express (P) 2.3 2.4 2.5 12.5 12.9 11.9 0.7 0.7 0.6 5.7 5.2 5.4 Mitsubishi (JP) 6.1 5.9 6.0 22.6 18.8 18.0 0.8 0.7 0.7 3.7 3.5 3.5 Kintetsu (JP) 5.2 5.0 5.1 10.9 10.4 9.8 1.4 1.2 1.0 13.1 11.6 11.1 Yamato Holdings (JP) 5.3 5.4 5.7 27.8 13.6 12.8 1.1 1.0 0.9 3.8 7.4 7.5 UPS (US) 11.4 13.4 13.8 16.8 15.9 13.9 10.0 8.8 7.2 50.7 64.8 67.5 Fedex (US) 6.3 7.6 8.4 19.1 13.4 11.7 2.0 1.6 1.5 10.0 12.4 12.9 Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 5 June 11, 2012 CJ Korea Express
Figure 3. EPS growth and P/E of CJ Korea Express vs. global peers
(P/E, x) 30.0
25.0
20.0
UPS 15.0 CJ Korea Express Fedex Nippon Express 10.0 Kintetsu
5.0 0 1020304050607080
Source: Bloomberg, KDB Daewoo Securities Research
Figure 4 ROE and P/B of CJ Korea Express vs. global peers
(P/B, x) 1.8 Fedex 1.6
1.4 R2 = 0.9
1.2 Yamato Holdings Kintetsu 1.0
0.8 Mitsubishi Nippon Express 0.6
0.4 Hanjin CJ Korea Express
0.2 (ROE, %) 0.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 6 June 11, 2012 CJ Korea Express
III. Parcel delivery business to take a leap forward
1. Growth of the parcel delivery business
Stellar growth since Launched in 1992, KoreaÊs parcel delivery services have expanded rapidly since the late- 2000 1990s, driven further by the dramatic rise of online and home shopping since the early-2000s.
High growth potential KoreaÊs annual parcel delivery volume per person stood at 26 parcels in 2011, surpassing that of Japan. Despite concerns about a consumption slowdown, the industryÊs growth potential is increasing as budget-conscious consumers look to score a deal online amid the economic slowdown. In light of the growth potential of the online and home shopping businesses, the parcel delivery market is anticipated to expand going forward.
Figure 5. Parcel traffic trend Figure 6. Parcel traffic per person (Japan vs. Korea)
(Wbn) (mn units) (units) 5,000 Total parcel volume (R) 1,800 40 Japan's parcel traffic per person Korea's parcel traffic per person 4,500 Market size (L) 1,600
4,000 1,400 30
3,500 1,200
3,000 1,000 20
2,500 800
2,000 600 10
1,500 400
1,000 200 0 04 05 06 07 08 09 10 11 12F 13F 14F 04 05 06 07 08 09 10 11
Source: Industry data, KDB Daewoo Securities Research Source: Industry data, KDB Daewoo Securities Research
Figure 7. Department store and online shopping sales trends Figure 8. Online shopping sales relative to department stores
(YoY, %) (mn units) (%) 75 Department store 1,600 Parcel traffic (L) 90 Online shopping sales relative to department store (R) Online shopping 1,400 80 60 1,200 70 45 1,000 60
30 800 50
600 40 15 400 30 0 200 20
-15 0 10 06 07 08 09 10 11 12 06 07 08 09 10 11
Source: Statistics Korea, Industry data, KDB Daewoo Securities Research Source: Statistics Korea, Industry data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 7 June 11, 2012 CJ Korea Express
2. Market competition
The Korean parcel delivery market has developed in roughly four stages.
Competition intensified Initially, the market was dominated by three players, including Korex, Hanjin Express, and starting in early-2000s Hyundai Parcel Delivery Service. However, the growth of the market attracted new entrants, with large conglomerates establishing affiliates such as CJ GLS, Samsung HTH, and Shinsegae SEDEX. In 2001, the entry of Korea Post sparked full-scale competition.
Restructuring intensified The growing competition in the market led to a plunge in delivery rates, triggering restructuring in 2008 (delivery rates fell to an average of around W2,500 per package, and remained at that level until recently). In 2008, CJ GLS acquired Samsung HTH, and Hanjin Express merged with Shinsegae SEDEX. As a result, the industry was led by these four major players up until recently.
Further restructuring is CJÊs acquisition of Korex gave birth to a giant player with a market share of over 30%. In the expected more mature Japanese market, only two top-tier players and one second-tier company survived industry consolidation. Thus, we expect additional M&As and industry restructuring in the long term as the Korean market matures.
Table 4. Parcel delivery industry competition Stage Competition trend 1st stage 1990 Market dominated by 3 major players; Korea Express, Hanjin Transport, Hyundai Logistics 2nd stage early 2000s~2008 Entry of large companies and Korea Post 3rd stage 2008~2011 Integrated market with 4 major players; Korea Express, Hanjin Transport, Hyundai Logistics, Korea Post 4th stage 2012~ Further integration; Integrated operation of Korea Express & CJ GLS Source: KDB Daewoo Securities Research
Figure 9. Market shares of Korean parcel delivery companies Figure 10. Market shares of Japanese parcel delivery companies
Others Seino 2.0% Fukuyama 3.7% CJ Korea Express 3.8% 19.2% Others Japan Post Service 34.8% 10.9%
Yamato CJ GLS Transport 14.5% 42.2%
Sagawa Express Hyundai Logistics 37.4% Korea Post 11.5% 9.6% Hanjin 10.4% Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Korex to raise average Korex recently announced that it will raise delivery rates in line with quality improvements. With delivery rate through the aim to enhance services, the company is constructing a new terminal in Gwangju, Gyeonggi sales mix improvement Province, in which the company has invested W159.2bn (completion scheduled for 2013). The new terminal should enable the company to provide same-day delivery services. Same-day service rates should be 50% higher than the current ones, boosting the companyÊs average rate.
Table 5. Infrastructure projects Gyeonggi-do Gwangju Mega-hub Terminal Munpyeong-dong Hub Terminal Scale 139,000m2 (42,000 pyeong) 35,000m2 (11,000 pyeong) Overview Investment W159bn W100bn Operation date After Dec. 2013 2H11 - Same-day delivery service within metropolitan area and - Cost reduction through automation and load factor improvement Effect market share gain - Network optimization - Build wide 1Hub 4ub parcel terminal network Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 8 June 11, 2012 CJ Korea Express
IV. Logistics unit to drive growth and margins
1. Largest ground carrier in Korea
Asset-based carrier Korex is the largest domestic ground carrier with annual revenues estimated at W2.6tr in protected by high entry 2011. We believe the companyÊs ability to generate steady earnings despite limited barriers businesses with its affiliates attests to its strong competitiveness. As one of the few asset- based carriers in Korea, Korex should continue to strengthen its market position going forward. Asset-type carriers are protected by high entry barriers, since 1) rising real estate prices have driven up the initial cost burden, making it difficult for new entrants to break into the domestic market (especially the Seoul metropolitan area); and because 2) well- established players maintain solid relationships with cargo owners.
Risk of further margin By business segment, third party logistics (TPL) and maritime operations (i.e. stevedoring compression is limited; and shipping) contribute around 57% to total revenues. In terms of profitability, the gross watch for margin profit margins of the TPL and maritime operations divisions stand at 9.7% and 9.8%, improvement and respectively. Despite steady top-line growth, downward pricing pressures amid the economic slowdown have caused continued margin compression. However, we see limited earnings stabilization downside risks to OP margins; rather, we expect earnings at the companyÊs TPL and maritime businesses to stabilize in the long run.
Figure 11. Revenue breakdown by segment Figure 12. Gross profit breakdown by segment
(Wbn) (Wbn) 1,000 TPL Maritime business 150 TPL Maritime business Parcel delivery Forwarding Parcel delivery Forwarding
800 120
600 90
400 60
200 30
0 0 08 09 10 11 12F 08 09 10 11 12F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
Figure 13. Long-term revenue trend and forecasts Figure 14. Long term GP margin trend and forecasts by segment
(Wbn) (%) 3,500 ■ Sales 18 TPL Maritime business Parcel delivery Forwarding 3,000 Parcel delivery sales growth 15
2,500 12 2,000 Land logistics 9 1,500 sales growth CAGR 9.3% 6 1,000
500 3
0 0 04 05 06 07 08 09 10 11 12F 13F 14F 04 05 06 07 08 09 10 11 12F 13F 14F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 9 June 11, 2012 CJ Korea Express
2. Recovering cargo volume and sustained market share gains
Focus on KorexÊs KorexÊs main sources of revenues, other than parcel delivery, are TPL and maritime operational capacity and operations, each contributing 39% and 18% of total revenues. In particular, stevedoring economies of scale revenues are strongly affected by the freight volume growth of containers, coal, and steel goods. Despite the global economic slowdown, container freight volume keeps rising. At the Busan Port, while competition with neighboring ports (Bukhang and Sinhang) should restrain KorexÊs freight rate hikes, it should be noted that the company has achieved sufficient economies of scale and operational capacity that should allow the company to weather difficult times.
Figure 15. Container traffic trend
('000 TEU) 25,000 Total container traffic Import container traffic 11.6% 22,500 Export container traffic Transit container traffic (YoY) 18.5% 20,000 (YoY) 17,500 15,000 12,500 CAGR 8.02% 10,000 7,500
5,000 2,500
0 01 02 03 04 05 06 07 08 09 10 11
Source: MLTM, KDB Daewoo Securities Research
As of 2011, the company held respective market shares of 17% and 21% in domestic bulk and container traffic, emerging as the unrivalled leader in both markets. Considering KorexÊs operational capacity and economies of scale, we expect the company to post top-line growth of at least 10%, and return on revenues of more than 9% from 2012. The companyÊs shipping unit contributes only a small portion of revenues (2012F contribution to revenues of roughly W49bn), but we project the portion to increase with the deployment of a self- propelled barge in 2Q (related revenues estimated at W15bn).
Figure 16. Bulk traffic and market share of CJ Korea Express Figure 17. Container traffic and market share of CJ Korea Express
(mn tonnes) (%) ('000 TEU) (%) 25 20 Bulk traffic 1,500 Container traffic 24 Market share Market share 20 16 1,200 20
15 12 900 16
10 8 600 12
5 4 300 8
0 0 0 4 1Q10 1Q11 1Q12 1Q10 1Q11 1Q12
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 10 June 11, 2012 CJ Korea Express
In the parcel delivery segment, the firm has also continued to increase its market share, which has risen from 10.4% in 2005 to over 15% in 2008 and 19.2% in 2011. Indeed, the marketÊs total parcel delivery volume has increased 79.9% since 2005; during the same period Korex has seen its volume soar 215%. After less competitive firms were forced out of the market due to excessive competition, the market is now dominated by a handful of leading firms. We believe this trend will continue with Korex potentially increasing its market share to 30~40%.
Table 6. Parcel volume and revenues of CJ Korea Express (mn units, Wbn, %) Volume of CJ Korea Revenues of CJ Total volume Total revenues Market share Express Korea Express 2005 560 1,830 58 10.4 176 2006 690 2,004 83 12.0 222 2007 880 2,282 122 13.9 290 2008 1,000 2,586 158 15.8 366 2009 1,100 2,900 188 17.1 424 2010 1,200 3,009 226 18.8 496 2011 1,300 3,292 249 19.2 554 Source: Korea Integrated Logistics Association, CJ Korea Express, KDB Daewoo Securities Research
Figure 18. TPL revenues, gross profit trend and forecasts Figure 19. Maritime revenues, gross profit trend and forecasts
(Wbn) (%) (Wbn) (%) 400 Revenues (L) 20 200 Revenues (L) 20 Gross profit (L) Gross profit (L) GP margin (R) GP margin (R) 320 16 160 16
240 12 120 12
160 8 80 8
80 4 40 4
0 0 0 0 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13F 1Q14F 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13F 1Q14F
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 11 June 11, 2012 CJ Korea Express
V. Earnings forecasts
1. 1Q12 Review
1Q12 Review: Earnings Korex reported 1Q12 consolidated revenues of W661.5bn and an operating profit of improved markedly W38.2bn. On a non-consolidated basis, revenues and operating profit each came in at W585bn and W31.7bn. Despite an economic downturn, the companyÊs TPL and shipping businesses posted strong growth, and revenues from the parcel delivery business expanded by 9.6% on rate hikes and freight volume growth, driving up gross profit margin.
Stripping away one-off sales related to Kumho-Asiana Group in 1Q11, revenues under non- consolidated K-IFRS increased 11.2% YoY in 1Q12, while operating profit climbed by 26.8% YoY. The TPL division, which attracted new customers (orders of W23.3bn) displayed marked revenue and profit growth, while the parcel delivery division also posted a 9.6% YoY increase in revenues, thanks to the addition of 360 customers and rate hikes. Furthermore, gross profit margin also climbed to 10.4%, as costs fell by W33 per box thanks to process improvements.
OP margin rose to a record 5.4%, and net profit also came in strong at W25.3bn. We believe that the elimination of one-off expenses is leading to margin improvements. Robust earnings steadily improved financials, with the debt-to-equity ratio falling from 37.8% at end-2010 and 31.8% at end-2011 to 31.5% at end-4Q.
Table 7. 1Q12 Earnings by segment (Wbn, %) 2011 2011 2012 Growth 1Q 4Q 1Q QoQ YoY Revenues TPL 199.6 228.8 229.4 0.3 14.9 Stevedoring 88.4 99.6 95.1 -4.5 7.6 Marine transportation 7.5 8.4 8.7 3.6 16.0 Forwarding 119.2 104.3 107.6 3.2 -9.7 Parcel delivery 131.6 154.4 144.2 -6.6 9.6 Total 546.3 595.5 585.0 -1.8 7.1 Gross profit TPL 15.4 17.4 22.2 27.6 44.2 Stevedoring 8.1 7.4 9.4 27.0 16.0 Marine transportation 0.7 0.6 0.8 33.3 14.3 Forwarding 5.7 2.7 5.0 85.2 -12.3 Parcel delivery 11.6 15.9 15.0 -5.7 29.3 Total 41.5 44.0 52.4 19.1 26.3 Note: Based on non-consolidated K-IFRS, Source: Company data, KDB Daewoo Securities Research
Table 8. 1Q12 Earnings and consensus (Wbn, %, %p) 1Q12P Growth 1Q11 4Q11 Actual Consensus YoY QoQ Revenues 546 596 585 580 7.1 -1.8 Operating profit 18 28 32 30 79.1 13.2 OP margin 3.2 4.7 5.4 5.1 2.2 0.7 Pretax margin 22 38 33 31 53.0 -13.9 Net profit 15 18 25 24 73.3 39.8 Note: Based on non-consolidated K-IFRS, Source: Company data, KDB Daewoo Securities Research
2) Outlook for 2013 and beyond looks brighter Operating profit forecast Korex is anticipated to enjoy steady profit growth going forward. In 2Q, OP margin is likely to at W38bn in 2Q stabilize on the back of stable freight rates and higher parcel delivery rates, with operating profit reaching W38bn on a consolidated basis. We should also note the positive effect that the improvement in capacity utilization at the Munpyeong-dong Terminal (up from 80% in 1Q to nearly 100% in 2Q) will have on profitability. The joint operation with CJ GLS is also anticipated to start bearing fruit as early as 3Q.
KDB Daewoo Securities Research 12 June 11, 2012 CJ Korea Express
ROE to improve We anticipate that KorexÊs OP margin will improve to 5.9% in 2012, and soar in 2014 on significantly over the parcel delivery rate hikes. Accordingly, ROE should exceed 5% (from 4%) in 2014, and 10% long term in 2015, when parcel delivery rates start to rise full swing. In projecting KorexÊs earnings, we excluded the impact of overseas M&As (likely to materialize from 2013) and possible cost cuts following the merger with CJ GLS. Once M&As are completed, we plan to revisit the companyÊs valuations.
Table 9. Quarterly earnings forecasts (Wbn, %, %p) 2011 2012F 1Q12 Growth 2011 2012F 2013F 2014F 1Q 2Q 3Q 4Q 1QP 2QF 3QF 4QF QoQ YoY Revenues 659 633 628 668 661 687 651 719 -1.0 0.3 2,588 2,718 2,976 3,350 Operating profit 28 44 38 16 38 38 43 40 145.4 37.1 125 160 186 213 Pretax profit 14 33 17 -20 30 32 37 36 TTB 120.7 43 135 144 164 Net profit 4 22 18 37 21 24 28 27 -42.7 383.7 81 101 109 124 OP margin 4.2 6.9 6.0 2.3 5.8 5.6 6.7 5.5 3.4 1.6 4.8 5.9 6.2 6.4 Pretax margin 2.1 5.2 2.7 -3.0 4.5 4.6 5.7 5.0 7.5 2.5 1.7 5.0 4.8 4.9 NP margin 0.7 3.4 2.8 5.6 3.2 3.5 4.3 3.8 -2.4 2.6 3.1 3.7 3.7 3.7 Note: Based on consolidated K-IFRS, Source: CJ Korea Express, KDB Daewoo Securities Research
Figure 20. Operating profit and OP margin trends of CJ Korea Express
(Wbn) (%) 70 Operating profit (L) 10 OP margin (R) 60 8 50
6 40
30 4
20 2 10
0 0 1Q09 1Q10 1Q11 1Q12F 1Q13F 1Q14F
Note: Based on consolidated K-IFRS after 2011 Source: Company data, KDB Daewoo Securities Research
Table 10. Quarterly earnings by segment (Wbn, %) 2010 2011 2012F 2010 2011 2012F 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1QP 2QF 3QF 4QF TPL Revenues 175 188 186 200 200 204 210 229 229 250 244 268 749 842 992 Gross profit 18 19 18 16 15 22 21 17 22 30 33 32 71 75 117 GP margin (%) 10.3 9.9 9.8 7.8 7.5 10.7 9.9 7.6 9.7 11.9 13.6 12.0 9.4 8.9 11.8 Maritime Revenues 71 79 80 88 96 106 103 108 104 132 114 126 318 413 475 Business Gross profit 8 10 10 9 9 11 10 8 10 14 14 11 36 38 49 GP margin (%) 10.6 12.7 12.2 10.1 9.3 10.6 9.6 7.5 9.8 10.5 12.0 8.9 11.4 9.2 10.3 Parcel Revenues 115 120 119 142 132 136 132 154 144 142 136 158 496 554 580 Delivery Gross profit 13 13 13 15 12 16 14 16 15 14 18 19 54 58 65 GP margin (%) 11.5 11.2 10.7 10.3 9.0 11.7 10.6 10.3 10.4 9.7 13.0 11.9 10.9 10.4 11.2 Forwarding Revenues 116 129 154 136 119 106 105 104 108 84 83 85 536 435 359 Gross profit 6 6 8 6 6 6 5 3 5 5 5 4 26 20 19 GP margin (%) 4.9 4.9 5.1 4.6 4.9 5.5 5.0 2.6 4.6 6.3 5.6 4.6 4.9 4.5 5.2 Note: Based on non-consolidated K-IFRS, Source: CJ Korea Express, KDB Daewoo Securities Research
KDB Daewoo Securities Research 13 June 11, 2012 CJ Korea Express
VI. Merger into the CJ Group and its impact
1. Acquired by the CJ Group at high premium
CJ and CJ GLS each Korex was merged into the CJ Group in 2011. Currently, CJ and CJ GLS each have a 20.1% have a 20.1% stake stake in Korex, with Asiana Airlines and Daewoo E&C holding respective stakes of 5.0% and 5.3%. The shares held by Asiana Airlines and Daewoo E&C are likely to be sold in the long term.
High acquisition price The CJ Group acquired Korex for 2~3 times above the market price at W208,550 per share. implies the companyÊs We believe the company paid a premium for the following reasons: 1) expectations of value synergy creation with CJ GLS, 2) KorexÊs extensive experience and knowhow, which could help with the GroupÊs logistics and in running overseas operations, and 3) the large value of reserved assets.
Korex emerges as a As for Korex, the acquisition is expected to benefit the companyÊs investment holdings and dominant player through aid in its overseas expansion as the profitability of its existing businesses stagnates. In M&A addition, the deal should help Korex cement its dominant position in a W3.2tr domestic parcel delivery market.
Treasury shares to be Meanwhile, we expect Korex to dispose of its treasury shares (23.8% of total shares) as sold to a strategic well. However, a sale in the stock market could impede a merger with CJ GLS due to a investor share overhang. Accordingly, Korex is seeking a strategic investor to prevent an overhang.
Figure 21. Corporate governance (before takeover) of CJ Korea Express Figure 22. Corporate governance (after takeover) of CJ Korea Express
Asiana Airlines FI 5.0% 5.3% Daew oo E&C CJ CheilJedang Asiana Airlines 5.3% 20.1% 23.9% FI 7.1% Others 18.6%
Others 18.6% CJ GLS 20.1% Daew oo E&C Treasury Stock 23.9% 23.7% Treasury Stock 23.8%
Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research
2) Venus meets Mars The merger between As seen in
Therefore, a merger between the two companies will likely create significant synergies in the long term. For example, CJ GLS could cut logistical costs, if it fully utilizes KorexÊs parcel terminals. In addition, Korex would also be able to reduce logistical costs thanks to efficiency improvements in the delivery network and an increase in the proportion of outsourcing, making it easier to gain market share.
KDB Daewoo Securities Research 14 June 11, 2012 CJ Korea Express
Table 11. Earnings comparison of CJ Korea Express and CJ GLS (Wbn, times, %) Revenues Total assets Operating profit Asset turnover ROE OP margin FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 CJ Korea Express 2,463 2,587 3,909 3,595 173 122 0.5 0.7 3.4 3.9 7.1 4.7 CJ GLS 1,330 1,540 506 1,493 31 40 2.6 1.5 8.8 3.6 2.4 2.6 Note: Based on non-consolidated K-IFRS, Source: Company data, KDB Daewoo Securities Research
Figure 23. Parcel delivery company matrix
Asset oriented CJ GLS
Hyundai Logistics
CJ+Korea Express
Hanjin
Non-asset Korea Express oriented 0 1020304050607080
Diversification Concentration
Source: KDB Daewoo Securities Research
Figure 24. Revenues and operating profit trend Figure 25. ROE trends of CJ Korea Express and CJ GLS
(%) '11 Revenues CJ GLS + Korea Express 15 Korea Express CJ GLS CJ GLS + Korea Express Korea Express CJ GLS
'10 Revenues CJ GLS + Korea Express 10 Korea Express CJ GLS
'11 Operating CJ GLS + Korea Express 5 income Korea Express CJ GLS 0 '10 Operating CJ GLS + Korea Express income Korea Express CJ GLS (Wbn) -5 0 500 1,000 1,500 2,000 2,500 3,000 3,500 07 08 09 10 11
Note: Based on non-consolidated K-IFRS Note: Based on non-consolidated K-IFRS Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
3. Higher parcel delivery profitability and greater market share
Parcel delivery business The merger between Korex and CJ GLS would create positive operational synergies, in our to enjoy cost cuts and view. Indeed, Korex announced in 1Q12 that their joint activities with CJ GLS helped reduce market share gains costs by W14bn while improving delivery times (each truck only has to cover a smaller area). The combined parcel delivery market share of 34% (19% for Korex and 15% for CJ GLS) will likely rise further in the future, leading to further cost reductions.
Pricing power to recover If Korex and CJ GLS completely integrate their operations, as compared to mere cooperation, on higher market they will be able to improve their market concentration, which we expect will cause the concentration Herfindahl Index (see
KDB Daewoo Securities Research 15 June 11, 2012 CJ Korea Express
The Korean parcel delivery market lags far behind its Japanese counterparts in terms of market consolidation. In Japan, Yamato and Sagawa respectively hold market shares of 42% and 37%, with the Herfindahl Index standing at roughly 3,330pt. However, now that KoreaÊs parcel industry is dominated by three players, we believe that the worst of the competition war is over, and top-tier firms should regain their pricing power over the long term.
Figure 26. Parcel traffic and unit price for CJ Korea Express Figure 27. Parcel delivery industryÊs HHI index
(mn units) (W) (Index) 100 2,800 2,000 Parcel traffic (L) HHI < 1,000 : low competition Unit price (R) < 1,000~1800 : competitve market < 1,800~4,000 : oligopoly market 80 2,600 > 4,000 : monopoly market 1,500
60 2,400
1,000 40 2,200 mo v i n g t o w a r d oligopoly market
500 20 2,000
0 1,800 0 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 Before M&A After M&A
Source: Industry data, KDB Daewoo Securities Research Source: Industry data, KDB Daewoo Securities Research
4. Merger with CJ GLS and treasury shares
Deterioration in Undoubtedly, the merger with CJ GLS and the disposal of treasury shares should affect the shareholdersÊ value to companyÊs share performance. Although detailed plans for the merger have not yet been be limited determined, it should not, however, have a negative impact on shareholdersÊ value regardless of its method and type. In addition, overhang risks from the disposal of treasury shares are limited, since Korex plans to sell them to a strategic investor (a consignor or a global logistics company).
Merger with CJ GLS to Even though an accurate valuation of CJ GLS (unlisted) is difficult, the merger of Korex with generate synergies CJ GLS should proceed smoothly, in our view. Furthermore, merging with a major market player should generate direct and indirect synergies.
Figure 28. Corporate governance of CJ Group
Lee, Jae Hyun 100% C&I Leisure 90.0% CJ Venture & Affiliates Industry Investment 88.0% 43.5% 90.3% Sinuido Salt Orion Cinema CJCJ Network (001040 KS) 100% (001040 KS) 86.7% 40.2% On Game CJ MD One CJCJ E&ME&M 37.0% Network CJCJ CheiljedangCheiljedang (130960(130960 KQ)KQ) 66.2% 100% 46.5% (097950(097950 KS)KS) Woosung CJCJ SeefoodSeafood Seefood 39.8% 98.8% Baduk Television CJ O Shopping (011150(011150 KS)KS) 20.1% CJ O Shopping Superrace (035760(035760 KS)KS) 68.8% 97.8% Mediaweb Youngwoo CJCJ Korex Korex (000120 KS) 66.9% 60.3% Frozen Food (000120 KS) SA CJ Hellovision 67.0% Management CJ Ngc Korea 100% 100% 20.1% Don Don Super Feed 93.2% 100% 100% 100% Farm CJ GLS CJ Olive Young CJ Telenix CJ IG
100% 41.4% 98.3% Art Service CJ Powercast 92.7% E&C Infra 66.3% 52.5% 4D plex CJ SYSTEMS Ani-Park
40.1% Azworks 100% 100% CJCJ CGVCGV 60.0% Primus Cinema CJ Sports (079160(079160 KS)KS) 99.9% 50.0% East Busan 100% D-Cinema of 50.0% CJ E&C Theme Park Good Concert Korea 100% 100% 51.8% 82.5% 17.5% KMTV CJCJ FreshwayFreshway C&I Leisure CJ N-city (051500 KS) HB PFV 100% (051500 KS) Industry International Media genius 96.3% 42.1% CJ Foodville Embaro
Source: CJ Group, KDB Daewoo Securities Research
KDB Daewoo Securities Research 16 June 11, 2012 CJ Korea Express
VII. Risks
1. Overseas expansion: Opportunities as well as risks
Overseas expansion to The recent announcement of KorexÊs plan to acquire overseas companies can be construed enhance shareholdersÊ as efforts to improve its low ROE. In addition, the company plans to expand its overseas value markets jointly with domestic shippers by fully taking advantage of its dominant market status. Its efforts should enhance shareholdersÊ value over the long-term.
Risks from overseas Korex plans to invest a total of W1.8tr (W200bn on annual average) until end-2020 to acquire M&As are limited overseas companies (three companies by end-2013 and 20 companies in the long-term). Competitive forwarding companies in Indonesia, Vietnam and China are expected to be the first target. Initial investments are estimated at W50~100bn per deal. In light of 1) the companyÊs cash and cash equivalents of W200bn and 2) annual EBITDA of W200~300bn, these investments are unlikely to weigh on the company.
KorexÊs success with M&As will be determined by the type of business of the target companies and their acquisition prices. If revenues of acquired companies exceed acquisition prices and they generate ROEs around 5~10%, the M&As should not erode KorexÊs ROE.
Table 12. KorexÊs initial overseas investment plans (US$mn) Revenues (2011) Market Business Company A 33 Asia/South America Forwarding Company B 200 America/Europe/SE Asia Chinese large shipper Company C 200 America/Europe/SE Asia Chinese airline forwarding Company D 80 Middle East/South America Project forwarding Source: Company data, KDB Daewoo Securities Research
Figure 29. Overseas M&As of CJ Korea Express
'17~'20
'14~'16 Global SCM partner '12~'13 Global network expansion based on Vision strong link with Asia Asia-oriented expansion of overseas business
Other Other Other China Japan Europe China Japan Europe China Japan Europe Americas Americas Americas Region other North MiddleEast other North MiddleEast other North MiddleEast SE Asia SE Asia SE Asia Asia America Africa Asia America Africa Asia America Africa
Contract Express Contrack Express Contract Express Forward-ing Other SCM Forward-ing Other SCM Forward-ing Other SCM Logistics Parcel Logistics Parcel Logistics Parcel Project In partnership with shippers (port and parcel delivery business)
: Primary : Secondary
Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 17 June 11, 2012 CJ Korea Express
Figure 30. Long-term vision of CJ Korea Express
(Wbn) (%) 30,000 Head office revenues (L) 32 Overseas revenues (L) 25,000 Overseas revenues relative to head office revenues (R) 30
20,000 28
15,000 26
10,000 24
5,000 22
0 20 13F 14F 15F 16F 17F 18F 19F 20F
Source: Company data, KDB Daewoo Securities Research estimates
2. Will capex expansion be positive or negative?
Capex likely to be In addition to acquiring overseas companies, Korex plans to aggressively increase capex, concentrated in the port mainly in the port terminal segment. Indeed, the company has already made investments in terminal segment harbor loading and unloading infrastructure (W36.3bn in 2010; W66.3bn in 2011) and plans to spend W204bn in 2012 on pier construction (e.g., W77.8bn for the new port in Songdo; W47.6bn for limestone piers in the East Sea). In our view, Korex is expanding capex in an effort to reap benefits from the expected increases in trading with China and Southeast Asia as well as projected bulk shipping growth.
Korex plans to spend W2.3tr on facility investments until end-2020, including 2012F capex of W389bn. Although we project capex to decrease in 2013 and 2014, the figures for those years should still be higher than the companyÊs 2006~2010 average.
Table 13. Investment performances and plans of CJ Korea Express (Wbn) 2010 2011 2012F Major investments TPL 15.3 14.4 24.8 Transportation equipment (15.0), warehouse (8.3), etc. Stevedoring 36.3 66.3 204.0 New port in Songdo (77.8), pier in East Sea (47.6), soft coal in Gunsan (13.7), etc. Marine transportation 31.5 30.8 23.5 Multi-modules (14.0), self-propelling ship (6.4), etc. Forwarding 4.8 0.2 10.2 Overseas subsidiaries, etc. (8.0) Parcel delivery 36.6 22.3 87.8 Hub terminal (43.2), Gunpo terminal (11.3), etc. IT and others 47.7 31.9 39.0 Integrated logistics system (13.8), System PMI (8.0), etc. Total 172.2 165.9 389.3 Source: Company data, KDB Daewoo Securities Research
Figure 31. ROE trend and forecasts Figure 32. Capex trend and forecasts
(%) (Wbn) ■ Capex 16 ROE 500
12 400
8 300
4 200
0 100
-4 0 07 08 09 10 11 12F 13F 14F 09 10 11 12F 13F 14F
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 18 June 11, 2012 CJ Korea Express
The company needs to So far, KorexÊs aggressive investments have served as a growth driver. However, if returns take a prudent and on invested capital (ROIC) are not sufficiently high, this aggressive capex could erode the selective approach to its companyÊs shareholder value. As such, Korex needs to take a prudent and selective investments in order to approach to making investment decisions. generate high ROIC On a consolidated basis, KorexÊs net debt-to-equity ratio has fallen to 35%. Although we forecast the ratio to reach 44% in 2014, it is likely to stay at that level thereafter. For now, we believe that the companyÊs aggressive capex is unlikely to dent its financial health. However, taking into account KorexÊs pursuit of overseas M&As, we believe that investors should closely monitor whether the companyÊs internal cash flow will be sufficient to finance its overall investments.
Figure 33. EBITDA trend and forecasts Figure 34. Ratio of net liabilities trend and forecasts
(Wbn) (%) 80 Ratio of net liabilities 500 ■ EBITDA 60 400 40
300 20
0 200
-20 100 -40
0 -60 07 08 09 10 11 12F 13F 14F 07 08 09 10 11 12F 13F 14F
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 19 June 11, 2012 CJ Korea Express
CJ Korea Express (000120 KS/Buy/TP: W90,000)
Comprehensive Income Statement (Wbn) 12/09 12/10 12/11 12/12F 12/13F 12/14F 03/12 06/12F 09/12F 12/12F Revenues 2,248 2,555 2,588 2,718 2,976 3,350 661 687 651 719 Cost of Sales 1,976 2,269 2,353 2,441 2,651 2,980 602 617 577 646 Gross Profit 273 286 235 277 326 370 59 70 75 73 SG&A Expenses 122 131 110 117 140 157 21 32 31 33 Operating Profit (Adj) 151 155 125 160 186 213 38 38 44 40 Operating Profit 151 155 123 160 186 213 38 38 44 40 Non-Operating Profit -48 -29 -79 -25 -42 -50 -8 -6 -6 -4 Net Financial Income -3 53 36 25 42 50 6 6 66 Net Foreign Currency Related Gains (Losses) -6 00111 1 0 00 Net Gains from Inv in Associates 0 -2 0 -1 -1 -1 -3 0 02 Other Non-Operating Profit -52 23 -22 000 0 0 00 Pretax Profit from Continuing Operations 103 125 44 135 144 164 30 32 37 36 Income Tax 23 47 35 34 35 40 9 8 99 Profit from Continuing Operations 79 78 9 101 109 124 21 24 28 27 Profit from Discontinued Operations -69 -10 72 000 0 0 00 Tax Effect 0 016 000 0 0 00 Net Profit 5 68 81 101 109 124 21 24 28 27 Controlling Interests 4 69 85 105 112 128 24 24 29 29 Non-Controlling Interests 2 -1 -4 -4 -4 -4 -2 0 0-1 Total Comprehensive Profit 5 68 58 101 109 124 21 24 28 27 Controlling Interests 4 69 62 105 113 128 24 24 29 29 Non-Controlling Interests 2 -1 -4 -4 -4 -4 -2 0 0-1 EPS (W) 124 3,003 3,703 4,584 4,928 5,592 1,036 1,050 1,250 1,249 EBITDA 426 266 199 237 266 296 58 58 63 59 Depreciation 237 72 57 36 42 48 9 9 99 Amortization 38 39 17 42 38 35 11 11 10 10 Profitability Gross Profit Margin (%) 12.1 11.2 9.1 10.2 10.9 11.1 8.9 10.2 11.5 10.2 Operating Profit Margin (%) 6.7 6.1 4.7 5.9 6.2 6.4 5.8 5.6 6.7 5.5 EBITDA Margin (%) 18.9 10.4 7.7 8.7 8.9 8.8 8.8 8.4 9.6 8.2 Net Profit Margin (%) 0.2 2.7 3.3 3.9 3.8 3.8 3.6 3.5 4.4 4.0 Growth Rate (YoY) Revenues (%) 5.2 13.6 1.3 5.0 9.5 12.6 0.3 8.6 3.7 7.7 Operating Profit (%) 55.1 2.6 -20.6 30.0 16.4 14.7 33.0 -10.7 37.4 102.1 EBITDA (%) 101.7 -37.4 -25.2 19.0 12.2 11.2 26.5 -7.2 11.5 67.6 Net Profit (%) -97.5 1,863.3 23.3 23.8 7.5 13.5 255.6 12.2 59.5 -26.2 EPS (%) -96.8 2,317.8 23.3 23.8 7.5 13.5 255.6 12.2 59.5 -26.2 Other Ratios SG&A/Revenues (%) 5.4 5.1 4.3 4.3 4.7 4.7 3.1 4.7 4.8 4.6 Tax Rate (%) 24.2 22.0 24.2 24.2 24.2 24.2 28.4 24.2 24.2 24.2 Interest Coverage Ratio (%) 3.3 2.6 2.5 3.7 3.9 3.6 3.5 3.5 4.0 3.6 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 20 June 11, 2012 CJ Korea Express
CJ Korea Express (000120 KS/Buy/TP: W90,000)
Statement of Financial Condition (Wbn) 12/09 12/10 12/11 12/12F 12/13F 12/14F Current Assets 670 730 813 653 762 1,047 Cash and Cash Equivalents 22 84 231 43 97 302 AR & Other Receivables 478 564 505 531 581 654 Inventories 12 15 15 15 17 19 Other Current Assets 63 38 39 40 44 48 Non-Current Assets 2,787 2,837 2,783 3,133 3,394 3,617 Investments in Associates 345 87 98 98 97 97 Property, Plant and Equipment 1,809 1,943 1,509 1,863 2,121 2,322 Intangible Assets 408 384 560 518 480 446 Other Non-Current Assets 120 110 349 388 429 485 Total Assets 3,457 3,568 3,595 3,786 4,155 4,663 Current Liabilities 859 885 590 609 645 698 AP & Other Payables 257 282 231 243 266 300 Short-term Financial Liabilities 503 483 224 224 224 224 Other Current Liabilities 99 120 135 142 155 175 Non-Current Liabilities 722 711 740 812 1,035 1,366 Long-term Financial Liabilities 614 588 616 683 903 1,228 Other Non-Current Liabilities 74 75 57 61 65 71 Total Liabilities 1,581 1,595 1,331 1,420 1,680 2,064 Controlling Interests 1,819 1,912 2,213 2,317 2,430 2,557 Capital Stock 114 114 114 114 114 114 Capital Surplus 4,512 2,198 2,195 2,195 2,195 2,195 Other Components of Equity -2,919 -516 -480 -480 -480 -480 Retained Earnings 88 66 367 471 584 711 Non-Controlling Interests 58 61 52 49 45 41 Stockholders' Equity 1,877 1,972 2,265 2,366 2,475 2,599 Weighted Average Shares (Â000) 28,093 22,812 22,812 22,812 22,812 22,812 Activities Accounts Receivable Turnover (x) 4.7 5.3 5.3 5.5 5.6 5.7 Inventory Turnover (x) 172.2 189.5 177.6 181.9 185.6 188.0 Accounts Payable Turnover (x) 11.2 13.6 13.5 14.0 14.3 14.5 Net Working Capital Turnover (x) 12.8 12.4 12.9 14.2 14.5 14.7 Total Asset Turnover (x) 0.5 0.7 0.7 0.7 0.8 0.8 Stabilities Cash Equivalents to Assets (%) 0.7 2.4 6.4 1.1 2.3 6.5 Current Ratio (%) 78.1 82.6 137.7 107.2 118.1 150.0 Debt to Equity Ratio (%) 84.2 80.9 58.8 60.0 67.9 79.4 Net Debt to Equity Ratio (%) 53.3 48.5 25.9 35.6 40.7 43.4 Profitabilities ROA (%) 0.1 1.9 2.3 2.7 2.7 2.8 ROE (%) 0.1 3.7 4.1 4.6 4.7 5.1 ROIC (%) 4.7 4.9 3.7 4.3 4.6 4.9 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 21 June 11, 2012 CJ Korea Express
CJ Korea Express (000120 KS/Buy/TP: W90,000)
Cash Flows (Wbn) 12/09 12/10 12/11 12/12F 12/13F 12/14F Cash Flows from Operating Activities 357 117 163 159 177 179 Net Profit 5 68 81 101 109 124 Additions and Deductions of Non-Cash Flows 451 130 185 136 157 172 Depreciation 237 72 57 36 42 48 Amortization 38 39 17 42 38 35 Others -200 -8 -14 0 0 0 Changes in Working Capital -197 -162 -77 -89 -110 -154 Decrease (Increase) in AR & Other Receivables -8 -79 -70 -25 -50 -73 Decrease (Increase) in Inventories 2 -2 -1 -1 -2 -2 Increase (Decrease) in AP & Other Payables -99 -40 -11 12 23 33 Changes in Other Current Assets from Operating Activities 7 40 44 -30 -26 -35 Income Tax Paid 0 0-65-34 -35 -40 Cash Flows from Investing Activities 2,062 -4 85 -370 -295 -241 Chg in Property, Plant and Equipment -452 -211 -136 -389 -300 -250 Chg in Intangible Assets -6 -6 -122 0 0 0 Chg in Long-Term Financial Assets 26 2-4 0 0 0 Chg in Short-Term Financial Assets 2,936 600 0 0 Other Investing Cash Flows -441 205 346 19 5 9 Cash Flows from Financing Activities -2,316 -52 -117 24 172 267 Increase (Decrease) in Financial Liabilities 637 -59 -59 0 0 0 Chg in Equity -2,945 12 0 0 0 0 Dividends Paid -9 -6 0 0 0 0 Other Financing Cash Flows -58 -44 -47 -59 Increase (Decrease) in Cash -31 62 132 -188 54 205 Beginning Balance 53 22 99 231 43 97 Ending Balance 22 84 231 43 97 302
EBITDA 426 266 199 237 266 296 (-) CAPEX 452 211 136 389 300 250 (-) Taxes on Pretax Profit from Continuing Operations 23 47 35 34 35 40 (-) Net Financial Expenses -3 53 36 25 42 50 (-) Increase in Net Working Capital -197 -162 -77 -89 -110 -154 (=) FCF (Free Cash Flow) -68 2 -376 -237 -134 -83
Per Share Data EPS (W) 124 3,003 3,703 4,584 4,928 5,592 BPS (W) 71,024 75,900 77,184 83,607 90,203 97,310 CFPS (W) 9,908 7,896 6,961 7,984 8,446 9,217 DPS (W) 0 000 0 0 Valuation P/E (x) 456.6 31.4 20.3 14.8 13.7 12.1 P/CR (x) 5.7 11.9 10.8 8.5 8.0 7.3 P/B (x) 0.8 1.2 1.0 0.8 0.8 0.7 EV/EBITDA (x) 5.6 12.1 12.1 10.6 10.0 9.4 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 22 June 11, 2012 CJ Korea Express
Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
Buy Relative performance of 20% or greater (W) CJ Korea Express Stock Trading Buy Relative performance of 10% or greater, but with volatility 150,000 Ratings Hold Relative performance of -10% and 10% 100,000 Sell Relative performance of -10% Overweight Fundamentals are favorable or improving 50,000 Industry Neutral Fundamentals are steady without any material changes Ratings 0 6/10 12/10 6/11 12/11 6/12 Underweight Fundamentals are unfavorable or worsening * Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystÊs estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Analyst Certification The research analysts who prepared this report (the „Analysts‰) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. („Daewoo‰), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
KDB Daewoo Securities Research 23 June 11, 2012 CJ Korea Express
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the „Order‰), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as „Relevant Persons‰). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
KDB Daewoo Securities International Network
Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 Suite 301 Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022
Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 7th Floor, Yusen Building Suite 2602, Twin Towers (East) 25 Old Broad Street 2-3-2 Marunouchi, Chiyoda-ku B-12 Jianguomenwai Avenue London EC2N 1HQ Tokyo 100-0005 Chaoyang District, Beijing 100022 United Kingdom Japan China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699
Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28th Floor, Hang Seng Bank Tower Centec Tower 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-6000
KDB Daewoo Securities Research 24