Securities firms lower target prices of food giants amid weak bio business

Three out of four securities firms lowered the target stock price for CJ CheilJedang Corp. [Sources : CJ CheilJedang, Gettyimagesbank]

South Korean brokerages are cutting target stock prices of food majors on concerns that their bio businesses will undermine earnings due to weak demand.

According to financial data tracker FnGuide Inc. on Thursday, three out of four securities firms lowered the target stock price for CJ CheilJedang Corp. Kiwoom Securities Co. lowered the price to 500,000 won ($404) from 540,000 won, Hi Investment & Securities Co. to 530,000 won from 570,000 won, and Shinhan Securities Co. to 500,000 won from 530,000 won.

Shares of CJ CheilJedang closed at 345,000 won on Thursday.

The lowered targets are blamed at weak bio industry.

CJ CheilJedang’s bio business involves manufacturing food and animal feed additives using fermentation and refining technologies. Bio sales accounted for 14 percent of its entire sales last year but operating profit took up 31 percent.

Sales of lysine supplements, in particular, is high at CJ CheilJedang. But lysine prices have been falling since the third quarter of last year.

CJ CheilJedang’s food division is also known to have not fully benefitted from the decline in corn and wheat prices.

“CJ CheilJedang’s consolidated sales in the fourth quarter of last year is expected to be 1.9 percent lower at 7.9 trillion won and operating profit 35 percent lower at 314.7 billion won,” said Han Yu-jeong, an analyst at Hanwha Investment & Securities Co.

Many brokerages have also revised down the target stock price of another food giant Daesang Corp. Kiwoom Securities lowered the price to 28,000 won from 34,000 won and Hi Investment & Securities to 30,000 won from 32,000 won.

Daesang shares closed at 21,150 won on Thursday.

The company’s materials division, which sells lysine supplements, is expected to limit improvement in overall earnings, said Park Sang-joon, an analyst at Kiwoom Securities.