Korean Food Maker’s Shares Surge 135% Since March on Ready-Made Meal Demand

(Bloomberg) -- Surging demand for ready-to-eat food as people stay indoors because of pandemic restrictions has helped the shares of a South Korean food company more than double in the past four months.

CJ CheilJedang Corp. has risen 135% since March 19, beating a 54% gain in the benchmark Kospi index. While the company was helped by the absence of severe lockdowns in South Korea, from where it draws about half of its sales, the real boost came from abroad.

“Our performance in overseas markets, especially in the U.S. and China, has been the main force behind the rise in our share price,” Executive Vice President Jung Kil Geun said by email.

The company’s U.S.-based unit Schwan’s Co., whose brands include Tony’s and Mrs. Smith’s, saw a 38% annual increase in frozen pizza sales in May. Jung said strong demand for dumplings in China also boosted sales “significantly.”

Helped by acquisitions such as Schwan’s and Kahiki Foods Inc., the company has raised its U.S. sales contribution to over 20% from under 5% in 2016, according to data compiled by Bloomberg. CJ’s market share is growing in the U.S. and China, and it may seek to expand its presence further in Vietnam by buying local companies, NH Investment & Securities Co. said in a recent report.

While CJ’s shares are near their highest since November 2017, they’re trading at 10 times estimated 12-month forward earnings compared with a five-year average of 12.5 times, Bloomberg data show. Noodle maker NongShim Co., which gets less than 6% of sales outside South Korea, trades at 17.6 times.

CJ said its expanded manufacturing facilities in the U.S. have contributed to the revenue increase. The company’s dumpling sales in America gained 50% in 2019 from a year earlier, surpassing sales in South Korea, it said.

“CJ is probably the only Korean food company which has growth potential from overseas sales, while maintaining a large market share domestically -- at least 40% in most of its products,” said Lee Ha-yoon, manager of the Midas Miso Mid & Small Securities Master Investment Trust, which is beating 99% of peers this year with a return of 37%. “The valuation is still not too high, meaning there’s still room for the stock to go higher.”

The shares closed at 366,500 won on Tuesday, down 0.8%, while the nation’s benchmark Kospi stock index rose 1.8%.

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