StockOverflow

CJ Home Shopping (035760.KQ) Buy:
Strong momentum from China business,
insurance product sales
Company Name:  CJ Home Shopping                    Ticker: 035760.KQPrice:
47850                    52-Week Price Range (W): 70,500-28,200
Year             Net         EPS         EPS          .       Dividend
To            Income      Diluted     Growth        P/E        Yield
December          W           W         Dil%          X           %
2007           31,648       2,877      -41.05       16.63        3.13
2008           29,065       2,641       -8.20       18.12        2.61
2009E          54,472       4,950       87.41        9.67        3.66
2010E          63,875       5,804       17.26        8.24        4.70
2011E          73,543       6,683       15.14        7.16        5.22
Price Performance (absolute):    1m: +11%   3m: +56%    12m: -22%
Price Performance (relative):    1m: +16%   3m: +54%    12m: +10%
Stock Rating:      B
Source of opportunity
Despite some concerns in the market regarding the weakening consumption environment
in both Korea and China, we forecast CJ Home Shopping (CJHS) to deliver strong
earnings growth of 87% yoy in FY09E (beating its FY09E net profit guidance by 4%),
due to: 1) strong earnings contribution from insurance product sales; 2) fast-growing
China business; and 3) absence of W39bn one-off goodwill write-off which was booked
in FY08. We forecast CJHS’s operating profit and net profit in 1Q09E (to be announced
in late-Apr 09) to surpass (Bloomberg) consensus estimates by 4%/3%, alleviating
concerns on deteriorating macro environment.
Catalyst
We see stronger-than-expected operations in China (through its subsidiary, Dong Bang
CJ), following Dong Bang CJ’s expansions of broadcasting hours in Shanghai and
Zhejiang from 8 and 5 hours per day to 13 and 8 hours per day, respectively, from Nov
08, as well as expansion of broadcasting areas to Fujian (Dec 08) and Jiangsu (Jan 09).
Dong Bang CJ’s gross sales/ operating profit in Jan 2009 alone were 20%/34% of its
FY08 full year gross sales/operating profit. Moreover, we estimate CJHS’s insurance
product sales to enjoy a double-digit growth in 1Q09E, given the migration from offline to
online sales channel (in view of insurance companies).
Valuation
Following 5%/2%/2% upward revisions in our FY09E/10E/11E net profit estimates
(reflecting stronger-than-expected China operations), we raise our SOTP-based 12-month
target price to W60,000 (W55,000 previously), derived by applying a 2009E P/E of 7X
(same as our target multiple on GS Home Shopping (028150.KQ, Buy)) to CJHS’s
adjusted EPS from core operations (W3,622) and adding our estimated asset value in SOs
and its China subsidiary.
Key risks
Weaker-than-expected consumption.
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research