이 기사는 2021년 04월 23일 07시27분 thebell에 표출된 기사입니다

CJ Olive Young is struggling to keep its Chinese subsidiary afloat, as the South Korea’s largest beauty retail chain tries to boost its value ahead of a planned initial public offering.

CJ Olive Young Shanghai Corporation, which is 100% owned by CJ Olive Young, was set up in 2014 as the Seoul-based company sought to expand into the Chinese health and beauty market.

CJ Olive Young, then part of CJ Olive Networks, had since injected capital into its Chinese operations each year, increasing the subsidiary’s value on its books from 4.7 billion won ($4.2 million) at the end of 2014 to 17.6 billion won at the end of 2017. The number of stores also rose to more than 10 in China.

However, with the subsidiary incurring mounting net losses, CJ Olive Young wrote off the entire value of its Chinese business in 2018 and closed all stores in the country. The subsidiary recorded cumulative net losses of more than 22 billion won and accumulated deficit of 10 billion won at the end of 2019.

In 2019 CJ Olive Young was spun off from CJ Olive Networks, followed by 11.6 billion won capital injection to its Chinese unit last year. The move was seen as part of efforts by the cosmetics store chain to boost its business in the country again.

In 2020 the subsidiary’s revenue doubled year-on-year to 23.1 billion won and net loss nearly halved to about 2 billion won. The improvement seemed to be largely attributed to a reduction in fixed costs after the business’s shift to digital-only services with no brick-and-mortar stores.

But the decline in net loss was also partly thanks to extended payment terms. CJ Olive Young last year recorded 9.5 billion won in revenue from transactions with its Chinese unit, with 6 billion won of the amount recorded on its books as account receivable.

The 2 billion won net loss of its Shanghai subsidiary may be considered insignificant for CJ Olive Young, which reported revenue of 1.86 trillion won on a separate basis in 2020. But the company would likely want to fix any factors that could impact its valuation in a negative way ahead of its planned IPO, which could happen as soon as next year.

CJ Olive Young is 55% owned by CJ Corp, the holding company of CJ Group, with the remaining stake held by the third generation of the owner’s family. Listing the beauty retail chain’s shares at a higher valuation would mean that they could free up more cash that can be used to increase their stakes in the holding company.

CJ Olive Young has been stepping up efforts to boost its value. It is seeking to further digitize its operations and expand its business to include new services.

“Business performance of our Shanghai subsidiary is gradually improving and we expect it to turn profitable this year,” said an official at CJ Olive Young. (Reporting by Eun-jin Choi)