Upside Share Price Momentum
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
We expect Studio Dragon’s consolidated 3Q22 OP to meet consensus. In addition to the sustaining of strong quarterly earnings thanks to the airing of episodes on captive channels, from October, global OTT original series are scheduled for release one after another, further adding to the firm’s share price momentum. We present Studio Dragon as our sector top pick.
Offering stable performance and upside share price momentum
We maintain a Buy rating and TP of W100,000 on Studio Dragon. In addition to sustained robust earnings, the firm’s share price momentum is abundant thanks to the scheduled release of global OTT originals one after another. We present Studio Dragon as our sector top pick.
Original works confirmed for release within this year are The Fabulous (Netflix, November; produced by subsidiary Gill Pictures), The Glory (Netflix, December), Shadow Detective (Disney+, October), and Connect (Disney+, December). Titles on tap for next year include Sweet Home S2, Celebrity, and Song of the Bandits.
The overall industrial environment is also favorable. Investment sentiment towards related shares is recovering on expectations for subscriber growth backed by the launch of Netflix’s ads plan, in which subscribers pay a lower monthly fee in return for watching ads. Upon the introduction of the plan, the penetration rate into the Asian market should further increase, which should result in a strengthening of negotiating power for K-content, which has high appeal to the Asian market.
3Q22 preview: Quarterly stamina to be confirmed again
We estimate Studio Dragon’s consolidated 3Q22 sales at W128.8bn (+11% y-y) and OP at W20.1bn (+38% y-y), with OP to meet consensus.
In 3Q22, a total of 84 episodes were aired on captive channels, similar to the 3Q21 figure of 84 and 2Q22 total of 87. In the case of Big Mouth (aired on terrestrial channel MBC), for which revenue is shared by the production company (A-Story), related revenue is likely to be recognized from 4Q22. In terms of OTT-related revenue: 1) a portion of that for Yumi’s Cells S2 (TVING original); and 2) sales from nine old works to Amazon Prime, a new customer, were recognized in 3Q22. However, the ASP for old works sold to Amazon Prime is likely to be lower than that logged when selling old works to Disney+ in 2Q22 due to a comparatively smaller number of broadcasting countries and shortened airing period.
We expect sales conditions towards Netflix to improve with the renewal of a binding contract at yearend, which should further strengthen Studio Dragon’s quarterly earnings.