2023 Outlook: Profitability to Improve
The author is an analyst of KB Securities. He can be reached at yonghyun.choi@kbfg.com. -- Ed.
Maintain BUY, raise target price to KRW120,000
We maintain BUY and raise our TP by 9.1% to KRW120,000 (23.0% upside) on CJ ENM. Our P/B-ROE-based TP (7.81% 5y avg. ROE), which reflects changes in valuation base year and a decline in COE, implies 0.71x 2023E P/B, 20.7x P/E. For the year, OP should rise across divisions excl. Commerce; growth in Media/Music should offset Commerce.
4Q22 preview: Increase in no. of titles at subsidiary Fifth Season
We estimate 4Q22 revenue at KRW1.3tn (29.5% YoY, 9.3% QoQ) and OP at KRW23.5bn (1.8% OPM). 2022 OP should reach KRW153.6bn, in line with guidance of KRW155bn.
▶ Media: We estimate OP at -KRW10.9bn, as profitability should improve QoQ with delivery of seven Fifth Season titles: (1) TV ad revenue should remain unchanged YoY due to the 2023 FIFA World Cup; (2) Tving revenue should reach KRW167.3bn, with no. of subscribers exceeding 3mn with the Seezn merger; (3) Fifth Season revenue should reach KRW235.8bn with delivery of seven titles (14 titles in 2023).
▶Commerce: Despite high-demand seasonality, OP should come in at only KRW7bn amid a slowing home-shopping industry.
▶Pictures: Despite a QoQ decline in box office revenue, we see a turn to black thanks to recoveries for musicals and Fifth Season films.
▶Music: Revenue should see similar QoQ growth, reaching KRW147.6bn on concerts (e.g., Enhypen, JO1, INI), but concert-related costs (e.g., Mama, K-concerts) should result in OP of only KRW26bn.
2023 outlook: Profitability to improve
In 2023, profitability should begin to improve on the back of reduced losses at Tving/Fifth Season and robust growth at Music. We see Tving’s investment-to-revenue ratio declining, as its no. of subscribers should hit 5mn thanks to attractive bundle deals in partnership with telcos as well as cost controls (lower investment in original content). Fifth Season should deliver 24-27 titles this year, cementing its position as a global content producer. Music should also fare well, thanks to growing sales from existing artists' concerts/music and the addition of new artists (e.g., Wake One, Lapone).