ContentreeJoongAng
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
We lower our TP on ContentreeJoongAng to W33,000 in light of repeated delivery gaps and a slow recovery in cinema demand. The firm’s 1Q23 release will likely show another quarterly earnings disappointment. But, believing that all concerns are already baked into the firm’s current share price, we adhere to Buy rating.
Summer to usher in various momentum factors
We lower our TP on ContentreeJoongAng by 15% to W33,000 (from W39,000). Although keeping both our calculation method and our target multiple intact, we downwardly adjust our earnings estimates for the firm’s broadcasting and cinema domains in consideration of both repeated delivery gaps (captive channel and US subsidiary) and slow box office recovery.
However, we reiterate a Buy rating, as ContentreeJoongAng’s share price has already reflected both the absence of momentum and mounting earnings concerns. It is time to switch focus to both various short-term momentum factors in play and the firm’s abundant mid/long-term growth engines.
Broadcasting: Over the near term, tentpole titles The Devil (SBS, Disney+) and King the Land (JTBC, Netflix), both of which are to air in June, should provide earnings momentum. Over the mid/long-term, the firm is to benefit from a virtuous cycle structure secured through multiple global hit titles. The firm is in a phase in which its sound track record built on multiple global hit dramas (based on sound quality) has led to securing of orders for next seasons, which should in turn result in strengthened margins per project. Once D.P. S2 airs in 3Q23, higher profitability should be felt within the year.
Cinema: Short-term earnings momentum is to be spurred from early June by The Roundup: No Way Out. Over the mid/long-term, we anticipate operating synergies (including better space utilization efficiency) with the firm’s indoor playground business.
1Q23 preview: Absence of delivery from US subsidiary + continued sluggish box office
ContentreeJoongAng is to post 1Q23 consolidated sales of W177bn (+31% y-y) and operating losses of W16.3bn (RR y-y), with its quarterly earnings again to disappoint on the loss of its broadcasting subsidiary and languid box office results.
Broadcasting: We see operating losses of W9.9bn (RR y-y) on continuing losses at subsidiaries, especially as Wiip’s airing of TWHP (HBO) has been delayed from March to May, and as the burden of PPA amortization (W4.1bn per quarter) remains a factor. However, the global hit drama references for the company’s domestic subsidiaries likely strengthened thanks to Big Bet and Jung_E.
Cinema: We estimate operating losses of W6.7bn (RR y-y). Box office sales slumped due to the absence of a blockbuster lineup in the first quarter, and we believe that both The Point Men and The Devil’s Deal, for which the firm was in charge of investment and distribution, fell far short of BEP.