ContentreeJoongAng
The author is an analyst for NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
Although maintaining a Buy rating, we lower our TP on ContentreeJoongAng to W26,000 (from W33,000) in light of a slow recovery for its cinema domain. Viewing concerns toward the overall sector as already being reflected in share price, we note that an earnings recovery cycle is now underway and abundant mid/long-term growth engines are in place.
Excessively undervalued
We lower our TP on ContentreeJoongAng by 21% to W26,000 (from W33,000), reflecting sharp cuts to our earnings estimates for the firm’s cinema business earnings amid a slow theater industry recovery. While our calculation method (SOTP) and target multiples by division are unaltered, we have added the company’s indoor playground venture to our estimates for its recreational space division.
But, we maintain a Buy rating, viewing concerns over deteriorating investor sentiment across the cinema industry as being excessively reflected in ContentreeJoongAng’s current share price. We point out that the firm's broadcasting division appears already to be in a full-fledged earnings recovery, and we see its recreational space division as offering ample mid/long-term growth potential. Now is the time to approach with a long-term horizon.
Broadcasting: A profitability improvement virtuous cycle is now starting to appear in line with S2 airings for global series. S2 episodes for both D.P. and The Summer I Turned Pretty (TSITP) are to be released in 3Q23. With the next season of box office hits approaching, we foresee a strengthening in both top- and bottom-line figures.
Recreational space: Although a recent overall cinema industry slowdown is regrettable, we draw attention to the fact that ContentreeJoongAng is well situated to display differentiated earnings growth (versus its rivals) going forward thanks to synergies with its indoor playground venture.
2Q23 preview: Still long way to go, but recovery has begun
On a consolidated basis, we expect ContentreeJoongAng to show 2Q23 sales of W206.7bn (-22% y-y) and OP of W1.7bn (TTP y-y). At the broadcasting division, while all of the firm’s captive works were aired simultaneously on Netflix, operating losses are likely significantly lessening (q-q and y-y) alongside the delivery to HBO of Wiip's The White House Plumbers (TWHP). Despite sluggish box office industry conditions, we believe that the recreational space division’s earnings are being bolstered by the box office success of The Roundup: No Way Out (over 9mn tickets sold), for which the firm is both the producer and the distributor. ContentreeJoongAng’s indoor playground business should again deliver healthy earnings, supported by holiday season effects.