The author is an analyst for NH Investment & Securities. He can be reached at hzl.lee@nhqv.com -- Ed.
We lower our TP on ContentreeJoongAng to W16,000, reflecting both declines in broadcasting peer multiples and the continued sluggish performance of theaters. However, we adhere to a Buy rating. With the current share price appearing to reflect only concerns, and the end of industry strikes approaching, now is the time to focus on earnings growth.
Actors’ strike is only issue remaining
We lower our TP on ContentreeJoongAng by 27% from W22,000 to W16,000 on cuts to: 1) our estimates for the theater division; and 2) our target multiple (11x), considering declines in peer multiples for the broadcasting division.
However, we maintain a Buy rating. While the firm’s current share price looks to only reflect concerns, signals of recovery are emerging. The writers’ strike ended in September, and all that remains now is the actors’ strike. When the strike ends, sharp earnings improvement is expected on: 1) reduced broadcasting losses on the resumption of business at Wiip; and 2) a box office recovery driven by the release of highly anticipated films.
3Q23 preview: To confirm broadcasting margin improvement
We forecast consolidated 3Q23 sales of W251.2bn (+23% y-y) and OP of W2.3bn (TTP y-y), with OP to beat the subdued consensus. In contrast to the continued sluggish performance of theaters, solid earnings were likely recorded at the broadcasting division.
Broadcasting: 1) We forecast main business OP of W10.6bn (TTP y-y). The firm’s number of captive airings climbed to 53 (+56% y-y, +33% q-q), and margins likely strengthened on an improved distribution structure (OTT pre-sales). 2) Elsewhere, subsidiary operating losses are estimated at W9.7bn (RR y-y). Even when including revenue reflection for D.P. S2, losses inevitably continued due to the effects of Hollywood strikes on Wiip (US subsidiary).
Recreational space: 1) Theater operating losses are sized at W1.7bn (TTL y-y). With the majority of summer Korean tentpoles failing to deliver at the box office, peak-season effects were likely minimal, and delayed losses were likely reflected for Dream. 2) For the indoor playground business, 3Q23 OP is gauged at W3bn (+17% y-y). Although initial cost burden from aggressive new store openings was a factor, peak seasonality was in play.