The author is an analyst of Shinhan Investment Corp. He can be reached at firstname.lastname@example.org. -- Ed.
4Q19 results: Consolidated operating loss of KRW6.6bn (TR YoY)
Jcontentree posted an operating loss of KRW6.6bn (negative swing YoY) on consolidated sales of KRW155.1bn (+16.3% YoY) for 4Q19, missing our forecast and market consensus by a wide margin. Earnings fell short of expectations due to large one-off expenses, with the broadcasting business alone posting KRW12bn in valuation loss on intangible assets. A significant decline in depreciation expenses was not enough to prevent the decline in overall quarterly earnings. However, other earnings indicators remained solid, with distribution revenue growing 33% YoY at home and 100.9% YoY from overseas markets. As a result, the broadcasting business reported 28.1% top-line growth for 4Q19.
The cinema business (Megabox) continued to post solid earnings through 4Q19, with operating profit meeting our expectations at KRW6.8bn (+313%YoY). Adding to5% YoY growth in nationwide movie attendance, Megabox reported further improvement in cost efficiency and enjoyed sharp growth in ad sales.
2020outlook: Consolidated OP to jump 80.8% YoY toKRW65.1bn
For 2020, we forecast consolidated sales at KRW649bn (+16.8% YoY) and operating profit at KRW65.1bn (+80.8%YoY). Despite the coronavirus outbreak, our overall earnings outlook remains mostly unchanged. Our forecasts for cinema operating profit are revised down to KRW34.9bn (-10.5% YoY), with a steeper decline expected in 1H20 due to the high YoY base (visible increase in domestic movie attendance in 1H19) and the coronavirus outbreak. We revised up our projections for broadcasting sales and operating profit to KRW322.6bn (+46% YoY) and KRW30.1bn (+1,449% YoY), respectively, with profitability improvement expected to be easier with a bulk of expenses booked in 4Q19.
Retain BUY for a target price of KRW54,000
Our target price for Jcontentree remains unchanged at KRW54,000. We retain our BUY rating on: 1)forecasts for over-40% YoY top-line improvement at the broadcasting business in 2020; 2)upbeat expectations for over-80% YoY growth in company-wide operating profit for the year; and 3) attractive valuations with shares trading under 2020F PER of 20x. In our view, the temporary dip in profitability offers the best opportunity to buy. We see no reason to remain disappointed over 4Q19 results with the outlook notably brighter for 2020.