The author is an analyst of NH Investment & Securities, He can be reached at firstname.lastname@example.org. -- Ed.
Despite the outbreak of Covid-19, the webtoon and web novel markets are expected to show rapid growth this year. D&C Media’s subscriber numbers are continuing to follow a strong growth trend. Considering the impact of Covid-19 on the paper book division (10% of sales), we revise down our 2020 EPS estimate by 10%, in turn lowering our TP to W27,000. We expect the relative attractiveness of D&C Media’s shares to be highlighted this year, thanks to anticipated ongoing earnings growth.
Growth path runs independent of Covid-19
Despite the Covid-19 situation, webtoon and web novel market demand remains robust. Among content providers (CPs), D&C Media is enjoying remarkable earnings growth. Based on Kakao Page data from last week, D&C Media’s total number of webtoon subscribers has climbed to about 26mn, showing an uptick of roughly 48% y-y.
We also pay attention to overseas markets such as Japan. We note that a strong surge in subscribers was seen in February—a factor that we attribute to the use of Solo Leveling in ads for the Piccoma TV platform. We believe the trend of webtoon demand expansion is also being confirmed in the global content market.
In particular, we note that webtoon and web novel content boasts ‘untact’ (non face-to-face) characteristics regarding both supply and demand, a factor pushing up expectations for sustainable growth at D&C Media regardless of exogenous variables (eg, Covid-19). Foreseeing minimal direct impact from Covid-19, we expect the firm’s 2020 earnings to evidence continued solid growth.
In addition to stable earnings, expectations for secondary copyright remain valid
Despite the recent Covid-19-related stock market plunge, any share price decline for top-tier content players such as Studio Dragon remains limited. We expect D&C Media’s valuation appeal to rise going forward, as the firm is enjoying strong growth in both exports and domestic demand in addition to its solid profit-generating abilities.
D&C Media’s 1Q20 results are anticipated to evidence ongoing brisk growth, with sales of W12.6bn (+30.5% y-y) and OP of W2.7bn (+59.3% y-y). However, as we revise down our 2020 paper book sales forecast for the company by 20% from W6.4bn to W5.1bn, we cut 2020E EPS by 10% and lower our TP to W27,000.
Meanwhile, we believe that the blistering growth of D&C Media’s main webtoon and web novel businesses will be highlighted further going forward. We size D&C Media’s 1Q20 exports at W2.0bn (+207% y-y). Favorably viewing its global scalability and IP strength, we think D&C Media’s current share price is appealing.