Upcoming Films Likely to Lead to Earnings Turnaround
The author is an analyst of NH Investment & Securities. He can be reached at hyundong.lee@nhqv.com. -- Ed.
The performance of the movie "Honest Candidate," which was released in 1H20, has failed to meet expectations due to the Covid-19 outbreak. However, we note that NEW’s drama production is increasing from 2Q20. Moreover, the likely success of upcoming films, including "Peninsula" and "Hostage," should lead to an earnings turnaround.
Peninsula to add to K-zombie film success
Conditions in the domestic film industry are sluggish due to the delayed opening of major titles owing to Covid-19. However, the spread of the coronavirus in Korea is rapidly slowing. If this trend sustains and film industry conditions normalize, focus should shift to the likely success of NEW’s upcoming releases.
In particular, Peninsula, the sequel to "Train to Busan," which sold 11.6mn tickets in Korea, is scheduled to be released in July. Peninsula shares the same director (Yeon Sang-ho) as Train to Busan, and trailers for the film were released on Apr 2. The new movie is expected to expand the global popularity of K-zombie films. With negotiations for overseas exports already underway, despite relatively high production costs of W20bn, we believe the movie will be able to break even if it sells about 3mn tickets in Korea. Accordingly, if the movie succeeds in attracting more than 3mn moviegoers, this should contribute towards boosting NEW’s earnings growth.
NEW is also strengthening its capability as a drama production player. This year, three or four of the firm’s dramas will be aired, up from two in recent years. In particular, "Oh My Baby" (tvN, May 6) and "Delayed Justice" (JTBC, July) should contribute to the company’s bottom-line growth in 1H20.
Earnings to turn around in 2020
If NEW records a full-year non-consolidated operating deficit this year, it will be added to the Kosdaq’s official watchlist for a fourth consecutive year. In order to alleviate such a risk, the firm announced on Apr 16 that it will split off its loss-making theater division. As a result, the company’s profit should be bolstered by around W2bn pa. Furthermore, we expect to see an improvement in consolidated earnings and cash inflow from the sale of the theater business further down the road.
In 2020, New’s earnings should rebound thanks to increased contributions from: 1) a higher number of produced/aired dramas from 2Q20; and 2) the likely success of upcoming movie releases. We forecast 2020 sales of W168.7bn (+13.1% y-y) and OP of W4.1bn (TTP).