Looking Towards Acquisition of CATV SO

The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.

SkyLife is working actively to offset the shortcomings inherent to satellite broadcasters. We advise keeping an eye on positive developments, such as a strengthening in content competitiveness, the possible acquisition of a CATV SO, and the promotion of DCS services.

Facing variety of challenges

Adhering to a Hold rating on SkyLife, we revise up our TP from W8,000 to W9,500. Although the competitiveness of satellite broadcasting looks inevitably to weaken, the firm is pursuing a range of efforts to boost sales, including strengthening its content business via subsidiary SkyTV, introducing Android-equipped set-top boxes to make up for its service’s unidirectional nature (a disadvantage of satellite broadcasting), growing its VOD sales, re-promoting dish convergence solution (DCS) services, and looking towards CATV service operator (SO) acquisition. We expect such efforts to be reflected in SkyLife’s earnings going forward.

Recent media reports have highlighted the possibility of SkyLife acquiring Hyundai HCN. Should KT choose to take over Hyundai HCN or another CATV SO via Skylife, it would likely prove favorable, in light of the benefits SK Telecom (SKT) has enjoyed on its merger of SK Broadband and T-Broad.

As well as strengthening its content production capabilities, subsidiary SkyTV is planning to establish a JV with Studio & New and Discovery Channel.

As of May 8, SkyLife’s market capitalization stood at W397.4bn. Given its 2020E P/E of 6.6x and cash & cash equivalents of W321.5bn as of 1Q20, we believe that SkyLife’s recent share price decline is excessive.

1Q20 review: Logs solid results

SkyLife posted 1Q20 sales of W159.3bn (-2.0% y-y, +1.0% q-q) and OP of W22.5bn (+13.1% y-y, +21.7% q-q), with OP beating both our estimate of W19bn and the market projection of W19.5bn. The company saw overall earnings improvement driven by weak offline sales activity due to Covid-19, which led to a resultant decrease in marketing expense to W31bn (-9.0% y-y, +1.0% q-q). In 1Q20, ARPU came to W6,366 (+1.3% y-y), continuing an uptrend kicked off from 3Q19.

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