Time to Pay Attention to Upside from JTBC Studio
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
J Contentree’s drama related operations (production, distribution, and investment) will be transferred to JTBC Studio, whose capacity as an independent studio is expected to stand out. Owing to Covid-19, which has interrupted broadcast programming and weighed on the movie industry, we expect J Contentree’s 2Q20 results to miss consensus.
Time to pay attention to upside from JTBC Studio
On Aug 1, J Contentree will divest its in-house drama-related business operations, setting up a new entity called J Contentree Studio, which we believe will later be merged with JTBC Studio.
Once JTBC Studio becomes an independent studio, it will be easier to negotiate with external operators (terrestrial broadcasters, OTT service providers, etc). We expect this change to: 1) lower the company’s reliance on its captive client (JTBC); and 2) increase its recoup rate.
2Q20 preview: Burden of disrupted broadcast programming and sluggish movie industry
We expect J Contentree to log consolidated 2Q20 sales of W74.9bn (-43% y-y) and an operating loss W10bn (TTL y-y), with both figures likely to fall short of consensus.
Broadcast: The broadcast division should report 2Q20 sales of W55.5bn (-11% y-y) and OP of W7.1bn (+381% y-y). While the reflection of deferred earnings (from 1Q20) from tentpole drama Itaewon Class, the partial reflection of The World of the Married (Netflix sales deferred to 3Q20), and the release of the firm’s first Wednesday/Thursday drama Ssangap Pocha likely all positively affected earnings, interruptions to broadcast programming due to the initiation of an emergency management system at its captive channel JTBC was somewhat disappointing. We note that 18 episodes of Monday/Tuesday dramas (-25% y-y), 12 episodes of Wednesday/Thursday dramas (newly launched), and 14 episodes of Friday/Saturday dramas (-36% y-y) were aired during 2Q20. However, as the broadcast programming schedule normalized in July, additional airing of Wednesday/Thursday dramas will be possible in 3Q20.
Movie: The movie division is likely to book 2Q20 sales of W19.4bn (-76% y-y) and an operating loss of W17.7bn (-91% y-y). Although efforts were made to improve SG&A expenses (including reducing labor costs), theatere were largely closed until mid-June due to severe operation disruptions and lack of new movies amid the Covid-19 outbreak. However, recently, with the release of domestic movies such as #Alive and Peninsula, the movie business has been registering 0.5mn viewers per day. Full normalization is some way away, but a q-q rebound is possible.