Entertainment: Looking Is Enough
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
The imposition of social distancing measures to limit the spread of Covid-19 has greatly hindered operations of crowded facilities such as concert halls, cinemas, and casinos. And, as long as the Covid-19 crisis continues, operations of the entertainment and casino industries are unlikely to normalize. While these industries’ fate in 2021 will depend on developments in the Covid-19 crisis, we draw attention to a selection of players whose efforts to migrate their services online have begun paying off.
We note that some domestic entertainment companies have begun holding concerts online. Though feeling a bit less engaging, online concerts have been successful in attracting fans—a development which we attribute to the inherent limitations of in-person concert attendance. That said, there exists some room for improvement in terms of margins. Investors are recommended to pay attention to plays which are expected to generate meaningful profits from online services next year.
In the casino industry, offline physical contact is essential for normal operations. Although there exists a loyal client base, a recovery in non-VIP visitor numbers is to remain key to earnings recovery. In 2021, a selective approach to the casino industry based on visitor recovery outlook is recommended.
Who will manage better amid Covid-19?
With Covid-19 persisting, consumers have been restricted from enjoying entertainment and casino services as much as they would like. With concert halls, theaters, and casino facilities being multi-purpose facilities where large numbers of people gather, user numbers have been limited—hitting the entertainment and casino sectors hard. We cannot say with certainty that the two sectors will recover next year, owing to Covid-19; the end of Covid-19 is to remain the key to earnings normalization. That said, we note that some companies are standing out, thanks to their non-face-to-face service offerings.
I. Entertainment: Looking is enough
Amid Covid-19, some entertainment companies are holding online streaming concerts. While online concerts are relatively less vibrant, in-person concert attendance comes with its own limitations and drawbacks in terms of distance from the performance. Accordingly, the shift to online concerts is deemed as being effective for entertainment plays. However, only a handful are currently reaping profits from their online shows. Accordingly, we advise investing in those entertainment firms that: 1) can enjoy economies of scale; or 2) boast strong content and digital track portfolios to help generate meaningful profits from online concerts.
II. Casino: Waiting for gamblers to return
In the casino business, sales cannot be generated unless gamblers actually visit the casino floor and play together. In other words, a recovery in the casino industry requires the physical return of domestic and foreign gamblers. As for casinos allowing Koreans’ access, earnings should improve in the near future unless social distancing measures are strengthened further. But, foreigner-only casinos are unlikely to enjoy earnings growth without the introduction of an air travel bubble (ATB) or the development of a Covid-19 vaccine.
III. Top picks
While there exist expectations towards Covid-19 vaccine development, given that it is difficult to exactly predict when a vaccine will become available, we recommend that investors adhere to a selective approach regarding the entertainment/casino sector. We maintain a Neutral rating towards the entertainment sector, believing that it will take some time for online concerns to start generating substantial margins. We present YG Entertainment (YG Ent) as our top pick, in light of its strengths in the digital music business. Turning to the casino sector, we adhere to a Positive rating, believing that earnings have reached bottom this year. We offer Kangwon Land as our top pick, expecting the firm to benefit from the return of Korean gamblers.