Best Alternative to Direct Investment in Piccoma
The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.
Despite y-y decline in its number of new titles released in Korea, D&C Media is enjoying sharp earnings growth driven by export expansion (eg, to Piccoma). Next year, sales to Tapas Media in North America should pick up alongside an increase in new product supply to Piccoma, resulting in strong sales growth. With its shares currently trading at a 2021F P/E of only 27.3x, D&C Media’s valuation attractiveness continues to shine.
Best alternative to direct investment in Piccoma
D&C Media’s exports have grown sharply as of late thanks to a surge in sales to major customer Piccoma (Kakao’s Japanese webtoon platform). With its 3Q20 exports totaling W4.8bn, the firm’s quarterly exports are now on par with last year’s annual export figure. Accordingly, we believe it is now wise to refocus on D&C Media’s global IP capabilities.
In 2021, we expect the firm to perform soundly in the North American market. With sales expanding from existing client Tappytoon to Tapas Media as well, related channel effects should further strengthen going forward. Currently, D&C Media is publishing 17 works on Tappytoon and 7 on Tapas Media (starting from 3Q20). In particular, Tapas Media is likely to become a main supply channel for content providers (CPs) such as D&C Media that receive investment from Kakao and supply to Kakao Page. We believe that D&C Media will be able to benefit from both brisk growth at Piccoma and North American webtoon market expansion next year.
In 4Q20, D&C Media is projected to achieve record-high quarterly earnings, with sales of W16.6bn (+91.5% y-y) and OP of W3.9bn (+50.1% y-y). In 1Q21, we expect to see the delayed release of new titles which were originally scheduled for 4Q20, with q-q earnings growth accelerating as a result.
Time for valuation attractiveness to shine, thanks to strong earnings; maintain TP of W41,000
D&C Media is forecast to log 2020 sales of W58.8bn (+39.5% y-y) and OP of W13.3bn (+68.7% y-y), the strongest figures since the firm’s establishment. Anticipating ongoing rapid growth, we estimate the firm’s 2021 sales at W78.3bn (+33.2% y-y) and OP at W18.4bn (+38.0% y-y). The value of D&C Media’s IPs (the company’s key earnings drivers) are continuing to rise—in the case of Solo Leveling, related IP is now working its way into the game development arena, a factor which should drive further earnings improvement. With supply of its major works set to expand into the North American market, valuation re-rating should not be far behind.