The Key to Attendance Recovery
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
For CJ CGV, the key to attendance recovery is to be the release of new movies. Backed by an anticipated series of Hollywood blockbuster releases, such attendance recovery should become visible within this year. We raise our TP from W20,000 to W28,000 but maintain a Hold rating, considering: 1) expectations for recovery, which look to already be reflected in CJ CGV’s share price; and 2) the firm’s disappointing financials.
Lowest point passed, but expectations already reflected in share price
We raise our TP on CJ CGV by 40% from W20,000 to W28,000 and change our valuation base year from 2021E to 2022F, when an earnings recovery trend is expected to appear in earnest. In our view, an attendance recovery is now becoming visible following: 1) the release of Godzilla vs Kong; and 2) the launch of several new Chinese films. Viewing the key to sales improvement as being the release of new movies, we note that Hollywood blockbusters such as Fast & Furious 9 (May) and Black Widow (July) have been confirmed for release this year. Amid robust pent-up demand for new movies, CJ CGV should begin to see an earnings recovery in 2H21.
However, we maintain a Hold rating on CJ CGV. As expectations for an earnings recovery look to have already been reflected in the firm’s share price, we see limited room for additional share price rise. Interest cost burden is also a factor, owing to hybrid securities (W280bn) and general bonds (W200bn) issued last year to secure liquidity.
Concerns over financial stress to ease only upon securing of greater earnings visibility
Amid its lingering financial concerns, CJ CGV has been working hard to bolster liquidity via such efforts as capital increase and the issuance of hybrid securities and perpetual convertible bonds. We believe the secured funds will be sufficient to cover annual operating expenses as well as repayment of the Turkey-related total return swap (TRS) debt (May, W360bn) and other loan repayment (November, W210bn). However, in order for worries towards CJ CGV’s financial burden to ease completely, the securing of greater earnings visibility remains key.
1Q21 preview: Signs of hope appearing in China and Vietnam
CJ CGV is forecast to post consolidated 1Q21 sales of W158.6bn (-35% y-y) and an operating loss of W91.4bn (RR y-y). Backed by the release of local movies, Chinese box offices look to have successfully recovered their pre-Covid-19 attendance numbers. In Vietnam, new movie launch effects are also appearing in earnest. Meanwhile, in Korea, the impact of the absence of new movies continues to be felt, while at the Turkey and 4DX businesses, Covid-19 impacts remain in play.