Distribution Business Sailing along Smoothly

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

 

Copus’s drama production capabilities should strengthen in line with its planned takeover of Kim Jong-Hak Production. We expect Copus’s annual number of drama productions to expand to 6~9 dramas next year. With production sales to be recognized in earnest from 2023, the company is predicted to bask in strong top-line growth going forward. Its valuations look appealing compared to those of peers.

Takeover of Kim Jong-hak Production to strengthen drama production capabilities

Taking advantage of stable cash flow from its traditional content distribution business, Copus Korea (Copus) entered the drama production arena last year. Following a successful CB issuance (W30bn) in 2021, the firm said that the proceeds would be used to beef up its production capabilities by acquiring a drama production company. Recently (Jul 11), Copus announced that it will take over a 100% stake in Kim Jong-hak Production at an acquisition price of W12.86bn.

Established in 1988, Kim Jong-hak Production has to date produced 70-plus drama series, including Sandglass, Full House, Happy Time: The Legend, and All of Us Are Dead. The planned purchase of the company should help Copus’s number of annual drama productions expand from 3 as of now to 6~9 titles next year.

Distribution business sailing along smoothly; boasts valuation merit

Having been expanding its range of genre offerings from dramas to variety shows and web novels/webtoons over the past 17 years, Copus offers the largest K-content library in Japan. Looking at the firm’s content distribution business, its ratio of new to old work stands at 3:7 in terms of sales, and its distribution contract renewal rate is lofty. Boasting a GPM of over 50%, Copus’s distribution business should continue its role as the company’s cash cow going forward. Amid rising expectations towards a thawing in Korea-Japan relations, we expect a widening streaming portion for Korean content in Japan to translate into mid/long-term earnings growth for Copus.

Even if conservatively assuming only 6 drama productions next year, Copus’s production sales should still expand to W60bn, in turn driving hefty top-line growth. For 2023, we forecast sales of W102.6bn (+111.7% y-y) and OP of W20.2bn (+86.5% y-y; OPM of 19.7%). With the firm’s shares currently trading at a 2023F P/E of 8.3x, we see clear valuation merit.
 

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