Market Share Expands as Competitor Struggles
The author is an analyst of NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com. -- Ed.
With its main competitor performing sluggishly, TJ Media is benefiting from continual market share expansion. As a result, we expect to see a hike in music content sales and operating leverage effects moving forward. Earnings should be further boosted by YouTube revenue growth and reopening effects.
Market share expands as competitor struggles
TJ Media’s main competitor in the Korean karaoke device market is performing sluggishly due to poor management, a breach of duty by its chairman, and embezzlement issues. Against this backdrop, TJ Media is expanding its market share through preemptive responses to market trends and low-pricing strategies enabled through line automation. In particular, not only has the firm secured more than 90% of the domestic coin karaoke machine market, it has taken over the number-one position in the general karaoke machine market. Recently, TJ Media successfully carried out a trade-in promotion event for the replacement of its competitor’s devices.
Music content sales growth and operating leverage effects are expected as a result of the market share growth. After the purchase of karaoke devices, additional updates are required to add new songs—the monthly price for updates is W11,000 per device (including tax; vs the competitor’s price of W15,000). As the company’s costs are mostly fixed (labor costs, copyright fees, etc), rising device sales lead to margin growth.
Earnings to recover in earnest on YouTube revenue growth and re-opening effects
TJ Media’s TJ Karaoke, a YouTube karaoke channel with 1.36mn subscribers, represents another positive. According to NoxInfluencer, the channel’s income is estimated at W75.57mn per month and W910mn per year. As production costs are low, related sales are expected to become a major revenue source.
TJ Media’s earnings are predicted to recover in earnest throughout 2H22. With the lifting of social distancing measures on Apr 18, the firm’s utilization rate, which stood at 60% at end-2021, recently approached 100%. Delayed demand due to Covid-19 and device replacement for competitors’ products have had positive impacts. As yearend approaches, earnings growth is expected on re-opening effects and market share expansion.