Cinema Box Office Recovery in Full Swing
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
We lower our TP on Contentree to W52,000, reflecting valuation de-rating amid concerns over slowed subscriber growth at downstream clients. But, we adhere to a Buy rating, noting both expectations towards upcoming broadcast titles (including Narco-Saints (Netflix) and Casino (Disney+) and a recent faster-than-expected recovery in cinema traffic.
Highly-anticipated upcoming broadcast titles + faster-than-expected cinema box office recovery
We maintain a Buy rating on ContentreeJoongAng (Contentree). Viewing the firm’s share price as excessively reflecting disappointment over the poor performance of Money Heist: Korea - Joint Economic Area, we expect it to rebound in line with both the company’s solid global track record (built upon the success of its previous titles) and anticipation towards upcoming new titles, including Narco-Saints (Netflix original) and Casino (Disney+ original). Looking at Contentree’s broadcasting subsidiaries, we point out that the reason that several of their lineups are currently showing red ink is attributable to being in Season 1 (the least profitable stage). Once the follow-up seasons start to air, significant contributions to overall earnings should accompany. Also positive, the operating environment for the firm’s cinema division is looking significantly brighter—pre-pandemic profit levels should be reachable thanks to both a lighter cost structure and an ongoing faster-than-predicted climb in box office sales.
But, we lower our TP by 29% to W52,000 (from W73,000), reflecting valuation de-ratings for broadcasting industry players amid concerns over slowed earnings growth. Our new TP reflects both a cut in our target EV/EBITDA to 17x (previously 22x) and downward revisions to our 2022 earnings estimates in consideration of a lower-than-projected quarterly number of dramas aired on captive channels (due to the continued absence of Monday and Tuesday slots).
2Q22 review: Cinema box office recovery in full swing
Contentree posted 2Q22 consolidated sales of W265.9bn (+89% y-y) and operating losses of W1.3bn (RR y-y), with both figures proving better than consensus on a sharp rebound in cinema attendance.
Broadcasting: The firm’s broadcasting domain recorded operating losses of W4.1bn (RR y-y). But, if stripping out PPA amortization, BEP was achieved. Looking at captive channels, only 51 episodes were aired due to the absence of Monday/Tuesday slots, but overall profitability looks to be improving. Operating losses at subsidiaries declined on the recognition of revenue from the airing of 8 non-captive works (including 2 Netflix episodes and 1 Amazon episode).
Cinema: The cinema division posted OP of W3.2bn, turning to profit y-y thanks to a faster-than-expected recovery in domestic box office ticket sales following the government’s lifting of social distancing restrictions. We expect earnings contributions from The Outlaws 2 and Hunt, both of which are being produced and distributed by Contentree subsidiaries, to be reflected in 2H22 earnings.