CJ CGV (079160 KS) Taking on the Vietnamese Market
Total Page:16
File Type:pdf, Size:1020Kb
CJ CGV (079160 KS) Taking on the Vietnamese market Entertainment Overview of Vietnam business CJ CGV entered the Vietnamese market in 2011 with the acquisition of the country’s Company Update largest multiplex chain, Megastar. In early 2014, the company completed rebranding all of its local theaters to CGV. The Vietnam business recorded a loss in 2H11 right after April 20, 2015 the acquisition, but quickly swung to a profit in 1Q1 2 and has seen steady growth in both admissions and revenue since then. In Vietnam, CJ CGV enjoys a competitive advantage over rivals in terms of theater (Maintain) Buy numbers and locations. The company has been ramping up the number of theater sites, taking advantage of the country’s foreigner-friendly business environment and strong Target Price (12M, W) 80,000 financing capabilities. Given Vietnam’s under-penetrated market (based on number of movie viewings per capita), we see plenty of room for growth, supported by economic Share Price (04/17/15, W) 72,500 expansion and infrastructure development. Furthermore, we believe CJ CGV’s shopping mall-oriented location strategy makes it better positioned to expand market share. Expected Return 10% Why CGV is likely to dominate the Vietnamese market in the long term We recently visited CJ CGV’s thea ter sites in Vietnam and came away with a more OP (15F, Wbn) 87 positive outlook on the country’s market potential as well as the company’s prospects. Consensus OP (15F, Wbn) 82 1) CJ CGV has established a presence in major commercial areas early on thanks to its timely market entry and aggressive expansion. The company has secured 15- to 20-year EPS Growth (15F, %) 106.9 leases for many of its theaters and is planning to do the same for its upcoming sites. Market EPS Growth (15F, %) 37.2 P/E (15F, x) 22.3 2) The company also enjoys a dominant position in film content as the country’s Market P/E (15F, x) 11.1 exclusive distributor for four of the six largest Hollywood studios. We think these KOSPI 2,143.50 arrangements will remain in place until the Vietnamese film market begins to mature. Market Cap (Wbn) 1,534 3) The company boasts a solid reputation in the country. CJ CGV’s theaters in Vietnam are differentiated by their consistent interior designs, convenient facilities, diverse Shares Outstanding (mn) 21 concession offerings, and specialized theaters. Many shopping mall developers are Free Float (%) 60.9 showing a strong preference for CGV theaters because of the brand’s well-established Foreign Ownership (%) 16.5 image. Beta (12M) 0.19 52-Week Low 43,200 Value of China and Vietnam theater operations to be priced in 52-Week High 72,600 We expect 2015 to be a critical year for CJ CGV, with all eyes focused on the profitability of the China business. If the company fails to break even in China this year, (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M this would bode ill for future profitability given the company’s expansion schedule. Absolute 22.1 50.4 46.8 Conversely, if the business turns profitable, this may signal the beginning of a prolonged Relative 15.6 33.4 36.4 period of China earnings momentum, similar to what domestic cosmetics firms are enjoying today. The Vietnamese market, though smaller, could begin to deliver margin 170 CJ CGV KOSPI expansion once the initial investment phase is over and growth settles in. 150 130 In April, there have been a number of days during which CJ CGV’s admissions in China outpaced its admissions in Korea (due to weak seasonality in the domestic market). We 110 believe investors are starting to reflect the value of overseas operations. In our view, CJ 90 CGV offers a compelling long-term growth story, supported by a combination of steady 70 domestic growth and strong potential overse as. We maintain our Buy rating and target 4.14 8.14 12.14 4.15 price of W80,000. Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 665 773 865 909 945 990 [Internet/Game/Entertainment] OP (Wbn) 72 68 71 87 99 112 Chang-kwean Kim OP margin (%) 10.8 8.8 8.2 9.6 10.5 11.3 +822-768-4321 NP (Wbn) 73 43 33 69 78 87 [email protected] EPS (W) 3,528 2,062 1,572 3,253 3,678 4,128 ROE (%) 20.4 10.3 7.2 13.7 13.7 13.6 Jeong-yeob Park +822-768-4124 P/E (x) 9.1 21.1 34.3 22.3 19.7 17.6 [email protected] P/B (x) 1.7 2.0 2.4 2.9 2.5 2.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. April 20, 2015 CJ CGV Figure 111.1. Market cap of Vincom (Vietnam(Vietnam’’’’ss leading real estate development groupgroup)))) vs.vs.vs. market cap ofofof Vietnam stockstockstock indexindexindex (Wtr) (%) 60 Vietnam stock index (L) 14 Vincom (L) Vietnam stock index/Vincom (R) 50 12 10 40 8 30 6 20 4 10 2 0 0 07 08 09 10 11 12 13 14 15 Source: Bloomberg, KDB Daewoo Securities Research Figure 222.2. Number of theater sitessitessites in VietnamVietnam:: CJ CGV vs. total Vietnamese market (no. of sites) (%) 100 CJ CGV sites (L) 60 Theater sites in Vietnam (L) Share of CJ CGV (R) 55 80 50 60 45 40 40 20 35 0 30 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F Source: Company data, KDB Daewoo Securities Research Figure 333.3. Estimated per capita annual movie theater attendance bybyby country (times) 5 Estimated per capita annual theater attendance 4 3 2 Avg. of Malaysia, Philippines, and Thailand 1 0 Vietnam Malaysia Philippines Thailand China India Japan South Korea Singapore Source: Company data, KDB Daewoo Securities Research KDB Daewoo Securities Research 2 April 20, 2015 CJ CGV Figure 444.4. SSShareSharehareharessss ofofof VietnamVietnam’’’’ssss cinema operators in terms of Figure 555.5. Average screens per site number of sites BHD NCC 2% (screens) 6% 12 Galaxy 9% 10 8 Platinum 10% CJ CGV 43% 6 4 2 Lotte 30% 0 CJ CGV Lotte Platinum Galaxy BHD NCC Notes: Shares of top six cinema operators Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research Figure 666.6. Earnings of major cinema operators in Vietnam (US$mn) (%) 60 Revenue (L) 14.0 OP margin (R) 50 12.0 10.0 40 8.0 30 6.0 20 4.0 10 2.0 0 0.0 CJ CGV Lotte Platinum Galaxy BHD NCC Source: Company data, KDB Daewoo Securities Research Figure 777.7. Timeline of CJ CGV site openings in China Figure 888.8. Earnings of CJ CGV sites in China (sites) (Wbn) 40 Sites operated by consolidated subsidiaries 70 2012 JV sites 2013 2014 30 50 30 20 Three years after establishment of HongKong CGI Holdings, sites operated by CJ CGV consolidated subsidiaries began operation 10 10 -10 0 Revenue (JV) Revenue Operating profit (JV) Operating profit 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 (consolidated) (consolidated) Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research KDB Daewoo Securities Research 3 April 20, 2015 CJ CGV CJ CGV (079160 KS/Buy/TP: W80,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 865865865 909909909 945945945 990990990 Current Assets 189189189 199199199 306306306 415415415 Cost of Sales 424424424 457457457 470470470 493493493 Cash and Cash Equivalents 62 69 170 273 Gross Profit 441441441 452452452 475475475 497497497 AR & Other Receivables 97 99 103 108 SG&A Expenses 369369369 365365365 375375375 385385385 Inventories 3 4 4 4 Operating Profit (Adj) 717171 878787 999999 112112112 Other Current Assets 27 27 29 30 Operating Profit 717171 878787 999999 112112112 NonNonNon-Non ---CurrentCurrent Assets 961961961 934934934 910910910 899899899 NonNonNon-Non ---OperatingOperating Profit ---19-191919 444 666 111111 Investments in Associates 382 402 418 438 Net Financial Income -15 -12 -7 -3 Property, Plant and Equipment 412 370 333 302 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 23 16 11 9 Pretax Profit 52 91 105 123 Total Assets 1,1501,1501,150 1,1331,1331,133 1,2171,2171,217 1,3131,3131,313 Income Tax 18 22 27 35 Current Liabilities 350350350 267267267 278278278 291291291 Profit from Continuing Operations 33 69 78 87 AP & Other Payables 147 154 160 168 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 102 7 7 7 Net Profit 33 69 78 87 Other Current Liabilities 101 106 111 116 Controlling Interests 33 69 78 87 NonNonNon-Non ---CurrentCurrent Liabilities 327327327 331331331 334334334 338338338 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 255 255 255 255 Total Comprehensive Profit 313131 696969 787878 878787 Other Non-Current Liabilities 72 76 79 83 Controlling Interests 31 69 78 87 Total Liabilities 677677677 598598598 612612612 629629629 Non-Controlling Interests 0 0 0 0 Controlling Interests 473473473 534534534 605605605 685685685 EBITDA 133 137 140 146 Capital Stock 11 11 11 11 FCF (Free Cash Flow) 76 132 127 132 Capital Surplus 89 89 89 89 EBITDA Margin (%) 15.4 15.1 14.8 14.7 Retained Earnings 378 439 510 589 Operating Profit Margin (%) 8.2 9.6 10.5 11.3 NonNonNon-Non ---ControllingControlling Interests 000 000 000 000 Net Profit Margin (%) 3.8 7.6 8.3 8.8 Stockholders' Equity 473473473 534534534 605605605 685685685 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F