Media Improvement Ahead

Home , Celltrion Entertainment, CJ CGV, CJ ENM, Hotel del Luna, IHQ (company), JTBC

2H19 Outlook

Media Improvement ahead

Jeong-yeob Park +822-3774-1652 [email protected]

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Contents

[Summary] Large pool of content coming into focus 3

I. 2019 status check 4

II. Medium/long-term outlook 11

III. At a crossroads 13

IV. Global peer group valuations 20

V. Top pick 22 CJ ENM [Summary] Large pool of content coming into focus

Shares to be driven by content licensing/sales; Earnings to improve in 2H

(P, US$mn) (%) Media/content business model focused on direct sales 500 FTSE KOREAKorea media MEDIA (L) indx (L) Key words: Global platforms, geopolitics, licensing fees, blockbusters, 40 Domestic ad market growth (R, YoY) investments, leverage Broadcast content export growth (R, YoY)

400 30

Media/content business model focused on ads Key words: Domestic market, ad trends, seasonality, politics/sports 300 20

200 10

100 0

OTT export expansion in 2016-18 ＞ Chinese market lull 0 OTT export expansion in 2019F + Chinese market recovery -10 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Note: 2017 exports are based on KOCCA estimates; 2018 exports are based on our estimates. Source: Thomson Reuters, KOCCA, Cheil Worldwide, Mirae Asset Daewoo Research

3| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 1) Advertising

Sluggish performance of • For 2019, the domestic ad market is expected to grow 3.5% YoY (outpacing GDP growth) to W11.3tr despite the absence of large-scale sporting events. traditional media • We forecast positive growth across all non-print segments, with mobile, generalist channels, and cable TV channels; Continuing continuing to drive growth. • The overall ad market is believed to have slowed down YoY in 1H19 largely due to a tough comparison stemming outperformance of from the Winter Olympic Games and the FIFA World Cup in 2018. digital ads • Decoupling of growth by channel: Digital (+7.6% in 2018; +9.7% in 2019F) > TV (+1.9% in 2018; +2.0% in 2019F) • Digital ad channels are benefiting from both quantitative (increase in time spent) and qualitative (higher cost efficiency relative to TV) factors. Digital surpassed broadcasting in 2016; Digital ads: Small market size relative to time spent Mobile ad market to approach broadcasting ad market in 2019 (Wtr) (%) Time spent share Ad M/S 5.0 TV terrestrial 50 TV terrestrial + Pay-TV 40 4.5 Mobile Digital 30 4.0 20

3.5 10

3.0 0 TV PC Mobile 2.5 (%) 2010 2013 2016 2019F 2.0 50

1.5 40 30 1.0 20 0.5 10

0.0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F Print Radio TV PC Mobile

Source: KOBACCO, KOA, CJ ENM, Cheil Worldwide, Mirae Asset Daewoo Research Source: MezzoMedia, Mirae Asset Daewoo Research

4| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 1) Advertising

Commercial breaks to be • Currently, Korea’s three major terrestrial broadcasters are banned from running commercial breaks; regulations are more lenient in major markets such as the US, Japan, China, France, and the UK. introduced on terrestrial • The Korea Communications Commission (KCC) announced its plans for introducing and regulating terrestrial TV TV channels in 2H commercial breaks in December 2018; terrestrial TV channels could adopt commercial breaks in 2H19 amid the continued earnings slowdown. • Terrestrial broadcasters have already implemented premium commercial messages (PCMs) in an effort to boost profitability. • The adoption of commercial breaks is expected to boost the combined ad revenue of three terrestrial broadcasters by over W100bn.

Ad rates relative to audience share (cable > terrestrial) Terrestrial TV channels could adopt commercial breaks in 2H19

(Wmn/%) The KCC attempted to introduce commercial breaks to terrestrial TV channels, but Jun. 2007 12 2014 2015 2016 2017 2018 withdrew its proposal.

Sep. 2014 MBC and regional broadcasters called for the adoption of commercial breaks.

Dec. 2018 The KCC announced plans to introduce and regulate terrestrial TV commercial breaks. 9 Feb. 2019 Regulations facing delays, with deliberation taking longer than expected.

Broadcasting Act At present, there exists a ban on commercial breaks for terrestrial TV channels. The enforcement enforcement decree would have to be amended. 6 decree

(Commercials) ② The permissible scope, time, frequency or methods, etc. of commercials under Article 73 of the Broadcasting Act (excluding non-profit, public commercials) shall comply with the standards in the following subparagraphs. 3 1. In cases of TV and radio broadcasting channels of terrestrial broadcasting business Article 59 operators (excluding terrestrial mobile multimedia broadcasting business operators), community radio broadcasting business operators, and terrestrial broadcasting program providers (excluding terrestrial mobile multimedia program providers): (d) Commercial breaks shall not be permitted; this shall not apply to broadcasts, such as athletic games, cultural or art events, etc., that have intermittent pauses or preparation 0 periods. CJEM (tvN) SBS KBS2 MBC

Source: Nielsen, CJ ENM, Mirae Asset Daewoo Research Source: National Assembly Law Information Center, Mirae Asset Daewoo Research

5| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 2) Content

Increase in time slots • For content, broadcasting time slots are essential to securing ad revenue and global sales (content licensing revenue). • As licensing sales are generated after programming, content producers’ earnings are swayed by ratings and boosting licensing sales earnings (two determinants for their investments). • CJ ENM and JTBC have reported strong earnings in 2018-1H19.  Studio Dragon and J Contentree will continue to produce high-budget content in 2H19 and beyond. • Opportunities for content producers: SBS is expanding investments, and generalist channels are subject to review for license renewal in 2020. • Content production forecasts for 2019: Studio Dragon (28 titles for domestic, 2 titles each for Netflix [NFLX US/CP: US$385] and China) and J Contentree (13 titles) 2013-18 annual avg. audience share comparison: Terrestrial and generalist channels to increase drama time Marked rises for cable and generalist channels slots in 2H19

(%) 16 150 Total no. of drama time slots in Korea

8 120

0 90 CJ E&M JTBC KBS2 MBC SBS (%) 50 60 40

20 30

0 Cable Generalist Terrestrial 0 2016 2017 2018 2019F

Source: Nielsen, CJ ENM, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

6| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 2) Content

Better outlook for 2H19 • Shares of media and content platform companies were stagnant in 1H due to weaker earnings visibility (resulting from content depreciation starting in 4Q18) and a lack of blockbusters. • Overseas sales of dramas, including Encounter, Romance Is a Bonus Book, Abyss, and Sky Castle, remained robust. • The drama lineup for 2H19 is expected to be stronger. • Content producers could deliver earnings surprises on the back of well-established overseas distribution networks and a steady increase in content prices. Stable overseas sales of non-tentpole content in 1H Popular TV programs in 2018-1H19 (production costs of W800mn or below per episode)

Misty (Feb. 2018) My Mister (Mar. 2018) Are You Human? (Jun. 2018) JTBC tvN, CPI 272.4 KBS2, CPI 272.1 Something in the Rain I Live Alone (Mar. 2018) (Apr. 2018) MBC, CPI 278.6 JTBC

Mr. Sunshine (Jul.-Sep. 2018) tvN, CPI 293.4 High-budget content to be released in 2H Produce 48 (Jul-Aug. 2018) (production costs of W1bn or over per episode) Mnet, CPI 302.1

Sky Castle New Journey to the (Dec. 2018) JTBC West (Nov. 2018) tvN, CPI 283.0 Dr. Prisoner (Mar. 2019) KBS2, CPI 296.2 100 Days My Prince The President's Aide Encounter (Nov. 2018) (Oct. 2018) (May 2019, JTBC) tvN, CPI 326.0 Arthdal Chronicles (Jun. 2019, tvN) tvN, CPI 287.2 Note: Weekly content power index (CPI) Source: Press materials, Mirae Asset Daewoo Research Source: Nielsen, CJ ENM, Mirae Asset Daewoo Research

7| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 3) Music

Healthy corrections • In 1H19, the combined market value of Korea’s three major entertainment firms hit a low of W2.5tr (-22%), due mainly to 4Q18 earnings shocks and a series of celebrity scandals (1Q) . • However, the big three managed to defend their post-2011 valuation low. • Going forward, global digital revenue growth (YouTube  Other platforms) and the rising profile of K-pop in the global market should drive continued expansion of both earnings and valuations.

Combined market cap of three entertainment firms has Digital revenue expansion and growing profile of K-pop justify bounced back after falling to W2.5tr valuation re-ratings (Wtr) (Wbn) 3.6 Combined market cap 2018 high (10/1): 2019 high (1/7): 40 YouTube-related net revenue (big three) 35 5/3 closing 35 3.3 price: W2.7tr

30 3.0 27

25 2.7 20 17 2.4 15 12 2.1 2019 low (3/15): W2.5tr 10

1.8 5

1.5 0 1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19 5/19 2017 2018F 2019F 2020F

Source: FnGuide, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research estimates

8| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 3) Music

Solid earnings and • Market growth forecast (CAGR) for 2017-21: +2.3% for Japanese concerts, -2.7% for domestic album sales, +7% for valuation variables digital music • Negative growth of domestic album sales eased: 1.9mn copies for BTS (August 2018), 1.2mn copies for EXO (November 2018) • Korean artists will likely grab an increasing share of the Japanese concert market through 2020: The current generation of idols appears to be reaching dome tour status more quickly than in the past.

Korean artists increasing their share of the Japanese concert Domestic album sales and Japanese concert market look solid market

(%) (mn persons)Korean artists' concert attendance (L) (%) 9 Domestic albums/digital Japan concerts 8 12 Korean artists' share of the Japanese concert market (R)

3 6 8 0 Big Bang TVXQ army service 2014 2015 2016 2017 2018F 2019F 2020F Super Junior 4 army service (%) 2013-17 CAGR 2017-21F CAGR 30

20 4

10 2

-10

-20 0 0 Japan concerts Japan digital Japan albums Japan other 2012 2014 2016 2017 2018F 2020F

Source: PwC, Mirae Asset Daewoo Research Source: ACPC, YG Entertainment, JYP Entertainment, SM Entertainment, Mirae Asset Daewoo Research

9| 2H19 Outlook [Media] Mirae Asset Daewoo Research I. 2019 status check: 3) Film

Solid domestic market in • 2019 outlook for domestic film market: +3.8% for box office, +1.8% for attendance (strong content), +2.1% for ATP (price hike effects lingered through 1Q) 1H; Turnaround expected • 1Q19 review: +13.2% for box office, +5.4% for ATP, +7.4% for attendance for overseas markets • Vicious cycle: Sluggish box office  Lower content investments  Weak performances by major domestic films  going forward Sluggish theater demand continues • Robust Hollywood movie lineup ahead (2H): The Lion King, Frozen 2, etc. • Overseas market outlook: Big-budget Hollywood titles set for release in 2019 to boost emerging market revenue (estimated growth of 15% for China, 25% for Turkey, and 20% for Vietnam) Key overseas film markets should benefit from big-budget Domestic box office growth to continue to slow releases (%) (%) 30 2017 YoY 25 ATP YoY Attendance YoY 2018 YoY Box office YoY 20 1Q19 YoY 20 2019F YoY

15 10

10 0

5 -10

0 -20

-5 -30 Korea China Turkey

Source: Korea Film Council, Mirae Asset Daewoo Research Source: Korea Film Council, Mirae Asset Daewoo Research

10| 2H19 Outlook [Media] Mirae Asset Daewoo Research II. Medium/long-term outlook: New media-driven changes

TV  OTT • Cord cutting, which began in the US a decade ago, has become a global trend • TV  OTT: Following Netflix, Amazon (AMZN US/ CP: US$1,962), and YouTube, Disney (DIS US/CP: US$134) and WarnerMedia are entering the OTT market. Albums  Streaming • Albums  Streaming: Global music platforms, including Apple Music and Spotify, are enjoying subscriber growth.

Music platforms improve access to global music market OTT services improve access to global video ad market

(US$bn) (US$bn) 25 15 46.7x

20.8x 20 12 18.8x

15 9

10 6 17.5x

6.3x

5 3

2.9x W1tr W300bn

0 0 Korea Japan North America Europe Korea Japan North America Europe

Source: Industry data, Mirae Asset Daewoo Research estimates Source: Industry data, Mirae Asset Daewoo Research estimates

11| 2H19 Outlook [Media] Mirae Asset Daewoo Research II. Medium/long-term outlook: New media-driven changes

Changes in content • The media sector tends to experience rapid changes driven by technological advances.   consumption patterns  (Changes in content consumption patterns Changes in viewer share by medium Responses by advertisers/service providers ) Changes in market • Changes in viewer share by medium (based on time spent) should drive changes in both the short and long term. breakdown by medium • Major shifts include: 1) Advertising business model  Subscription model 2) Old media  New media.

Global ad/content markets tend to rapidly reflect changes in content consumption patterns

Market direction Major markets 2013-18 market size chg. CAGR 2018-20F market size chg. CAGR Major channels/services

Global TV ads (+) W17tr (+) 2.0% (+) W10tr (+) 2.8%

Domestic TV ads (+) W290bn (+) 1.6% (+) W150bn (+) 1.9%

Terrestrial (-) W340bn (-) 4.0% (+) W30bn (+) 1.0%

Cable (+) W656bn (+) 7.9% (+) W150bn (+) 3.5%

Domestic digital ads (+) W1.7tr (+) 10.9% (+) W880bn (+) 10.1%

PC (-) W340bn (-) 3.7% (+) W130bn (+) 3.7%

Mobile (+) W2tr (+) 40.0% (+) W750bn (+) 14.2%

Global OTT (+) W29tr (+) 22.5% (+) W9.5tr (+) 10.1%

S-OTT (+) W24.5tr (+) 24.3% (+) W8.5tr (+) 10.9%

A-OTT (+) W4.5tr (+) 15.9% (+) W1tr (+) 6.2%

Global recorded music (+) W6.5tr (+) 5.3% (+) W4.3tr (+) 7.1%

Albums (-) W3tr (-) 7.0% (-) W1.5tr (-) 9.1%

Digital music (+) W9tr (+) 15.6% (+) W5.5tr (+) 14.2%

Global live music (+) W3.5tr (+) 2.7% (+) W2.2tr (+) 3.5%

Source: PwC, IFPI, Mirae Asset Daewoo Research

12| 2H19 Outlook [Media] Mirae Asset Daewoo Research III. At a crossroads: 1) Advertising

Lowered entry barriers • Lower entry barriers in the media industry: Rise of new platforms  Greater influence of user-generated content (UGC) and increased ad space for apps for media firms • The shift to personalized consumption and diversification of media platforms has increased the importance of  New competitive refined ad targeting and greater ad efficiency. landscape • Advertisers in both Korea and overseas have been steadily increasing their budgets for new media ads, which are relatively effective in the current environment. • For new media ads, which boast greater efficiency (targeting) critical factors are: 1) data/solutions, and 2) media/content pools. • Media firms enjoying scale, as well as diversified media mixes and advertiser bases, look set to benefit. Monthly ad market trend (July 2018- April 2019): Advertisers Those armed with well-diversified media and advertiser mixes plan to expand share of digital ad spending look set to benefit

(P) 140

Media commerce/Big Data Data/trend analysis Customized content and commerce

120

- Audience, Content, Brand 기반의 DMP - 데이터분석, 광고솔루션, 상품 매트릭스 등 - 개인별 Curation, 최적의 콘텐츠〮상품믹스 - TV, Mobile, SNS 등 이용자 행태분석 데이터 - 프로파일링 기반 인사이트 및 분석지표 도출 - 프로필 기반 크로스 미디어 V〮커머스 제안

100

60 Total Terrestrial TV Cable TV Radio Newpaper Digital

Source: KOBACO, Mirae Asset Daewoo Research Source: CJ ENM, Mirae Asset Daewoo Research

13| 2H19 Outlook [Media] Mirae Asset Daewoo Research III. At a crossroads: 1) Advertising

Media firms need to • Given the rapid increase in the viewer share of new media platforms, companies with high revenue exposure to traditional ads could be put at a competitive disadvantage. leverage their content • Media firms need to increase their exposure to UGC going forward. competitiveness to earn • From this perspective we think that the strategy of utilizing multiple media platforms (implemented by CJ ENM and income across multiple Korea’s big three entertainment firms) is a step in the right direction. Meanwhile, for some industries (e.g., media commerce), amplifying the impact of ads has become essential to success. platforms • • The rise of incentive ads should present new opportunities to leading ad firms (e.g., Echo Marketing).

No. of videos uploaded to major Korean YouTube channels

Winds of change in (No.) mainstream content 800 tvN platforms tvN DRAMA - Leading content platform: 700 Stone Music Entertainment Newspapers  Radio  Broadcasters  OTT services 600 Mnet Official - Lower entry barriers Mnet K-POP -Mediafirms armed with 500 diversified media mixes look best positioned 400

300

200

100

0 2017 1/18 2/18 3/18 4/18 5/18 6/18 7/18 8/18 9/18 10/18 11/18 12/18 1/19 2/19 3/19 monthly avg.

Source: YouTube, Mirae Asset Daewoo Research

14| 2H19 Outlook [Media] Mirae Asset Daewoo Research III. At a crossroads: 2) Content

Competitiveness in • There are a limited number of major channels.  Recently, content production has become further segmented into actual production and production planning. production based on • While large production companies carry out ]both production and production planning, small/mid-sized captive channels producers are focusing more on production. • In the long term, with platforms’ negotiating power weakening, producers’ revenue sharing ratios will likely climb. • However, access to TV channels still acts as a barrier to entering drama market. • Until new platforms’ original content production efforts takes root, large content producers with captive channels should continue to enjoy high gross margins. Content production further segmented into actual production and production planning

Source: Mirae Asset Daewoo Research

15| 2H19 Outlook [Media] Mirae Asset Daewoo Research Luna III. At a crossroads: 2) Content

Sharp rise in global • OTT platform launches by traditional media giants (including Disney, WarnerMedia, and NBC) expected in 2H19: K- drama demand from new platforms to expand demand in 2H19 • Sources of competitiveness: Broadcasting visibility + orders for original content production from new platforms (going forward) • The significance of 2019 productions will extend beyond near-term earnings; indeed, the greatest determinant of order taking is track record. • The performances (ratings and licensing ) ofThe President's Aide (J Contentree, NEW), Arthdal Chronicles, Hotel del (Studio Dragon), and Vagabond (Celltrion Entertainment) deserve attention: Shares will likely respond sharply to the performances of these dramas. Blockbuster dramas with production costs of W10bn OTT competition to intensify in 2H19 or higher to be concentrated in 2H19

Year of Title Channel Production company release 2/16 Descendants of the Sun KBS NEW Moon Lovers: Scarlet Heart 8/16 SBS BaramiBunda Ryeo 9/16 Uncontrollably Fond KBS Samhwa Networks, IHQ

11/16 Legend of the Blue Sea SBS Studio Dragon

12/16 Goblin tvN Studio Dragon

1/17 Saimdang, Memoir of Colors SBS Group Eight

9/17 While You Were Sleeping SBS IHQ

1/18 A Korean Odyssey tvN Studio Dragon

7/18 Mr. Sunshine tvN Studio Dragon

11/18 Encounter tvN Studio Dragon, Bon Factory

12/18 Memories of the Alhambra tvN Studio Dragon, Chorokbaem

1/19 Romance Is a Bonus Book tvN Studio Dragon, Story & Pictures Media

6/19 Arthdal Chronicles tvN Studio Dragon

7/19 Vagabond SBS Celltrion Entertainment

7/19 Hotel del Luna tvN Studio Dragon

2H19 My Country JTBC Celltrion Entertainment

Source: Company data, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

16| 2H19 Outlook [Media] Mirae Asset Daewoo Research III. At a crossroads: 3) Music

Exposure to new • YouTube views are on the uptrend (YoY in 1Q19 : +123% for YG, -5% for SM, +6% for JYP, +35% for Big Hit) platforms creating global • Following BTS, BLACKPINK, and NCT, TWICE has launched US promotions and tours. fan bases • Revenue from Google (GOOGL US/CP: US$1,189) will likely increase 58% in 2H19, thanks to higher CPM arising from regional diversification. • Music platforms like Apple Music and Spotify are also exhibiting strong top-line growth. • Going forward, minimum guarantees (MGs) per concert will likely rise, contributing to earnings.

MGs are determined by region and drawing power: Robust YouTube views are on the uptrend fan bases in developed countries could drive revenue higher

(mm views) (Wbn) 800 SM (SMTOWN) 2.0 JYP (jypentertainment + TWICE) YG (YG ENTERTAINMENT + BLACKPINK + iKON + WINNER) Big Hit (ibighit + BANGTANTV) Estimated MGs of 1.5 BLACKPINK, NCT, and 600 TWICE for US concerts

1.0 400

0.5

200

0.0 Southeast Southeast China (early) China (mature) DM (top-tier Asia/Latin Asia/Latin bands) 0 America (early) America (mature) 9/15 1/16 5/16 9/16 1/17 5/17 9/17 1/18 5/18 9/18 1/19

Source: Social Blade, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

17| 2H19 Outlook [Media] Mirae Asset Daewoo Research III. At a crossroads: 4) Film

Profitability • For theaters, cost burdens are high, with labor and rent costs accounting for 57% of SG&A expenses: 2019F minimum wage hike of 10.9%; rent costs to rise improvement is key to • Profitability management needed: With volume growth expected to be limited, more frequent price hikes or tighter theater earnings in 2019: controls on labor/marketing costs are needed. Cost controls + easing of • On a positive note, given margin deterioration in 2018 and Megabox’s planned IPO, theater operators are likely to focus on boosting efficiency, rather than engaging in cutthroat competition. competition • For Megabox, as new site openings have decreased since 2017, margin improvement will likely come into view in 2019. • We are positive on 2019 earnings at theater operators, including J Contentree (Megabox) and CJ CGV. Efforts to boost cost efficiency: Domestic New site opening competition ended in Margin improvement likely: theaters moving to reduce labor forces 2016 Demand ＞ supply

(Persons) (%) CGV screen count YoY (%) Box office YoY Lotte Cinema screen count YoY 90 No. of staff per site 20 20 Multiplex screen count YoY Megabox (incl. Cinus) screen count YoY

Slowdown in 80 15 screen count 15 growth

70 10 10

60 5 5

50 0 0

40 -5 -5 2012 2013 2014 2015 2016 2017 2018 2019F 2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018

Source: CJ CGV, Mirae Asset Daewoo Research Source: Korean Film Council, Mirae Asset Daewoo Research Source: Korean Film Council, Mirae Asset Daewoo Research

18| 2H19 Outlook [Media] Mirae Asset Daewoo Research III. At a crossroads: 4) Film

Film content: OTT • We believe that domestic film distributors will continue to face a difficult environment, due to the strength of Hollywood blockbusters and greater investments by direct distributors. platforms to offer • The number of films distributed by domestic players should decrease sharply amid falling investment in Korean opportunities films and the high popularity of foreign films. • Domestic investments should focus on efficiency; VODs and overseas OTT platforms should be leveraged to achieve breakeven. • In addition, it is also necessary to gain exposure to new demand stemming from the expansion of investments by Pooq/Oksusu, WarnerMedia, and Disney.

Widening gap between Hollywood and domestic movies Film licensing income is greater than theater income

(No. of films distributed) (%) (Wbn) 30 60 M/S of domestic films (R) 45 CJ ENM CJ ENM (L) Showbox NEW (L) 40 25 Showbox (L) 35 Lotte (L)

20 55 30

25 15 20

10 50 15

10 5 5

0 45 0 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2014 2015 2016 2017 2018 2019F Source: Korean Film Council, Mirae Asset Daewoo Research Source: CJ ENM, Showbox, Mirae Asset Daewoo Research

19| 2H19 Outlook [Media] Mirae Asset Daewoo Research IV. Global peer group valuations

CJ ENM: Undervalued • Advertising: Industry players need to offset negative growth in traditional media ads by recording solid digital ad growth and increasing overall exposure to new media. growth stock • Film: Despite the unfavorable market environment, domestic theater earnings will likely improve in 2019, thanks Entertainment: Structural to higher cost efficiency. changes • Dramas: The performances of dramas set to air in 2H19 will determine the production outlook for 2020 and beyond. Dramas: High expectations • Entertainment: New growth drivers, including new artist debuts and new platforms, deserve attention; shares for blockbusters have undergone healthy corrections. Content: CJ ENM to see fundamental changes in 2019 Entertainment: Focus on structural growth again

(x) Combined P/OP (L) (%) (x) Big three P/E Domestic/Japan earnings (▲) 24 OP contribution of pre-merger CJ E&M (R) 60 Global expectations (▲▲) OP contribution of media Domestic/Japan earnings (-) China expectations (▼ → ?) (pre-merger CJ E&M) 90 to exceed 50% in 2019 tvN viewership uptrend 50 Domestic/Japan earnings (▲▲) Domestic/Japan earnings (-) CJ E&M market cap growth Japan expectations (▲▲) China expectations (▲ → ▼)

18 40 60

30 Earnings growth + expectations

12 20 30

CJ E&M turnaround in 2015 10 thanks to ad rate growth Valuation re-rating expected 1) Higher OP contribution of pre-merger CJ E&M 2) Normalization of merged entity 6 0 0 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 09 10 11 12 13 14 15 16 17 18 19 20

Source: FnGuide, Mirae Asset Daewoo Research Source: FnGuide, Mirae Asset Daewoo Research

20| 2H19 Outlook [Media] Mirae Asset Daewoo Research IV. Global peer group valuations

글로벌Global 동종media/entertainment 업체 Valuation players (Wbn, %, x)

Market Revenue Operating profit Net profit ROE P/E P/B EV/EBITDA cap 18 19F 18 19F 18 19F 18 19F 18 19F 18 19F 18 19F CJ ENM 4,813 3,803 4,533 299 387 224 303 12.5 14.8 16.9 14.2 1.9 1.7 10.1 9.7 CJ CGV 852 1,823 2,000 84 111 2 49 1.4 13.8 NA 17.4 2.6 2.3 8.6 7.7 SBS 381 851 765 1 35 5 33 0.9 5.5 76.1 11.7 0.7 0.6 10.8 4.5 Studio Dragon 3,017 386 511 58 102 48 82 12.3 17.7 62.0 36.5 7.2 6.1 24.8 16.9 JContentree 710 511 596 44 63 23 33 11.7 12.8 28.6 22.4 2.8 2.5 10.1 8.2 SM Entertainment 1,243 582 706 51 64 37 48 9.6 10.6 32.7 25.7 2.9 2.6 15.7 13.5 YG Entertainment 737 283 330 11 25 8 21 2.4 5.9 92.2 35.4 2.3 2.1 33.7 22.0 JYP Entertainment 1,212 127 159 31 47 24 39 24.7 29.5 48.8 30.5 10.3 7.7 34.2 23.8 Disney (US) 193,673 70,200 72,258 16,726 17,162 12,133 13,072 20.5 18.6 16.1 15.5 3.1 2.7 11.1 10.6 Comcast (US) 195,977 102,984 112,154 21,937 23,727 13,741 14,349 16.5 15.9 14.9 13.7 2.4 2.1 8.0 7.5 Fox (US) 102,058 35,407 37,489 7,462 8,113 4,311 4,635 17.5 15.6 24.5 21.8 3.2 2.9 14.3 13.4 Netflix (US) 133,139 17,851 22,403 1,875 2,957 1,336 2,117 25.7 28.0 90.9 60.1 23.6 16.6 61.7 40.9 Zhejiang Huace (China) 2,970 1,053 1,267 144 183 125 160 10.5 12.2 23.5 18.4 2.4 2.1 19.5 15.4 Fuji Media Holdings (Japan) 4,072 6,298 6,320 266 279 240 251 3.4 3.3 16.1 15.6 0.6 0.5 10.4 9.9 AMC (US) 1,575 6,132 6,332 304 373 -41 37 -1.0 2.3 NA 42.4 1.0 0.9 7.2 6.9 Cinemark (US) 4,897 3,536 3,675 488 486 284 316 17.6 17.7 17.9 15.8 2.9 2.6 8.0 7.6 Cineworld (UK) 5,585 4,830 5,434 636 790 292 509 13.6 13.6 13.7 11.3 1.2 1.1 9.5 7.9 Wanda Cinema Line (China) 6,599 2,559 2,998 359 434 295 362 14.1 15.0 19.5 15.9 3.0 2.6 13.0 10.5 Hengdian (China) 1,776 477 559 78 97 66 80 17.4 17.8 26.9 22.3 5.0 4.2 16.2 12.9 Jinye Media (China) 616 383 415 47 52 39 46 10.9 10.8 16.1 13.9 1.9 1.7 NA NA Live Nation (US) 12,537 11,835 12,796 325 457 -15 80 4.0 4.5 815.8 113.1 8.6 6.5 15.1 13.5 Madison Square Garden (US) 6,724 1,839 1,927 24 71 5 21 0.8 1.7 364.7 129.0 2.2 2.2 25.3 20.8 Avex Group (Japan) 678 1,644 1,692 79 88 41 46 8.5 NA 15.3 13.7 1.3 1.2 NA NA

Note: Based on Bloomberg consensus as of May 9th Source: Bloomberg, Mirae Asset Daewoo Research

21| 2H19 Outlook [Media] Mirae Asset Daewoo Research CJ ENM (035760 KQ)

Solid content competiveness and revenue generation

Investment points (Maintain) Buy • Steady revenue generation via flexible content strategy • Fundamental improvements in the media business: Aggressive efforts to increase exposure to the digital ad Target Price (12M, W) 285,000 market and expand media commerce operations • Music business to be revalued: Backed by Mnet, CJ ENM’s idol groups have met with extraordinary success. Share Price (5/3/19, W) 219,000 • 2019 will likely be the first year in which the media business (broadcasting, film, music) makes a bigger contribution to operating profit than the commerce business. This is highly likely to drive a valuation re- rating. Expected Return 30% • Based on a media P/E of 20x, a commerce P/E of 12x, and a 30% discount to the value of stakes in listed subsidiaries, our target market cap stands at W6.75tr. OP (19F, Wbn) 224 Risks Consensus OP (19F, Wbn) 374 • Potential slowdown in the domestic ad market arising from slowing GDP growth EPS Growth (19F, %) 458.6 • Greater-than-expected content production cost increases Market EPS Growth (19F, %) -18.2

P/E (19F, x) 11.0

Market P/E (19F, x) 12.2

KOSDAQ 761.82 4,802 130 Market Cap (Wbn) CJ ENM FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Shares Outstanding 22 120 KOSDAQ Revenue (Wbn) 2,209 2,260 3,427 4,702 5,040 5,402 (mn) 46.8 Free Float (%) 110 OP (Wbn) 179 224 251 358 405 479 Foreign Ownership (%) 19.2 OP margin (%) 8.1 9.9 7.3 7.6 8.0 8.9 100 Beta (12M) 0.60 NP (Wbn) 23 131 163 221 307 459 90 52-Week Low 191,200 EPS (W) 3,769 21,054 11,514 10,068 14,008 20,925

52-Week High 286,400 80 ROE (%) 2.6 13.5 8.6 7.8 10.1 13.5

(%) 1M 6M 12M70 P/E (x) 43.2 11.0 17.5 21.8 15.6 10.5 Absolute -7.4 -3.5 0.3 P/B (x) 1.1 1.4 1.4 1.4 1.3 1.2 60 Relative -8.9 -12.5 14.018.6 18.8 18.9 18.11 19.1 19.3 19.4 Div.Yield (%) 1.5 1.3 0.6 0.5 0.5 0.5 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: CJ ENM, Mirae Asset Daewoo Research estimates

22| 2H19 Outlook [Media] Mirae Asset Daewoo Research [Conclusion] Investment recommendations

Coverage overview

CJ ENM (035760 KQ) Top pick TP: W285,000 CP: W219,000

J Contentree Studio Dragon JYP Entertainment (036420 KQ) (253450 KQ) (035900 KQ) TP: W7,000 TP: W130,000 TP: W41,000 CP: W5,630 CP: W91,800 CP: W29,750 Buy SM Entertainment CJ CGV YG Entertainment (041510 KQ) (079160 KS) (122870 KQ) TP: W59,000 TP: W56,000 TP: W60,000 CP: W42,400 CP: W42,650 CP: W35,800

Source: Mirae Asset Daewoo Research

23| 2H19 Outlook [Media] Mirae Asset Daewoo Research APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price SM Entertainment (041510) 01/02/2017 No Coverage 03/10/2019 Buy 59,000 CJ ENM (035760) 11/14/2018 Buy 70,000 05/10/2019 Buy 285,000 10/24/2018 Buy 65,000 04/03/2019 Buy 310,000 08/15/2018 Buy 54,000 08/31/2017 No Coverage 04/24/2018 Buy 47,000 04/27/2017 Buy 240,000 03/11/2018 Buy 50,000 J Contentree (036420) 11/14/2017 Buy 44,000 05/10/2019 Buy 7,000 09/05/2017 Buy 37,000 11/07/2018 Buy 6,500 01/02/2017 No Coverage 08/02/2018 Buy 8,400 CJ CGV (079160) 07/05/2018 Trading Buy 7,988 11/09/2018 Buy 56,000 05/13/2018 Trading Buy 8,368 08/10/2018 Buy 80,000 07/23/2017 Buy 5,515 06/07/2018 Buy 89,000 04/17/2017 Buy 4,755 04/02/2018 Buy 98,000 JYP Entertainment (035900) 02/08/2018 Buy 97,000 04/23/2019 Buy 41,000 08/11/2017 Buy 96,000 10/24/2018 Buy 46,500 05/14/2017 Buy 105,000 Studio Dragon (253450) 02/15/2019 Buy 130,000 YG Entertainment (122870) 11/08/2018 Buy 153,000 10/24/2018 Buy 60,000 06/22/2018 Buy 150,000 08/12/2018 Buy 43,000 03/06/2018 Buy 110,000 07/22/2018 Trading Buy 43,000 SBS (034120) 05/13/2018 Trading Buy 30,000 09/05/2017 Hold - 02/22/2018 Trading Buy 32,000 01/02/2017 No Coverage 12/05/2017 Buy 39,000 09/05/2017 Buy 35,000

24| 2H19 Outlook [Media] Mirae Asset Daewoo Research APPENDIX 1

(W) SM Entertainment(W) CJ CGV (W) YG Entertainment (W) CJ ENM (W) J Contentree

80,000 120,000 80,000 400,000 10,000

100,000 8,000 60,000 60,000 300,000 80,000 6,000 40,000 60,000 40,000 200,000 4,000 40,000 20,000 20,000 100,000 20,000 2,000

0 0 0 0 0 May 17 May 18May May 17 19 May 18May May 17 19 May 18May 1719 May 18May May 17 19 May 18 May 19

(W) JYP Entertainment(W) Studio Dragon (W) SBS

50,000 200,000 40,000

40,000 150,000 30,000 30,000 100,000 20,000 20,000

50,000 10,000 10,000

0 0 0 May 17 May 18May May 17 19 May 18May May 17 19 May 18 May 19

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10%

Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 83.52% 8.24% 8.24% 0.00% Investment Banking Services 82.61% 4.35% 13.04% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2019)

25| 2H19 Outlook [Media] Mirae Asset Daewoo Research APPENDIX 1

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates own 1% or more of SM Entertainment, CJ CGV, YG Entertainment`s shares outstanding.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

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26| 2H19 Outlook [Media] Mirae Asset Daewoo Research APPENDIX 1

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28| 2H19 Outlook [Media] Mirae Asset Daewoo Research