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CJ CGV (079160 KQ) Growth Shifting to Overseas Markets

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CJ CGV (079160 KQ) Growth Shifting to Overseas Markets CJ CGV (079160 KQ) Growth shifting to overseas markets Entertainment 2Q earnings weaken amid slowing growth and unexpected expenses CJ CGV reported disappointing 2Q results, as unexpected expenses sharply eroded Results Comment margins. Nationwide theater attendance rose only 2.2% YoY in 2Q, putting an end to August 12, 2013 the double-digit growth that had continued since 4Q11. CJ CGV’s theater attendance (directly operated and franchise theaters combined) grew 14.4% YoY in 2Q, faster than the market average. 2Q non-consolidated revenue (Maintain) Buy increased 9.9% YoY, but operating profit slumped 50.2% YoY. OP margin was dragged down by higher SG&A expenses, such as rents and labor costs, as a result of an increased Target Price (12M, W) 63,000 number of theaters. Several non-operating expense items were booked, including F/X translation losses and impairment losses on rent deposits, while non-operating income Share Price (08/09/13, W) 51,200 declined due to a fall in deferred revenue related to mileage points. All in all, 2Q net profit plunged 92.2% YoY to W1.3bn. Expected Return 37% Consolidated revenue and operating profit came in at W210.7bn (+16.2% YoY) and W12bn (-40.8% YoY), respectively. This marked the first time consolidated earnings OP (13F, Wbn) 77 outstripped non-consolidated numbers, which we mainly attribute to improved margins Consensus OP (13F, Wbn) 84 at the firm’s subsidiaries in China and Vietnam, as well as 4DPLEX and Simuline. EPS Growth (13F, %) -34.0 Stable growth to resume in 3Q Market EPS Growth (13F, %) 17.4 P/E (13F, x) 22.0 In July, the firm’s directly operated theaters saw only a 3% YoY rise in attendance, partly Market P/E (13F, x) 9.2 due to the poor box office performance of the highly anticipated film Mr. Go. As of KOSPI 1,880.71 August, however, attendance grew by 38% YoY, boosted by box office hits of domestic films like Snowpiercer and The Terror Live. In September, the lengthier-than-usual Market Cap (Wbn) 1,083 Chuseok holidays should serve as a positive catalyst. We estimate 3Q non-consolidated Shares Outstanding (mn) 21 revenue and operating profit to grow 13.4% and 0.4% YoY, respectively. Free Float (%) 60.0 Foreign Ownership (%) 19.1 Lower TP 10% to W63,000, but upbeat on overseas growth Beta (12M) 0.06 52-Week Low (W) 26,500 We leave our Buy rating unchanged, but cut our target price by 10% to W63,000 from 52-Week High (W) 60,800 W70,000, as we adjusted down our 2013F-14F EPS by 32.9% and 22.8%, respectively, in light of the poor 2Q results and slowing growth of the domestic film market. (%) 1M 6M 12M Absolute 5.9 33.7 91.4 Our target price revision is more modest compared to our EPS adjustments, mainly Relative 3.1 37.3 94.5 because 2Q earnings results improved our outlook for the overseas markets. In 2Q, the Chinese subsidiary narrowed its operating loss to W3.6bn (from W5.3bn in 1Q), while Share price 280 KOSPI operating profit at the Vietnamese subsidiary climbed to W3.3bn (from W2.2bn in 1Q). 230 The firm continues to add new theaters in China and Vietnam and also plans to move 180 into other Southeast Asian markets, such as Laos, Myanmar and Indonesia, in 2014. We 130 believe CJ CGV is well-poised to benefit from the fast-growing Asia multiplex cinema 80 market. 8/12 12/12 4/13 8/13 Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 500 548 665 778 843 900 Internet/Game/Entertainment OP (Wbn) 60 70 72 77 104 123 Chang-kwean Kim OP margin (%) 11.9 12.7 10.9 9.9 12.4 13.6 +822-768-4321 NP (Wbn) 41 39 73 49 72 89 [email protected] EPS (W) 1,965 1,873 3,528 2,329 3,436 4,261 ROE (%) 15.4 12.5 20.4 11.9 15.5 16.7 P/E (x) 14.3 14.2 9.1 22.0 14.9 12.0 P/B (x) 2.1 1.9 1.9 2.7 2.3 2.0 Note: All figures are based on non-consolidated K-IFRS 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 the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS BEGINNING ON PAGE 4. August 12, 2013 CJ CGV Table 1. Quarterly and annual earnings (Wbn, %) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13P 3Q13F 4Q13F 2011 2012 2013F Revenue 139 154 199 172188 170 226 194 548 665778 Tickets 90 105 133 112 125 110 153 130 359 441 518 Concessions 23 24 36 31 34 29 42 35 90 114 140 Screen ads 16 16 20 18 17 19 19 19 64 70 75 Other 9.3 9.0 10.8 10.811.0 11.1 12.0 10.0 34.3 39.844.1 Revenue breakdown Tickets 64.8 68.4 66.7 65.3 66.8 64.9 67.7 66.8 65.6 66.3 66.7 Concessions 16.9 15.5 18.0 18.0 18.2 17.2 18.4 18.1 16.4 17.2 18.0 Screen ads 11.6 10.3 9.8 10.5 9.1 11.4 8.6 10.0 11.7 10.5 9.7 Other 6.7 5.8 5.4 6.25.9 6.6 5.3 5.1 6.3 6.05.7 Operating profit 17 23 27 5 24 11 27 14 71 72 77 OP margin 12.3 14.6 13.7 3.1 12.9 6.6 12.1 7.3 12.9 10.9 9.9 Net profit 12 16 40 4 17 1 20 11 39 73 49 Net margin 8.7 10.5 20.3 2.4 8.8 0.7 8.9 5.5 7.0 11.0 6.3 YoY growth Revenue 19.4 20.4 17.8 28.235.4 9.9 13.4 12.8 9.6 21.317.0 Tickets 18.5 22.5 17.9 33.0 39.6 4.4 15.1 15.4 6.4 22.7 17.6 Concessions 24.6 19.2 22.4 42.6 45.4 21.6 15.7 13.8 14.8 27.1 22.5 Screen ads 21.2 -1.0 7.0 7.9 Other 12.8 20.8 12.2 19.019.1 24.1 10.7 -7.2 5.9 16.010.8 Operating profit 23.4 24.4 -19.2 11.5 41.9 -50.3 0.4 163.6 18.4 2.5 6.6 Net profit 32.3 85.1 83.0 TTB 37.1 -92.2 -50.2 156.1 -4.7 88.5 -33.2 Note: Based on non-consolidated K-IFRS; Due to differences in accounting standards, some figures differ from released results; TTB stands for “turn to black” Source: Company data, KDB Daewoo Securities Research estimates Table 2. Key earnings factors (mn people, W, %) Key factors 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13P 3Q13F 4Q13F 2011 2012 2013F Nationwide audience 41 42 60 52 56 43 66 55 160 194 220 CGV audience 17 18 26 23 25 20 31 26 68 84 102 Audience at directly 12 13 19 16 17 15 21 18 48 60 71 operated sites M/S 43.0 42.0 43.8 44.3 44.3 47.0 47.1 47.2 42.5 43.3 46.4 Seat occupancy rates 38.8 39.2 58.1 50.7 54.6 44.9 69.2 57.9 37.6 46.7 56.6 (Direct) 40.3 41.6 61.1 53.0 57.3 48.4 68.7 57.7 39.3 49.0 58.0 (Franchise) 35.8 34.3 52.0 44.8 48.3 37.4 57.5 48.0 34.2 41.7 47.8 No. of directly operated sites 52 54 56 57 60 63 64 65 51 57 65 No. of franchise sites 33 33 33 34 35 33 37 38 32 34 38 No. of screens at directly 423 439 458 463 480 507 515 523 421 463 523 operated sites No. of screens at franchise 256 256 256 264 272 284 318 327 252 264 327 sites Average ticket price (ATP) 7,314 8,323 7,154 6,963 6,963 7,288 7,325 7,383 7,522 7,439 7,240 Sales per patron (SPP) 1,912 1,888 1,931 1,921 1,921 1,967 1,987 2,007 1,874 1,913 1,971 Source: Company data, KDB Daewoo Securities Research estimates Table 3. Earnings forecast revisions (Wbn, W, %, %p) Previous Revised % change 2013F 2014F 2013F 2014F 2013F 2014F Revenue 793 843 778 843 -1.9 0.0 Operating profit 105 125 77 104 -26.8 -16.7 Pretax profit 94 120 63 93 -32.7 -22.4 Net profit 72 92 49 72 -32.0 -21.7 EPS (W) 3,472 4,450 2,329 3,436 -32.9 -22.8 OP margin 13.3 14.8 9.9 12.4 -3.4 -2.5 Net margin 9.0 10.9 6.3 8.5 -2.8 -2.4 Note: Based on non-consolidated K-IFRS; Due to differences in accounting standards, some figures differ from released results Source: Company data, KDB Daewoo Securities Research estimates KDB Daewoo Securities Research August 12, 2013 CJ CGV CJ CGV (079160 KQ/Buy/TP: W63,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue 665 778 843900 Current Assets 224 338 479 713 Cost of Sales 302 374 401 424 Cash and Cash Equivalents 149 251 385 613 Gross Profit 363 404 442 476 AR & Other Receivables 60 70 76 82 SG&A Expenses 291 327 338 354 Inventories 2 3 3 3 Operating Profit (Adj) 72 77 104 123 Other Current Assets 12 14 15 16 Operating Profit 72 77 104 123 Non-Current Assets 757 855 922 990 Non-Operating Profit 23 -14 -11 -7 Investments in Associates 15 75 135 195 Net Financial Income 11 3 5 1 Property, Plant and Equipment 347 331 306 284 Net Gain from Inv in Associates -1 0 0 0 Intangible Assets 32 29 26 24 Pretax Profit 95 63 93 115 Total Assets 980 1,193 1,400 1,703 Income Tax 22 14 21 26 Current Liabilities 258 343 364 382 Profit from Continuing Operations 73 49 72 89 AP & Other Payables 144 168 182 195 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 50 100 100 100 Net Profit 73 49 72 89 Other Current Liabilities 64 75 81 87 Controlling Interests 73 49 72 89 Non-Current Liabilities 334 420 543 747 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 260 330 444 641 Total Comprehensive Profit 72 49 72 89 Other Non-Current Liabilities 66 82 90 98 Controlling Interests 72 49 72 89 Total Liabilities 592 763 906 1,129 Non-Controlling Interests 0 0 0 0 Controlling Interests 389 430 494 574 EBITDA 115 110 134150 Capital Stock 10 10 10 10 FCF (Free Cash Flow) 142 86 111 122 Capital Surplus 67 67 67 67 EBITDA Margin (%) 17.4 14.2 15.9 16.6 Retained Earnings 319 360 425 505 Operating Profit Margin (%) 10.9 9.9 12.4 13.6 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 11.0 6.3 8.5 9.9 Stockholders' Equity 389 430 494 574 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities 139 104 116 126 P/E (x) 9.1 22.0 14.9 12.0 Net Profit 73 49 72 89 P/CF (x) 5.7 13.1 10.5 9.2 Non-Cash Income and Expense 64 64 62 61 P/B (x) 1.9 2.7 2.3 2.0 Depreciation 36 27 2522 EV/EBITDA (x) 7.5 11.9 9.68.4 Amortization 7 6 5 5 EPS (W) 3,528 2,329 3,436 4,261 Others 8 -14 -7 -7 CFPS (W)
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