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CJ CGV Sell (079160 KS ) (Maintain)

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CJ CGV Sell (079160 KS ) (Maintain) [Korea] Media November 11, 2020 CJ CGV Sell (079160 KS ) (Maintain) Scaling down to survive TP: W16,000 ▲ Downside: -27.1% Mirae Asset Daewoo Co., Ltd. Jeong -yeob Park [email protected] 3Q20 review : Weaker than Consolidated revenue of W 155 .2bn (-68.8% YoY) , operating loss of W 96 .8bn (turn to red YoY ) expected The vicious cycle of plunging demand and an absence of content continued across all markets. As a result, CJ CGV’s fixed-cost burden increased, weighing on earnings. Revenue slumped roughly 69% YoY, hurt by the fall in theater attendance amid the pandemic and the absence of Hollywood content. SG&A expenses fell 29% YoY, as enhanced operational efficiency led to savings (rent and labor). By country, operating losses amounted to W43.3bn in Korea, W19.1bn in China, W8bn in Turkey, and W5.6bn in Vietnam. At the net level, the company recorded a loss of W131.5bn ( net loss attributable to owners of the parent of W100.4bn) due to financing expenses. Remaking of the theater Break -even point needs to be lowered through downsizing business By country, we estimate CJ CGV’s break-even theater attendance at 160mn for Korea, 1.5bn for China, 60mn for Turkey, and 50mn for Vietnam. Compared to our 2020 forecasts, these figures imply increases of 106% for Korea, 180% for China, 41% for Turkey, and 67% for Vietnam. To close the gap with break-even levels, we believe the company needs both: 1) an easing of top-line headwinds (content/pandemic); and 2) a dramatic reduction in theater sites. Of note, box-office revenue recorded a slower rate of decline in October (-66% in Korea, -22% in China, -97% in Turkey, and -50% in Vietnam). Key variables: Spread of the virus and the release of Hollywood films (need to monitor US cases) Recommendation and valuation Maintain Sell and raise TP to W16,000 Our target price is based on the sum of the values of the domestic operation (W376.1bn), the stake in CGI (W500.4bn), and the Turkey operation (W156bn), minus net debt (W467.4bn). Expected attendance levels should decline after a couple of years, considering: 1) the six-month void in theater experience globally; 2) changes in the content distribution chain due to the rise of alternative platforms (direct-to-OTT releases); and 3) the decrease in film investments. In the near term, box-office recoveries across markets and the resolution of financing risks will be key. The company’s Turkey total return swap (TRS) contract is set to mature in 2Q21. In the long term, CJ CGV needs to downsize its multiplex business (30% reduction planned over a three-year period), given the erosion in theater demand. We could upgrade our rating if top line recovers more sharply than expected and Hollywood film releases show signs of normalizing. Key data Current price (11/10/20, W) 21,950 Market cap (Wbn) 770 130 CJ CGV KOSPI OP (20F, Wbn) -345 Shares outstanding (mn) 35 110 Consensus OP (20F, Wbn) -297 Free float (%) 55.7 90 70 EPS growth (20F, %) - Foreign ownership (%) 5.4 50 P/E (20F, x) - Beta (12M) 1.66 30 Market P/E (20F, x) 16.8 52-week low (W) 12,835 11.19 3.20 7.20 11.20 KOSPI 2,452.83 52-week high (W) 35,739 Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2016 2017 2018 2019 2020F 2021F Absolute -1.6 0.8 -32.5 Revenue (Wbn) 1,432 1,714 1,769 1,942 693 1,367 Relative -4.0 -20.0 -41.2 OP (Wbn) 70 86 78 122 -345 -118 OP margin (%) 4.9 5.0 4.4 6.3 -49.8 -8.6 NP (Wbn) 12 -1 -141 -153 -413 -258 EPS (W) 583 -66 -6,647 -7,213 -19,540 -12,169 ROE (%) 3.1 -0.4 -49.6 -57.6 -707.2 91.3 P/E (x) 109.5 - - - - - P/B (x) 3.6 4.6 3.0 2.5 - - Div. yield (%) 0.5 0.5 0.5 0.0 0.0 0.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Daewoo Research estimat es Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. November 11, 2020 CJ CGV Table 1. Valuation (Wbn, x) Valuation Note Parent fair value 376 NOPLAT 37.6 2017-19 avg. Target P/NOPLAT 10.0 CGI Holdings (China, Vietnam, Indonesia) 500 71.43% ownership Valuation reflecting stake sale 1,168 Discount rate 40.0 Turkey business fair value 156 50% of acquisition price Turkey business acquisition price 312 Total valuation of W796bn at acquisition; 39% stake Total value 1,033 Net debt 467 Fair value 566 TP (W) 16,113 Reflected increase in share count Source: Mirae Asset Daewoo Research estimates Table 2. Consolidated earnings and forecasts (Wbn, %, mn, %p) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20P 4Q20F 2019 2020F 2021F Revenue 465 482 497 498 243 42 155 253 1,942 693 1,367 Parent 249 266 282 257 128 36 99 138 1,054 401 775 Subsidiaries 216 216 215 242 115 6 56 114 888 292 592 China (consolidated) 84 75 81 79 13 1 36 63 320 113 271 Turkey 39 26 26 55 34 0 1 18 146 53 96 Vietnam 46 53 45 42 30 6 15 28 186 80 144 4DPLEX 21 32 28 32 21 1 10 17 113 50 90 OP 23.5 23.5 31.0 45.2 -71.6 -130.5 -96.8 -45.7 123 -345 -118 OP margin 5.1 4.9 6.2 9.1 -29.4 -313.8 -62.4 -18.1 6.3 -49.8 -8.6 Parent 7.3 9.3 26.5 25.4 -32.9 -70.1 -43.3 -21.1 68 -168 -12 Subsidiaries 16.3 14.2 4.5 19.8 -38.7 -60.4 -53.5 -24.6 55 -177 -106 China (consolidated) 6.6 1.1 1.6 3.0 -30.2 -29.8 -19.1 2.0 12 -77 -33 Turkey (excluding PPA) 2.3 -2.9 -5.0 12.2 0.5 -1.6 -8.0 -3.1 7 -12 -9 Vietnam 7.2 6.4 4.1 2.5 0.6 -8.3 -5.6 -2.8 20 -16 0 4DPLEX -0.5 4.6 1.6 -4.4 -3.2 -9.4 -8.6 -8.5 1 -30 -22 Pretax profit -9.1 -8.6 -3.2 -207.7 -120.5 -177.4 -136.4 -81.9 -229 -516 -279 NP -8.6 -9.8 -7.1 -213.5 -118.6 -174.9 -131.5 -79.0 -239 -504 -272 Net margin -1.8 -2.0 -1.4 -42.9 -48.7 -420.5 -84.8 -31.3 -12.3 -72.8 -19.9 NP (owners of the parent) -6.9 -8.8 1.8 -138.7 -95.5 -143.2 -100.4 -74.5 -152.6 -413.5 -257.5 YoY Revenue 5.3 19.1 5.2 10.6 -47.6 -91.4 -68.8 -49.3 9.8 -64.3 97.4 Parent 13.0 20.3 0.0 2.2 -48.6 -86.5 -65.0 -46.2 8.1 -62.0 93.3 Subsidiaries -2.3 17.6 12.8 21.3 -46.5 -97.4 -73.8 -52.6 11.8 -67.1 102.9 China (consolidated) -8.5 7.8 -6.8 12.5 -84.3 -98.9 -55.9 -20.2 0.2 -64.6 140.0 Turkey -38.3 -17.0 20.8 5.6 -12.9 -100.0 -95.7 -66.7 -13.2 -63.5 80.0 Vietnam 42.8 32.5 30.7 36.0 -33.7 -88.2 -67.0 -32.0 35.2 -57.0 80.0 OP 22.6 8,719.9 -5.1 76.6 TTR TTR TTR TTR 58.5 TTR RR NP TTR RR RR RR RR RR RR RR RR RR RR Key assumptions China attendance 480 329 473 437 61 0 168 306 1,719 536 1,285 CGV share 2.3 2.6 2.4 2.5 2.5 - 2.8 2.8 2.4 2.7 2.8 Turkey attendance 19 10 8 23 17 0 0 7 59 24 43 CGV share 40.0 43.4 42.4 39.8 38.7 0.0 73.8 39.8 40.8 39.7 40.0 Source: Company data, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 2 November 11, 2020 CJ CGV Table 3. Parent earnings and forecasts (Wbn, %, mn, %p) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20P 4Q20F 2019 2020F 2021F Revenue 249 266 282 257 128 36 99 138 1,054 401 775 Box office 169 172 185 166 79 20 58 84 691 241 484 Concessions 44 48 52 47 22 5 15 22 191 64 119 Screen ads 19 28 29 28 17 3 14 23 104 57 92 Other 17 19 16 16 10 8 12 9 68 40 80 OP 7 9 26 25 -33 -70 -43 -21 68 -168 -12 OP margin 2.9 3.5 9.4 9.9 -25.8 -194.7 -43.9 -15.3 6.5 -41.8 -1.6 Pretax profit -2 1 15 -72 -45 -87 -50 -28 -58 -211 -55 NP -2 0 13 -77 -44 -85 -46 -26 -66 -202 -53 Net margin -0.8 0.0 4.6 -30.0 -34.3 -237.3 -46.9 -18.7 -6.2 -50.3 -6.8 YoY Revenue 13.0 20.3 0.0 2.2 -48.6 -86.5 -65.0 -46.2 8.1 -62.0 93.3 Box office 13.5 16.7 -2.8 1.7 -53.1 -88.5 -68.9 -49.1 6.5 -65.2 101.0 Concessions 18.3 29.7 4.7 13.8 -51.3 -90.0 -70.9 -52.7 15.7 -66.7 86.3 Screen ads -11.7 19.7 4.6 1.2 -9.3 -88.8 -53.1 -19.1 3.7 -45.4 62.5 Other 32.7 34.1 12.7 -17.4 -40.5 -55.4 -23.4 -45.2 12.3 -41.7 102.0 OP 551.8 TTB 3.5 139.1 TTR TTR TTR TTR 89.5 TTR RR NP RR TTB TTB RR RR TTR TTR RR RR RR RR Key assumptions Domestic attendance 55 54 61 56 26 6 17 28 227 78 156 CGV attendance 26 26 29 26 13 3 9 13 107 38 76 CGV share 47.5 47.2 47.0 47.0 48.4 49.2 51.7 47.0 47.2 48.7 48.7 YoY Domestic attendance 7.4 20.4 -8.0 5.2 -52.7 -88.3 -71.6 -50.0 4.8 -65.7 100.0 CGV attendance 6.5 18.8 -6.2 5.0 -51.9 -87.8 -68.8 -50.0 4.9 -64.6 100.0 CGV share -0.4 -0.6 0.9 -0.1 0.9 2.0 4.7 0.0 0.1 1.5 0.0 Note: M/S figures are based on avg.
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