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CJ CGV Sell (079160 KS) (Downgrade) [Korea] Media CJ CGV Sell (079160 KS) (Downgrade) Far from breakeven TP: W15,000 Downside: 20.2% Mirae Asset Daewoo Co., Ltd. Jeong-yeob Park [email protected] 2Q20 review Consolidated revenue of W41.6bn (-91.4% YoY) and operating loss of W130.5bn (turning to loss YoY); worse than expected CJ CGV fared worse than expected in 2Q20, hurt by a heavy fixed cost burden amid theater shutdowns and the absence of new releases around the world. Revenue plunged 91% YoY, as COVID-19 caused theater attendance to plummet across regions. SG&A expenses fell 51% YoY on improved operating efficiency (reduced lease/labor expenses). By country, operating loss amounted to W70.1bn in Korea, W29.8bn in China, W1.6bn in Turkey, and W8.3bn in Vietnam. Due to financing expenses, net loss came in at W174.9bn (net loss attributable to owners of the parent of W143.2bn). Theater business is far from Demand hit a bottom, but a YoY recovery is unlikely anytime soon breakeven Following global demand contraction in 1H20, the domestic box office recovered 46% MoM in Jul., supported by an increase in new releases. By title, theater attendance was 1.9mn for #Alive (Jun.) and 3.6mn for Train to Busan 2 (Jul.). Blockbuster lineup in 2H20: Tenet (Aug. 26), The King's Man (Sep.), Black Widow (Nov.), and 007: No Time to Die (Nov.) QoQ improvements should continue, but the outlook for YoY performance remains murky, given the lingering impact of the pandemic and the decline in content lineup. Recommendation and valuation Downgrade to Sell (from Hold) and present TP of W15,000 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 (W509bn). Short-term outlook: With the reopening of theaters, the pace of the box office recovery is a key variable (75% and 80% of theaters are back in business in China and Turkey, respectively). Long-term outlook: We believe CJ CGV needs to consider downsizing its multiplex business, given the risks to its business model. We expect the theater market to be smaller in size two years from now, given: 1) likely shifts in consumer behavior post-COVID-19; 2) the rise of alternative platforms (e.g., direct-to-OTT releases); and 3) declining investments in traditional movie production. CJ CGV’s 30% reduction in fixed costs should lead to leverage effects upon a recovery in attendance. However, breakeven seems to be a long way off. We estimate the domestic theater business needs attendance to be at 180mn to break even (2020F attendance: 110mn). Key data Current price (8/7/20, W) 18,800 Market cap (Wbn) 660 140 CJ CGV KOSPI OP (20F, Wbn) -250 Shares outstanding (mn) 35 120 100 Consensus OP (20F, Wbn) -103 Free float (%) 55.7 80 EPS growth (20F, %) - Foreign ownership (%) 5.4 60 P/E (20F, x) - Beta (12M) 1.68 40 Market P/E (20F, x) 16.5 52-week low (W) 12,835 8.19 12.19 4.20 8.20 KOSPI 2,351.67 52-week high (W) 35,739 Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2016 2017 2018 2019 2020F 2021F Absolute -6.5 -28.5 -37.0 Revenue (Wbn) 1,432 1,714 1,769 1,942 809 1,340 Relative -13.9 -32.8 -48.8 OP (Wbn) 70 86 78 122 -250 -49 OP margin (%) 4.9 5.0 4.4 6.3 -30.9 -3.7 NP (Wbn) 12 -1 -141 -153 -451 -254 EPS (W) 583 -66 -6,647 -7,213 -21,303 -12,016 ROE (%) 3.1 -0.4 -49.6 -57.6 -1,132.4 80.0 P/E (x) 109.5 - - - - - P/B (x) 3.6 4.6 3.0 2.5 - - Dividend 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 estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. August 10, 2020 CJ CGV Table 1. Valuation (Wbn, x) Valuation Notes Parent fair value (a) 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 of W730.2bn (as of 2Q20) minus proceeds Net debt 509 from equity issuance (W221bn) Fair value 524 TP (W) 14,917 Reflected increase in share count Downside (%) -20.7 Source: Mirae Asset Daewoo Research estimates Table 2. Consolidated earnings and forecasts (Wbn, %, mn, %p) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20P 3Q20F 4Q20F 2019 2020F 2021F Revenue 465 482 497 498 243 42 214 311 1,942 809 1,340 Parent 249 266 282 257 128 36 167 203 1,054 534 846 Subsidiaries 216 216 215 242 115 6 47 107 888 275 494 China (consolidated) 84 75 81 79 13 1 27 52 320 93 242 Turkey 39 26 26 55 34 0 11 51 146 96 125 Vietnam 46 53 45 42 30 6 19 33 186 89 142 4DPLEX 21 32 28 32 21 1 9 17 113 49 79 OP 23.5 23.5 31.0 45.2 -71.6 -130.5 -45.5 -2.0 122 -250 -49 OP margin 5.1 4.9 6.2 9.1 -29.4 -313.8 -21.3 -0.7 6.3 -30.9 -3.7 Parent 7.3 9.3 26.5 25.4 -32.9 -70.1 -14.9 8.5 68 -110 9 Subsidiaries 16.3 14.2 4.5 19.8 -38.7 -60.4 -30.6 -10.5 55 -140 -58 China (consolidated) 6.6 1.1 1.6 3.0 -30.2 -29.8 -7.3 -4.6 12 -72 -22 Turkey (excluding PPA) 2.3 -2.9 -5.0 12.2 0.5 -1.6 -5.8 6.3 7 -1 9 Vietnam 7.2 6.4 4.1 2.5 0.6 -8.3 -3.4 1.2 20 -10 4 4DPLEX -0.5 4.6 1.6 -4.4 -3.2 -9.4 -2.8 -2.1 1 -18 -8 Pretax profit -9.1 -8.6 -3.2 -207.7 -120.5 -177.4 -85.8 -41.8 -229 -426 -225 NP -8.6 -9.8 -7.1 -213.5 -118.6 -174.9 -84.6 -41.2 -239 -419 -222 Net margin -1.8 -2.0 -1.4 -42.9 -48.7 -420.5 -39.6 -13.3 -12.3 -51.8 -16.7 NP (owners of the parent) -6.9 -8.8 1.8 -138.7 -95.5 -143.2 -75.8 -136.4 -152.6 -450.8 -254 YoY Revenue 5.3 19.1 5.2 10.6 -47.6 -91.4 -57.1 -37.7 9.8 -58.3 65.7 Parent 13.0 20.3 0.0 2.2 -48.6 -86.5 -40.8 -20.8 8.1 -49.3 58.5 Subsidiaries -2.3 17.6 12.8 21.3 -46.5 -97.4 -78.3 -55.5 11.8 -69.0 79.6 China (consolidated) -8.5 7.8 -6.8 12.5 -84.3 -98.9 -67.1 -34.1 0.2 -70.9 160.0 Turkey -38.3 -17.0 20.8 5.6 -12.9 -100.0 -55.3 -7.1 -13.2 -33.9 30.0 Vietnam 42.8 32.5 30.7 36.0 -33.7 -88.2 -57.6 -20.7 35.2 -52.2 60.0 4DPLEX 22.6 8,719.9 -5.1 76.6 TTR TTR TTR TTR 58.5 TTR RR OP TTR RR RR RR RR RR RR RR RR RR RR Key assumptions China attendance 480 329 473 437 61 - 142 306 1,719 509 0 CGV share 2.3 2.6 2.4 2.5 2.5 - 2.5 2.5 2.4 2.5 0.0 Turkey attendance 19 10 8 23 17 - 3 16 59 36 0 CGV share 40.0 43.4 42.4 39.8 38.7 - 42.4 39.8 40.8 39.6 0.0 Note: M/S figures are based on avg. data. Source: Company data, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 2 August 10, 2020 CJ CGV Table 3. Parent earnings and forecasts (Wbn, %, mn, %p) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20P 3Q20F 4Q20F 2019 2020F 2021F Revenue 249 266 282 257 128 36 167 203 1,054 534 846 Box office 169 172 185 166 79 20 112 133 691 345 554 Concessions 44 48 52 47 22 5 28 33 191 88 128 Screen ads 19 28 29 28 17 3 18 22 104 60 97 Other 17 19 16 16 10 8 9 14 68 41 67 OP 7 9 26 25 -33 -70 -15 8 68 -110 9 OP margin 2.9 3.5 9.4 9.9 -25.8 -194.7 -8.9 4.2 6.5 -20.5 1.0 Pretax profit -2 1 15 -72 -45 -87 -32 -8 -58 -172 -54 NP -2 0 13 -77 -44 -85 -29 -7 -66 -165 -52 Net margin -0.8 0.0 4.6 -30.0 -34.3 -237.3 -17.1 -3.7 -6.2 -31.0 -6.1 YoY Revenue 13.0 20.3 0.0 2.2 -48.6 -86.5 -40.8 -20.8 8.1 -49.3 58.5 Box office 13.5 16.7 -2.8 1.7 -53.1 -88.5 -39.3 -19.4 6.5 -50.1 60.8 Concessions 18.3 29.7 4.7 13.8 -51.3 -90.0 -45.9 -28.3 15.7 -54.0 45.3 Screen ads -11.7 19.7 4.6 1.2 -9.3 -88.8 -39.6 -21.6 3.7 -42.3 62.3 Other 32.7 34.1 12.7 -17.4 -40.5 -55.4 -43.9 -12.4 12.3 -38.9 61.6 OP 551.8 TTB 3.5 139.1 TTR TTR TTR -66.7 89.5 TTR TTB NP RR TTB TTB RR RR TTR TTR RR RR RR RR Key assumptions Domestic attendance 55 54 61 56 26 6 37 45 227 114 182 CGV attendance 26 26 29 26 13 3 17 21 107 54 87 CGV share 47.5 47.2 47.0 47.0 48.4 49.2 47.0 47.0 47.2 47.4 47.4 YoY Domestic attendance 7.4 20.4 -8.0 5.2 -52.7 -88.3 -40.0 -20.0 4.8 -49.7 60.0 CGV attendance 6.5 18.8 -6.2 5.0 -51.9 -87.8 -40.0 -20.0 4.9 -49.4 60.0 CGV share -0.4 -0.6 0.9 -0.1 0.9 2.0 0.0 0.0 0.1 0.2 0.0 Note: M/S figures are based on avg.
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