Cj E&M (130960)
Total Page:16
File Type:pdf, Size:1020Kb
Earnings Review November 9, 2017 Above CJ E&M (130960) In line Below 12M rating BUY (Maintain) Upside and hurdles both apparent 12M TP W108,000 Up/downside +21% What's new: OP up 316% YoY, but still below consensus Stock Data 3Q17 earnings missed consensus on disappointing broadcasting results. Sales KOSPI (Nov 8, pt) 2,552 climbed 16.2% YoY to W440.1bn and OP surged 316.3% YoY to W12.7bn. OPM Stock price (Nov 8, KRW) 89,400 firmed 2.5%p YoY to 2.9%, but fell 2.7%p QoQ. Specifically, the broadcasting Market cap (USD mn) 3,104 division posted OP of W9.2bn (+5.2% YoY) and music W6.8bn (+179.6% YoY), Shares outstanding (mn) 39 while movies posted an operating loss of W1.7bn (narrower loss YoY) and 52-Week high/low (KRW) 89,400/53,800 6M avg. daily turnover (USD mn) 16.3 performances W1.5bn (wider loss YoY). To reflect the poor operating conditions, Free float / Foreign ownership (%) 56.7/28.5 management lowered its full-year 2017 sales guidance to W1.7-1.9tn (from W1.8- Major shareholders (%) 2tn) and OP to W80-100bn (from W90-110bn). In addition, management reduced CJ Corp and 5 others 42.9 its 2018 target for TV ad sales growth by 15% and digital ad sales growth by 30%. Wellington Management Hong Kong 5.1 Limited and 1 others Pros: Music and media divisions continue to grow Valuation 2016A 2017F 2018F Sales continued to grow on solid results at the broadcasting and music divisions. PE (x) 44.0 7.1 20.8 At the music business, earnings have improved sharply on higher sales of in- PB (x) 1.8 1.7 1.6 house music and sound recordings fueled by Wanna One and Show Me the ROE (%) 4.0 27.3 8.0 Money season 6. Going forward, margins should improve further on synergies with DY (%) 0.3 0.3 0.3 the broadcasting division and reinforced proprietary IP. At the broadcasting division, EV/EBITDA (x) 7.4 7.1 6.5 EPS (KRW) 1,611 12,507 4,308 ad sales improved 5.7% YoY on better ratings at the major channels, while digital BPS (KRW) 40,052 51,608 55,600 ads continued to grow rapidly, increasing 50.2% YoY. Despite the top-line growth, CJ Blue, which was launched after acquiring the Blue Group – a content Performance production and ad agency in Vietnam in 4Q16 – posted a loss of W2.6bn amid the 1M 6M 12M Absolute (%) 15.8 5.4 34.0 post-merger integration process. Relative to KOSPI (%p) 9.2 (5.9) 6.6 Cons: Movie losses 12MF PER trend Plagued by poor results from The Battleship Island, the movie division posted an (X) 12MF PER (LHS) (KRW) 200,000 60 operating loss of W1.7bn. Specifically, sales fell 15.4% YoY as box office sales price (RHS) 180,000 50 160,000 plunged 40.1% but ancillary sales jumped 51.4% YoY. Operating losses narrowed 140,000 YoY (W7.4bn in 3Q16) as results last year were aggravated by the recognition of 40 120,000 accrued expenses related to the settlement of movie funds. Of note, the division 30 100,000 80,000 also post losses of W1.6bn in 2Q17. Going forward, CJ E&M plans to bolster its 20 60,000 portfolio, acquire a movie production company and establish an overseas JV, but 40,000 10 bolstering margins will be a critical hurdle. 20,000 0 0 Dec-14 Dec-15 Dec-16 Source: WISEfn consensus (W bn, %, %p) 3Q17P Change 2017F KIS est. Actual Diff. Consensus QoQ YoY KIS Consensus Sales 438 440 0.5 427 3.5 16.2 1,798 1,764 OP 17 13 (25.1) 17 (46.1) 316.3 82 91 OP margin 3.9 2.9 (1.0) 4.0 (2.7) 2.1 4.6 5.2 EBT 26 24 (8.5) 30 (95.6) 152.7 644 654 Minha Choi NP 20 13 (32.8) 23 (96.7) 570.1 482 495 [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 AT THE END OF THIS REPORT. CJ E&M (130960) Conclusion: Bolstering in-house content production studio and overseas growth potential We maintain BUY with an SotP-derived TP of W108,000. Synergies with the broadcasting division and the growth of in-house album sales should stabilize music earnings. In fact, synergies among the different divisions are firming, and TV and digital ad sales should continue to grow steadily as CJ E&M bolsters competitiveness by reinforcing its content production studio model. In addition, the overseas growth strategy should accelerate, lifting sales and earnings. Table 1. 3Q17 earnings review (W bn, %, %p) 3Q16 2Q17 3Q17 QoQ YoY KIS Diff. Consensus Diff. Sales 378.8 425.3 440.0 3.4% 16.2% 437.9 0.5% 427.2 3.0% OP 3.1 23.6 12.7 (46.1%) 316.3% 17.0 (25.1%) 17.3 (25.1%) OPM 0.8 5.6 2.9 (2.7%p) 2.1%p 3.9 (1.0%p) 4.0 (1.1%p) EBT 9.4 537.2 23.9 (95.6%) 152.7% 26.1 (8.5%) 29.5 (20.4%) Controlling NP 2.0 404.9 13.3 (96.7%) 570.1% 19.7 (32.5%) 22.4 (42.0%) Source: Company data, FnGuide, Korea Investment and Securities Figure 1. Quarterly sales and OP (W bn) (%) 600 Sales (L) OPM (R) 7 6 500 5 4 400 3 2 300 1 0 200 (1) 100 (2) (3) 0 (4) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Source: Company data, Korea Investment and Securities Figure 2. Media sales and OP Figure 3. Movies sales and OP (W bn) (%) (W bn) (%) 450 12 100 15 Sales (L) OPM (R) Sales (L) OPM (R) 400 10 90 10 8 80 5 350 6 70 0 300 4 60 (5) 250 2 50 (10) 200 0 40 (15) (2) 150 30 (20) (4) 100 (6) 20 (25) 50 (8) 10 (30) 0 (10) 0 (35) 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Source: Company data, Korea Investment and Securities Source: Company data, Korea Investment and Securities 2 CJ E&M (130960) Figure 4. Music sales and OP Figure 5. Performance sales and OP (W bn) (%) (W bn) (%) 70 12 12 50 Sales (L) OPM (R) Sales (L) OPM (R) 10 60 10 0 8 50 6 8 (50) 40 4 6 (100) 30 2 0 4 (150) 20 (2) 2 (200) 10 (4) 0 (6) 0 (250) 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 Source: Company data, Korea Investment and Securities Source: Company data, Korea Investment and Securities Table 2. Earnings forecast (W bn) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17F 3Q17F 4Q17F 2016 2017F 2018F Sales 313.5 357.3 378.8 488.8 394.3 425.3 440.0 538.8 1,538.4 1,798.5 1,982.0 Media 225.4 268.4 268.6 366.1 285.7 332.1 317.2 406.9 1,128.4 1,341.9 1,501.9 Film 40.3 40.6 56.2 52.4 56.6 44.5 47.5 54.3 189.5 202.9 215.7 Music 44.6 47.2 46.2 61.4 47.4 47.1 66.3 68.0 199.4 228.9 238.8 Performance 3.3 1.1 7.8 8.9 4.6 1.6 8.9 9.7 21.0 24.8 25.5 COGS 236.7 269.8 290.8 392.2 287.2 312.2 337.8 419.3 1,189.5 1,356.5 1,513.8 COGS/sales (%) 75.5 75.5 76.8 80.2 72.8 73.4 76.8 77.8 77.3 75.4 76.4 Gross profit 76.8 87.4 88.0 96.6 107.1 113.1 102.2 119.5 348.8 441.9 468.2 Gross margin (%) 24.5 24.5 23.2 19.8 27.2 26.6 23.2 22.2 22.7 24.6 23.6 SG&A 67.9 73.3 85.0 94.7 83.7 89.5 89.4 97.2 320.9 359.9 358.4 SG&A/sales (%) 21.7 20.5 22.4 19.4 21.2 21.1 20.3 18.0 20.9 20.0 18.1 OP 8.9 14.1 3.1 1.9 23.4 23.6 12.7 22.3 28.0 82.0 109.7 OPM (%) 2.8 4.0 0.8 0.4 5.9 5.6 2.9 4.1 1.8 4.6 5.5 Media 5.1 20.5 8.7 12.1 20.1 24.0 9.2 19.9 46.5 73.1 98.4 Film 3.8 (6.6) (7.4) (13.6) 1.9 (1.6) (1.7) (2.7) (23.9) (4.1) (2.4) Music (0.1) 1.3 2.4 3.6 2.4 2.0 6.8 5.2 7.2 16.4 16.7 Performance 0.1 (1.0) (0.8) (0.2) (1.0) (0.7) (1.5) (0.2) (1.8) (3.4) (3.0) EBT 14.6 47.6 9.4 (4.2) 45.2 537.2 23.9 37.8 67.5 644.1 211.2 Controlling-int.