2018 Outlook |
Media / Entertainment Content is king
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] Content is king 3
I. Broadcast content: Opening of global age 4
II. TV/digital ads: Focus on those with edge in digital ads 5
III. Film: Stabilizing at home and expanding overseas 6
IV. Entertainment agencies: New businesses create synergies with main businesses 7
V. Investment strategy and valuation
VI. Top Picks & Stocks To Watch 8 (Top Picks) CJ E&M, SM Entertainment (Stocks To Watch) J Contentree, CJ CGV, YG Entertainment
[Conclusion] Stock ratings and target prices 9 [Summary] Content is king
Expansion of channels for broadcast content - New media: Regional expansion of global OTT services; Broadcast increasing likelihood of sales to China Companies that generate revenue from content - Conventional media: General programming channels and direct content sales: cable TV have increased time slots for dramas sales CJ E&M, J Contentree, IHQ, NEW Shift in content revenue growth driver (advertisement direct sales)
Evolving into content production companies - Continued efforts to secure production staff (PDs, writers, etc.) Companies that have production staff and platform: Entertainment - Cross-shareholding investments between platform CJ E&M, YG Entertainment, SM Entertainment, SM C&C, agencies companies and entertainment agencies IHQ Content produced for web/broadcast/new platforms to continue to expand
Target marketing is gaining in importance Companies that display ad targeting - TV ads: Targeting by channel TV ads and high digital market share: - Digital ads: Both the digital media’s share Digital ads CJ E&M, J Contentree in user time and digital ad rates are rising
Stabilization of domestic business + @ Companies that have domestic theater sites Film - Price hikes, stable theater attendance, and new growth drivers: platform and higher labor costs likely - Favorable competitive environment CJ CGV, J Contentree due to decrease in new site openings
Source: Mirae Asset Daewoo Research
3| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
OTT services have • OTT services have diversified content distribution channels, making conventional broadcasting/production diversified content companies only one of the content distribution options • Current: Production ⇒ Programming ⇒ Broadcasting ⇒ Consumption (mostly on TVs) distribution channels • Going forward: Reflecting diverse production/consumption patters, the production of content optimized for digital platform will likely increase • Content revenue growth driver has shifted from advertising to direct sales
OTT services have dramatically changed conventional media value chain
Over-the-top (OTT) services OTT services offer content to all devices via internet
Source: Mirae Asset Daewoo Research
4| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
OTT services have • The OTT market is growing rapidly, as the digital consumption of video content have partially replaced real-time diversified content TV watching and theater attendance • Content format optimization regarding business model of global OTT players is well underway distribution channels • Digital ads: Short clip/real-time/web-only content (NAVER TV, Kakao TV, YouTube) • Direct ad sales: Premium content offered on TV and theaters (Netflix, Amazon Prime)
Digital consumption of video content is increasing OTT market is growing rapidly
(EB) (US$bn) 80 Other 100 PC internet video ads CAGR = 25.3% File sharing Mobile video ads Video 70 On-demand content Music 80 Subscription content 60 Web surfing SNS Software downloads 50 60
40
40 30 CAGR = 46.1%
20 20
10
0 0 2017 2022F 2012 2017F 2021F
Source: Ericsson, Mirae Asset Daewoo Research Source: PwC, Mirae Asset Daewoo Research
5| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
OTTs to facilitate content • The OTT market has begun to stage strong growth as digital devices are replacing - albeit partially - TVs and distribution theaters as a means of consuming video content • Business models and content formats for various OTT services have become increasingly sophisticated: Digital ads: short clips, real-time/web-only content, etc. NAVER TV, Kakao TV, YouTube, etc. Direct ad sales: TV/movie content, premium content, etc. Netflix, Amazon Prime, etc.
Global OTT players by revenue model and content format CJ E&M: Growth in content sales vs. ad revenue/licensing fees
(%) 25 2013-2017F CAGR 20 15 10 5 0 Ad revenue/Licensing fees Content sales
Showbox: Growth in theater revenue vs. ancillary revenue
(%) 30 2012-2016 CAGR
20
10
0 Theater revenue Ancillary revenue
Source: Company data, Mirae Asset Daewoo Research
Source: Mirae Asset Daewoo Research
6| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
OTT growth to continue • Leading OTT players: Focusing on market expansion; in the US, the downtrend in cable TV subscribers and growth in new OTT subscribers are both slowing Netflix: Cumulative overseas subscribers outnumbered US subscribers in 3Q17 Amazon: Subscriber growth is strong in Canada, India, Japan, and Europe • Large late-comers: Strengthening forays into the market; competition between content producers and platforms is also intensifying Disney: Pulled its content from Netflix and decided to launch its own platform in 2019 Apple: Expanding its content pool based on the iTunes platform; acquiring competitive overseas content producers
Competition to secure quality content to intensify globally
Competition Competition for for fees advertisers (subscriptions) (ratings)
Source: Mirae Asset Daewoo Research
7| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
1) Global OTTs • Competition between platforms should lead to an increase in content investments • Platforms are expected to pursue two-track strategies: 1) outsourcing of local content to attract local subscribers; and 2) integration of production processes global distribution after producing high-budget content • Since early-2017, Korean drama sales have increased in both volume and price • Global OTTs’ preference for Korean content in sourcing content that targets Asia will likely remain strong for a while
Content sales to Netflix could exceed Korea’s total TV content Growth in Netflix’s content investments continues exports (US$mn) (US$bn) 18.3% YoY 8 700 Netflix's content investments 7.0 6.0 6 4.6 5.0 600 4 3.2 2.4 500 1.8 2 0.9 0.1 0.2 400 0 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F
300 Netflix’s external investments in Asia (2018 est.)
Asian Variety 15% % of Asian investments Netflix’s external licensing budget 200 overseas investments/ /external investments overseas investments: (a)investments (b) 60% 65% 70% 75% 80% 85% Drama 75% (a)*(b) 100 30% 40% 12% 0.6 0.6 0.7 0.7 0.8 0.8 40% 50% 20% 1 1 1.1 1.2 1.3 1.4 0 2005 2010 2014 2015 Breakdown Netflix's 45% 55% 25% 1.2 1.3 1.4 1.5 1.6 1.7 broadcastingbroadcastingbroadcastingbroadcasting by genre potential 50% 60% 30% 1.4 1.6 1.7 1.8 1.9 2 exports exports exports exports investments in Asia 60% 70% 42% 2 2.2 2.4 2.5 2.7 2.9
Source: KOCCA, Mirae Asset Daewoo Research Source: Netflix, Mirae Asset Daewoo Research
8| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
2) Resurgence of China • Copyright sales represent the biggest portion of Korea’s total content exports; renewed expectations for content exports to China as attractive content • Despite restrictions on Korean content in China following the THAAD deployment, we are upbeat on: 1) the continued market improvement in the competitiveness of Korean content; and 2) the increase in pricing power over other distribution channels (e.g., OTTs) • The proliferation of global OTT services has heightened the possibility of a recovery in Korea’s China-bound content exports; more diversified pricing schemes (e.g., holdbacks)
Cases of copyright sales to China Content exports by distribution channel
Per-episode % of total (US$mn) Other (L) Programs (L) (%) Format sales (L) Time block (L) Titles price production Release date Producers 350 90 (W mn) costs Video/DVD sales (L) % of programs (R) Hwa & Dam The Heirs 0.2 Oct. 2013 280 Pictures 80 My love from the Star 0.4 Dec. 2013 HB Entertainment 210 70 Fated to Love You 1.2 July 2014 140 My Lovely Girl 2 Sept. 2014 60 70 Pinocchio 2.8 Nov. 2014 0 50 Hyde, Jekyll, Me 1 Jan. 2015 KPJ 2000 2005 2010 2012 2013 2014 2015 Chorokbaem The Producers 1.7 May 2015 Media Content exports by destination: Resumed growth in China-bound Descendants of the Sun 2.5 20% Feb. 2016 NEW Exports, strong upside in exports to Southeast Asia and North America Moon lovers: Scarlet Heart Other (L) US/Canada (L) 4 65% Aug. 2016 (US$mn) (%) Ryeo 300 Southeast Asia (L) China/Hong Kong (L) 40 Uncontrollably Fond 3 50% Sept. 2016 IHQ Japan (L) % of Southeast Asia (R) 250 35 Entourage 2.8 55% Nov. 2016 Studio Dragon 200 Hwarang: The Beginning 2.5 Dec. 2016 30 150 Saimdang, the History 2.7 Jan. 2017 25 100 Cases where proceeds from China-bound sales represent 20 over 50% of total production costs 50 The Legend of the Blue Sea +5 50% Nov. 2016 Studio Dragon 0 15 The Goblin +5 55% Dec. 2016 Studio Dragon 2000 2005 2010 2012 2013 2014 2015 Source: Media, Mirae Asset Daewoo Research Source: KISDI, Mirae Asset Daewoo Research
9| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research I. Golden age of media content
Focus on new • For big-budget content, the higher the viewership in the original distribution channel, the higher the price that the content can fetch in overseas markets opportunities in 2018 • Only few players are either financially sound enough to share some of production costs for big-budget content (per-episode cost of over W500mn) or have captive distribution channels • For big-budget content, production costs are not usually offset by higher ad revenue - Intellectual property holders are best positioned to generate ancillary revenue going forward
Large-scale dramas (with W20bn-level production cost) set to Few companies can afford to bear massive production costs premiere in 2Q18 (Wbn) 12 Mr. Sunshine Drama | 2018 10 Average = W8.8bn
8
6
Having affiliated channels proves important (%) 20 16 Average = 11.3% 12 8 4 0
The Goblin Descendants The Heirs A Gentleman’s Secret Garden 2016-2017 of the Sun 2013 Dignity 2010-2011 Source: Media, AGB Nielson, Mirae Asset Daewoo Research Source: Netflix, Mirae2016 Asset Daewoo Research 2012
10| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research II. TV/digital ads: Focus on those with edge in digital ads
Advertising market • In Korea, total ad spending as a percentage of GDP is in the 0.65%-0.72% range (versus 1% for the US and 0.9% for Japan). We expect steady growth in Korea’s total ad spending going forward conditions to improve • In 2018, large-scale international sporting events to boost total ad revenue • For the 2018 Winter Olympics and 2018 FIFA World Cup Russia, overall viewing rates for TV broadcasts will likely be higher than usual, due to Korea being the host of the former, and the smaller time difference for the latter, versus the 2014 FIFA World Cup Brazil • The first and third quarters are typically off-peak seasons for the advertising industry.; however, in 2018, off-peak season effects should ease, with the Winter Olympics and FIFA World Cup slated for February and June-July, respectively Ad market growth trend: Short-term variables are Korea’s ad market to grow steadily, with total ad revenue international sporting events and economic cycles representing 0.65%-0.72% of total GDP Domestic ad market size (L) (Wtr) (%) (Wtr) Domestic ad spending (L) (%) Domestic ad market growth (R) 14 PyeongChang 40 12 Contribution to GDP (R) 1.2 2002 Winter Olympics Korea- Economic recovery 12 Japan 2010 World Cup 10 World Cup IMF Global 20 bailout 10 financial crisis 8 1.0
8
0 6 6
4 GDP contribution 0.8 4 ranges between -20 0.65% and 0.72%
2 2
0 -40 0 0.6 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Advertising Yearbook, Cheil Worldwide, KOBACO, KOSTAT, Mirae Asset Daewoo Research
11| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research II. TV/digital ads: Focus on those with edge in digital ads
Digital ads driving the • Digital ads have taken center stage in the ad market, driven by the growth of both online and mobile ads overall ad market • The digital ad market is expected to continue to grow: 1) Current internet ad exposure (the number of times a user sees the ad) still suggests some upside to the growth of the digital ad market, due to the rapid growth of non-TV platforms 2) Digital ads are more efficient than conventional ads, thanks to their competitive edge in the effective targeting of audiences • The TV ad market could rebound, driven by the increase in ad slots (the adoption of mid-program advertising) and the strengthening competitiveness of cable channels (higher rates) Digital ads have driven the Korean ad market over past Digital ad market now outweighs TV ad market three years
(%) (Wtr) 4 Terrestrial 12 Terrestrial + pay TV Digital 9
3 6 Overall market growth = 2.9%
3 2 0
-3 1
-6
-9 0 Broadcasting Terrestrial Pay TV Radio Print Digital Outdoor/prod. (total) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F
Source: Advertising Yearbook, Cheil Worldwide, KOBACO, KOSTAT, Mirae Asset Daewoo Research
12| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research II. TV/digital ads: Focus on those with edge in digital ads
Digital ads driving the • Digital ads have taken center stage in the ad market, driven by the growth of both online and mobile ads • The digital ad market is expected to continue to grow: overall ad market 1) Current internet ad exposure (the number of times a user sees the ad) still suggests some upside to the growth of the digital ad market, due to the rapid growth of non-TV platforms 2) Digital ads are more efficient than conventional ads, thanks to their competitive edge in the effective targeting of audiences • The TV ad market could rebound, driven by the increase in ad slots (the adoption of commercial breaks for terrestrial TVs) and the strengthening competitiveness of cable channels (higher rates) Ad market growth in initial growth stages of major media Total time spent viewing content vs. total ad spending formats
(%) % of total time spent (십억US$)(US$bn) 1년차1st year 2nd2년차 year 3년차3rd year % of total ad spending 15 CAGR CAGR 50 4년차4th year 5년차5th year 135% 110% 10 CAGR 88.5% CAGR 40 5 80.7%
0 Broadcast TV Cable TV ('80-'83) Internet ('96-'99) Mobile internet 30 ('49-'52) ('10-'14) Targeted ads: Google’s AdSense in 2003 and Facebook’s programmatic ads in 2016 20
10
0 Print Radio TV PC Mobile Print Radio TV PC Mobile 2010 2017F
Source: KPCB, eMarketer, Mirae Asset Daewoo Research Source: IAB, PwC, Mirae Asset Daewoo Research
13| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research II. TV/digital ads: Focus on those with edge in digital ads
Content producers with • Digital media consumers tend to actively search for content they want to watch, rather than adhering to specific clear targeting channels • Accordingly, the content producers with clear targeting strategies and loyal consumers should fare well, amid the strategies should fare strong growth of the digital ad market well, amid strong growth • Digital media should outperform TVs going forward based on their capabilities to swiftly adjust to changes in of digital ad market content consumption trends and higher user loyalty
Non-terrestrial channels’ content more popular in digital Terrestrial TV channels still maintain high view share space (%) (mn) 40 30
25 30
20
20 15
10 10
5 0 CJ E&M Terrestrial Other 0 Terrestrial General channels Cable tvN Mnet JTBC Youtube MBC KBS SBS
Note: Monthly average in Jan.-Oct. 2017 Note: Based on NAVER TV’s Top 100 content Source: AGB Nielson, CJ E&M, Mirae Asset Daewoo Research Source: NAVER, Mirae Asset Daewoo Research
14| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research II. TV/digital ads: Focus on those with edge in digital ads
In the broadcasting • Targeting capability should determine the competitiveness of traditional broadcasting channels going forward. space, channels with • In the TV ad market, ad rates are increasingly reflecting users’ time spent and marketing capability for each channel; while terrestrial broadcasters’ ad rates per 1% of viewership rating increased only slightly, rates for CJ stronger targeting E&M channels rose sharply capability to outperform • Content investments stronger competitiveness cost efficiency of ads on second-tier channels reflected in ad peers rates, following the rise in viewership ratings and ad rates at first-tier channels
Targeting capability also important in broadcasting channels Ad rate per viewership rating: CJ E&M > terrestrial channels
Increase (%) Audience share - TV ad share (pay TV) (Wmn/%) 1) Narrowing the gap (quantitative): Decrease Ad market share converging with Audience share - TV ad share (terrestrial) CJEM (tvN) 20 10 Stranger audience share SBS KBS2 Ciriminal Minds Youth Over Flowers 2) Qualitative gap: MBC 15 Cheese in the Trap Ad market share reflects New Journey to the West3 media competiveness 8 Youn's Kitchen (targeting) SuperStar K6 10 Three Meals a Day Grandpas SuperStar K7 Over 6 Grandpas Reply1988 5 Flowers The Guardian Over Flowers - Greece 0 4
Cost & ratings -5 keep increasing 2 together -10 Cost Cost, Cost, Cost, Cost, Cost, > Rating Rating Rating Rating Rating Rating
-15 0 2011 2012 2013 2014 2015 2016 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17
Source: Cheil Worldwide, KOBACO, AGB Nielson, Mirae Asset Daewoo Research Note: Terrestrial channel ad rates are based on the average of highest rates for 10pm and 11pm; for CJ E&M, ad rates are based on the highest rate, and ratings are based on tvN ratings Source: CJ E&M, AGB Nielson, Mirae Asset Daewoo Research
15| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research III. Film: Stabilizing at home and expanding overseas
Ample upside to ticket • While admissions had driven the box office until end-2013, ticket prices have served as drivers since 2014 prices; solid attendance • Korea’s ticket price growth is forecast to range from 2% (unadjusted) to 10% (adjusted) annually levels • Korea’s annual admissions per capita is one of the highest in the world, but movie attendance growth has slowed to +0.6% per year over the past three years • Going forward, movie attendance growth is projected to stabilize at around 1%
Box office growth driver has shifted from admissions to ticket prices
Annual admissions per capita (%) 25 Korea: 4.3, US: 3.9, Australia: 3.8, ATP growth rate France: 3.1, UK: 2.7, Germany: Audience growth rate 1.7, Japan: 1.3, China: 0.9, Turkey: BO growth rate 20 0.8
15
10 Assuming overall increase in 1H18
5
0
-5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F
Source: KOFIC, Mirae Asset Daewoo Research
16| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research III. Film: Stabilizing at home and expanding overseas
Ample upside to ticket • Movie attendance growth has slowed from a CAGR of 4.9% in 2004-12 to 0.9% in 2013-16 prices; solid attendance • Admissions are expected to remain stable levels • While a handful of mega-hit films (admissions of 10mn or over) had driven the box office until 2015, the number of medium-hit films (admissions of 3mn and over) has been increasing since 2016 • Companies are making various efforts to deal with a sharp minimum wage hike scheduled for 2018 (e.g., flexible work hours, etc.)
Movie attendance growth has slowed since 2013 Minimum wage hike to sharply boost costs (W) (mn) 8,000 Minimum wage +16.4% 250 CAGR 7,000 +0.63% CAGR +7.2% 6,000 200 5,000 CAGR +4.9% 4,000 2012 2013 2014 2015 2016 2017F 2018F 150 Theater operators are making efforts to defend profitability
(persons) Employees per site 100 85 80 75 50 70 65 60 0 55 2004 2006 2008 2010 2012 2014 2016 2018F 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17P
Source: KOFIC, Mirae Asset Daewoo Research Source: CJ CGV, Mirae Asset Daewoo Research
17| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research III. Film: Stabilizing at home and expanding overseas
Drivers for sustainable • We still see ample upside to ticket prices, in light of film market and ticket price trends in other countries growth: 1) price increase • Given the pricing trends of Korea’s three major theater operators since 2009, price hikes will likely materialize almost simultaneously • Given that the latest price adjustments occurred in 1H16, we will likely see another round of hikes in 2018
Korea average ticket price trend and outlook Ticket price vs. 2017 Big Mac Index
(W) (ATP, US$) 14 9,000 Denmark Sweden Assuming ATP 12 UK Japan Australia +W1000 10 Netherlands Hong KongAustria Germany 8 Greece New ZealandCanada US 8,500 Korea France +7% 6 China Poland +5.9% 4 Russia Turkey Thailand Malaysia Indonesia 1) Price discrimination for various seats and times 2 (Big Mac index, US$) 8,000 2) Increased portion of premium theaters 0 India 1.522.533.544.555.5
7,500 Average ticket prices in major countries +17.4% (US$) increase in 14 multiplex 7,000 12 ATP in 2009 10 8 6 6,500 4 2 0
6,000 2004-2008 2009-2012 2013-2017F 2018F
Source: KOFIC, Mirae Asset Daewoo Research Source: KOFIC, The Economist, McDonalds, Mirae Asset Daewoo Research
18| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research III. Film: Stabilizing at home and expanding overseas
1) Price increase
Date Multiplex Details Jul. 2009 Cinus Weekday tickets for adults: W7,000 → W8,000; weekend tickets for adults: W8,000 → W9,000 Jul. 2009 Lotte Cinema W1,000↑ for adults; W500↑ for children Jul. 2009 CJ CGV, Megabox W1,000↑ across the board
Weekends: W9,000 → W10,000; weekdays: W8,000 → W9,000 Feb. 2013 CJ CGV Price cuts for late-night tickets: W8,000 → W6,000
Jul. 2013 Megabox Weekends: W9,000 → W10,000; W1,000-3,000↓ for non-peak showings implemented in four theaters in Seoul Jul. 2013 Lotte Cinema W1,000↑ (weekdays: W8,000 → W9,000; weekends: W9,000 → W10,000) at eight branches Feb. 2014 CJ CGV Further segmentation of pricing tiers; differential pricing by theater and weekday/weekend - Two-tier (morning/general) → four-tier (morning/daytime/general/late-night); across-the-board price hikes
- Increase in the number of branches raising 2D film ticket prices (W9,000 on weekdays/W10,000 on weekends); 3D ticket prices↓ (W13,000 → W12,000)
Mar. 2014 Lotte Cinema Flexible pricing policy (special format screens, regular screens↑); all branches - 2D: W9,000 on weekdays/W10,000 on weekends (W1,000↑) - 3D: W10,000 on weekdays/W12,000 on weekends (down from W13,000) - Charlotte premium theaters: W30,000 → W27,000 on weekdays; couple seats: W1,000↓on weekdays Mar. 2016 CJ CGV Further segmentation of weekday prices by screening time; three-tier pricing by seats Morning/weekdays/prime/late-night → morning/brunch/afternoon/prime/moonlight/night Economy zone: W1,000↓; standard/prime zone: W1,000↑ Further segmentation of prices by screening time (two-tier → four-tier); price adjustments for some weekday and weekend t Apr. 2016 Lotte Cinema ickets Jun. 2016 Megabox Increased morning screening times and pricing schemes, including membership and children’s prices - Weekend regular: W10,000 → W11,000; late-night: W8,000 → W6,000~9,000; morning: W6,000 - Screening times: Four-tier (morning/daytime/general/late-night) → three-tier (morning/general/late-night)
Source: Mirae Asset Daewoo Research
19| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research III. Film: Stabilizing at home and expanding overseas
Drivers for sustainable • Screen count growth has outpaced box-office growth over the past three years, triggered by Megabox’s growth: 2) weakening aggressive theater openings since 2015 • Megabox plans to shift its focus to profitability from 2018 onwards, reducing the number of annual theater competition openings to five (versus the current 10) • Currently, three major theater operators, including CJ CGV (already focusing on profitability), as well as Megabox and Lotte Cinema (both likely to be listed in 2020), all aim to improve margins
Box office growth to outpace screen count growth again Theater openings by three major players to slow
(%) (%) CGV Lotte Cinema 18 18 Megabox (including Cinus) Box office Multiplex Megabox 14 14
10 10
6 6 Lotte Cinema
2 2 CGV
-2 -2 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F Source: KOFIC, Mirae Asset Daewoo Research
20| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research III. Film: Stabilizing at home and expanding overseas
• China’s film market growth will likely recover to around 20% in 2017 and beyond; one-off factors should dissipate Overseas growth to - The Chinese film market expanded rapidly through 2015, backed by: 1) increased theater attendance stemming continue from higher consumption; and 2) the expansion of theater infrastructure arising from urbanization - The market slump in 2016 was attributable to: 1) disappointing box-office results for Hollywood movies; and 2) subsidy cuts for online ticket booking • Local films, in which Chinese internet firms invested, are expected to be released full swing: Likely to strengthen China’s local film production capabilities; restrictions on foreign film imports to ease • In other EM film markets, including Vietnam, Turkey, and Russia, market erosion by an alternative platform (Netflix) has been limited China’s box-office growth picked up in 2017 2016 investments and business expansion by Chinese companies
Company Details Month (RMBbn) Wanda Acquired Legendary Pictures for US$3.5bn Jan. 70 Chinese box office (L) 70 Alibaba Created arts/media investment fund (RMB2bn). Aug. YoY (R) Acquired 80% stake in Hangzhou Xingji (Chinese theater chain) for RMB100mn May 60 60 Forged strategic partnership with Hehe Pictures Dec.
Beijing 50 50 Acquired a 57% stake in online ticketing platform Enlight Media
Source: KOFIC, CBOO, Mirae Asset Daewoo Research Source: Company data, Media, Mirae Asset Daewoo Research
21| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research IV. Entertainment agencies: New businesses create synergies with main businesses
Heading in the right • Strength in human capital (artists and production staff) is a critical component of content production; expansion direction with their new into the advertising market via content production will likely create synergies with main businesses • Entertainment agencies are steadily expanding their production staff: In-house content production have been businesses increasing full swing since 2017 • Partnerships between entertainment agencies (with content and artists) and platform operators have increased, creating a favorable environment for content supply/distribution at home and abroad
Entertainment agencies' content production
Partnerships between entertainment agencies and platform operators Kakao-LOEN (Mar. 2016) YG–NAVER (Mar. 2017) SM–SKT (July 2017)
Content produced by entertainment agencies YG: Mix Nine , iKON PICNIC SM: My Lawyer Mr. Jo, Missing Nine, Snowball Project FNC: Band of Sisters
Source: Mirae Asset Daewoo Research
22| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research IV. Entertainment agencies: New businesses create synergies with main businesses
Heading in the right • YG Entertainment and YG Investment (YG PLUS’s subsidiary) received a W100bn investment from NAVER in March direction with their new 2017: We expect to see synergies from joint content planning for PC online and mobile platforms (NAVER TV, V LIVE etc.) businesses • SM Entertainment has sealed a cross-shareholding investment deal with SK Telecom (July 17th): We expect to see: 1) collaboration related to original content for Oksusu (an OTT platform) in the short term; and 2) the combination of AI/VR technology and artist IP-based content • Kakao acquired LOEN Entertainment in March 2016: LOEN’s video content (produced by Story Plant) is likely to become available on KakaoTV Entertainment agencies’ new businesses
Concert 1996- 2001- 2006- 2011- 2014- Partnerships between Business Company Artist attendance 1H16 2H16 1H17 2H17 1H18 2H18 2019 2000 2005 2010 2013 2015 entertainment agencies and (2011~) H.O.T. - platform operators S.E.S. - Kakao-LOEN (Mar. 2016) BoA 0.01 Album sales TVXQ 3.2 YG–NAVER (Mar. 2017) Super Junior 0.7 SM Digital Girls’ SM–SKT (July 2017) 1.6 sales Generation Record and Concert SHINee 1.5 Management revenue f(x) 0.01
Content produced by Commercial EXO 1.2 entertainment agencies BIGBANG 5.5 broadcasts 2NE1 0.3 YG: Mix Nine , iKON PICNIC YG WINNER 0.01 SM: My Lawyer Mr. Jo, Missing iKON 0.8 Nine, Snowball Project Black Pink - MD sales FNC: Band of Sisters Travel packages SM F&B Content production Ad agency Other businesses MD sales Fashion/beau ty YG F&B Content production Ad agency Source: Mirae Asset Daewoo Research 23| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research IV. Entertainment agencies: New businesses create synergies with main businesses
Heading in the right • Korean entertainment firms, which have expanded their production staff, have also been stepping up content direction with their new production: Entertainment firms’ entry into the digital ad market in the long run • There have been no case of content production companies sharing ad revenue yet businesses • However, a revenue sharing scheme between production companies and platform operators is likely to be introduced, given content producers’ increased bargaining power
Producers and writers who recently joined YG Entertainment Entertainment firms’ entry into digital ad market
Time Staff Prior employerProgram (Wtr) Cho Seo-yoon Feb. 2017 MBC Radio Star, The Capable Ones (chief producer) 4 Che Yeong-je Feb. 2017 MBC Infinite Challenge (producer) Kim Min-jong Feb. 2017 MBC Real Men (producer) Park Joon-su Feb. 2017 Mnet (CJ E&M) The God of Music 3 (producer) Yoo Seong-mo Feb. 2017 tvN (CJ E&M) SNL Korea Season 4 (producer) Lee Sang-yoon Apr. 2017 Mnet (CJ E&M) Show Me the Money 4, Produce 101 (producer) Choi Hyo-jin MUST Era Of The Band, Superstar K4, Show Me the Apr. 2017 Mnet (CJ E&M) 2 (producer) Money 4/5 3.7 Han Dong-cheol Produce 101, Show Me the Money, May 2017 Mnet (CJ E&M) (producer) Unpretty Rapstar Park Hong-gyun Apr. 2017 MBC The Greatest Love, Queen Seondeok (producer) Yoo Byeong-jae Jun. 2015 tvN SNL Korea, The Superman Age 1 (writer) Albums, 0.1 Agency-produced programs starring their own artists Digital, 0.4
Concerts, 0.5 YG Ent., 0.2 SM Ent., 0.1 0 Korean music market Domestic revenue of SM Ent. Domestic digital ad market & YG Ent.
Source: Media, Mirae Asset Daewoo Research Source: PwC, Mirae Asset Daewoo Research
24| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research IV. Entertainment agencies: New businesses create synergies with main businesses
Higher visibility on core • The comeback (SM Entertainment) or military service (YG Entertainment) of major artists are highly visible businesses variables to earnings • Short-term variables: Risks as to whether tour schedules can be followed • Medium-term variables: Market response to a new line of artists (e.g., NCT, WINNER) • Given the weak correlation between the music market size by country and market share of K-Pop music, we maintain our view that the debuts of new artists will generate strong earnings momentum
Weak correlation between market size and corporate earnings Annual concert attendance in Japan by major artist: in major markets SM Entertainment (US$bn) (mn) (mn) 2.4 YG Family BLACK PINK 2.5 Japanese concert market (L) 2.5 2.0 iKON WINNER SM concert revenue ® EPIK HIGH 2NE1 1.6 PSY BIG BANG YG concert revenue ® 1.2 2 2 0.8 0.4 0.0 1.5 1.5 2012 2013 2014 2015 2016 2017F 2018F Annual concert attendance in Japan by major artist: YG Entertainment (mn) SMT EXO 1 1 2.5 f(x) Super Junior SHINEE Girl's Generation 2.0 TVXQ BoA 1.5 0.5 Past 5-year CAGR 0.5 Concert market = 4.98% 1.0 SM Ent. concerts = 11.8% YG Ent. concerts = 24.0% 0.5 0 0 0.0 2008 2010 2012 2014 2016 2018F 2020F 2011 2012 2013 2014 2015 2016 2017F 2018F Source: PwC, Mirae Asset Daewoo Research Note: Company estimates based on capacity of venues Source: Company data, Media, Mirae Asset Daewoo Research
25| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research V. Investment strategy and valuation
Investment points & valuation for major stocks in the Mirae Asset Daewoo universe
Stock Current P/E P/B ROE TP (W) Investment point (Code) price (W) (X) (X) (%)
• Beneficiary of the global content market development (distribution via global OTTs and direct sales) CJ E&M • Maximum leverage effects through content distribution through non-subsidiaries following 109,000 86,000 20.2 1.5 7.8 (130960 KQ) the listing of its subsidiary Studio Dragon • The recovery of the ad market to highlight CJ E&M’s strength in broadcasting channel targeting and high shares of digital traffic • Establishment of sales infrastructure in China (partnership with Alibaba Group & its Chinese subsidiary) SM • Largest beneficiary from the reopening of the Chinese market (concerts/entertainment Entertainment 44,000 34,550 21.7 2.0 9.6 management) (041510 KQ) • Record-high earnings upside in 2018, with the comeback of TVXQ and Super Junior • Bright outlook for 2019, with synergy between the ad and content production businesses
• Beneficiary of the global content market development; JTBC’s drama programming expansion J Contentree distribution leverage effects 5,800 4,925 19.7 1.8 9.5 (036420 KQ) • Improvements in the domestic theater market (higher pricing), profitability growth supported by fewer location openings
• CJ CGV deserves valuation premium to its peers, given its exposure to high-growth movie markets CJ CGV • CJ CGV will likely defend its profitability on improvements in the domestic theater market 96,000 71,400 20.7 3.5 18.3 (079160 KS) (higher pricing) and easing competition for store openings • Growth rates for large-scale investments in China returned to the 20% level with content release
• The company has aggressively expanded its talent pool over the past two years to enhance YG competitiveness in content production Entertainment 39,000 30,650 22.9 1.6 7.2 • The firm is most aggressive in producing multi-platform content (Netflix, NAVER, JTBC) (122870 KQ) • iKON, Black Pink and a new boy group present the strongest growth potential since Big Bang
• Showbox produces video content using diverse IPs; the likely resumption of China-bound Showbox exports is positive - 5,670 43.8 2.7 6.3 (086980 KQ) • Intensifying competition among domestic distributors; the increasing competitiveness of Chinese movies is a challenge
• SBS stands to benefit from the reopening of the Chinese market and major sporting events in SBS - 23,000 1134.4 0.7 0.1 2018 (034120 KS) • Fundamental changes are needed to meet the market’s shift to content sales and digital media
Note: Current price based on Nov. 30 closing price; valuation based on estimates for 2018 Source: Mirae Asset Daewoo Research 26| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Top Pick CJ E&M (130960 KQ)
Key beneficiary of changes in the ad and content market
Investment points (Maintain) Buy • CJ E&M is a beneficiary of the development of the global content market • Earnings upside include: 1) an increase in OTT-bound content distribution; 2) recovery in China-bound sales; Target Price (12M, W) 109,000 and 3) advances into Southeast Asian and US markets • CJ E&M has a huge library of highly sought-out content that is more popular on digital platforms than TVs, as well as high exposure to the digital ad market Share Price (11/30/17, W) 86,000 • The listing of its subsidiary, Studio Dragon, will likely generate share re-rating momentum for CJ E&M, rather than disturbing share supply/demand dynamics Expected Return 27% • CJ E&M has superb competitiveness in its core businesses (TV/digital ads, content distribution, movie investment/distribution, concerts/performances) OP (17F, Wbn) 87 • 2018 outlook: A turnaround in the ad market and good chance of outperforming the market (competitiveness Consensus OP (17F, Wbn) 86 in channel targeting)
EPS Growth (17F, %) 686.6 • Possible distribution of subsidiaries’ content
Market EPS Growth (17F, %) 45.9 Risk factors P/E (17F, x) 6.8 • Likelihood of approval for mid-program advertising Market P/E (17F, x) 10.4 • Ad business may see profitability erosion if production increases in scale with the development of the content KOSDAQ 771.42 market
140 Market Cap (Wbn) 3,331 CJ E&M FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 39 KOSDAQ Revenue (Wbn) 1,233 1,347 1,538 1,768 1,974 2,162 130 Free Float (%) 56.7 OP (Wbn) -13 53 28 87 137 163
Foreign Ownership (%) 28.1 120 OP margin (%)-1.13.91.84.96.97.5 Beta (12M) 1.19 NP (Wbn) 225 54 62 489 165 198 110 52-Week Low 53,800 EPS (W) 5,796 1,403 1,605 12,623 4,267 5,109 100 52-Week High 97,300 ROE (%) 16.4 3.6 4.0 27.3 7.8 8.6
(%) 1M 6M 12M90 P/E (x) 6.6 57.4 44.2 6.8 20.2 16.8 Absolute 2.4 9.3 52.5 P/B (x) 1.0 2.0 1.8 1.6 1.5 1.4 80 Relative -8.5 -8.1 17.816.11 17.3 17.7 17.11 Div.Yield (%) 0.0 0.2 0.3 0.2 0.2 0.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: CJ E&M, Mirae Asset Daewoo Research estimates
27| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Top Pick CJ E&M (130960 KQ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 1,538 1,768 1,974 2,162 Current Assets 996 1,565 1,768 1,989 P/E (x) 44.2 6.8 20.2 16.8
Cost of Sales 1,190 1,311 1,435 1,563 Cash and Cash Equivalents 81 615 652 766 P/CF (x) 6.4 8.0 7.2 6.8
Gross Profit 348 457 539 599 AR & Other Receivables 550 572 671 736 P/B (x) 1.8 1.6 1.5 1.4
SG&A Expenses 321370402437Inventories 5566EV/EBITDA (x) 7.58.78.58.0
Operating Profit (Adj) 28 87 137 163 Other Current Assets 360 373 439 481 EPS (W) 1,605 12,623 4,267 5,109
Operating Profit 28 87 137 163 Non-Current Assets 1,797 1,873 1,941 1,983 CFPS (W) 11,014 10,785 11,967 12,571
Non-Operating Profit 40 558 68 82 Investments in Associates 463 481 564 619 BPS (W) 40,052 52,750 56,818 61,727
Net Financial Income -9 -10 -7 -6 Property, Plant and Equipment 275 283 267 251 DPS (W) 200 200 200 200
Net Gain from Inv in Associates 81 595 90 90 Intangible Assets 724 756 721 701 Payout ratio (%) 12.7 1.6 4.7 3.9
Pretax Profit 68 645 205 245 Total Assets 2,793 3,438 3,709 3,972 Dividend Yield (%) 0.3 0.2 0.2 0.2
Income Tax 7 157 41 49 Current Liabilities 937 922 1,025 1,092 Revenue Growth (%) 14.2 15.0 11.7 9.5
Profit from Continuing Operations 61 489 164 196 AP & Other Payables 311 323 379 416 EBITDA Growth (%) 14.7 -9.8 0.8 2.3
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 370 333 334 334 Operating Profit Growth (%) -47.2 210.7 57.5 19.0
Net Profit 61 489 164 196 Other Current Liabilities 256 266 312 342 EPS Growth (%) 14.4 686.5 -66.2 19.7
Controlling Interests 62 489 165 198 Non-Current Liabilities 240 405 417 424 Accounts Receivable Turnover (x) 3.4 3.5 3.5 3.4
Non-Controlling Interests -1 0 -2 -2 Long-Term Financial Liabilities 174 336 336 336 Inventory Turnover (x) 357.1 368.8 371.7 359.7
Total Comprehensive Profit -42 508 164 196 Other Non-Current Liabilities 66 69 81 88 Accounts Payable Turnover (x) 10.1 10.0 9.9 9.5
Controlling Interests -41 508 164 196 Total Liabilities 1,177 1,327 1,442 1,517 ROA (%) 2.4 15.7 4.6 5.1
Non-Controlling Interests -1 0 0 0 Controlling Interests 1,547 2,038 2,196 2,386 ROE (%) 4.0 27.3 7.8 8.6
EBITDA 428 386 389 398 Capital Stock 194 194 194 194 ROIC (%) 2.3 4.8 8.2 9.6
FCF (Free Cash Flow) 46 138 381 409 Capital Surplus 973 973 973 973 Liability to Equity Ratio (%) 72.9 62.9 63.6 61.8
EBITDA Margin (%) 27.8 21.8 19.7 18.4 Retained Earnings 420 893 1,051 1,241 Current Ratio (%) 106.2 169.7 172.4 182.1
Operating Profit Margin (%) 1.8 4.9 6.9 7.5 Non-Controlling Interests 69 73 71 69 Net Debt to Equity Ratio (%) 23.0 -1.9 -4.1 -8.9
Net Profit Margin (%) 4.0 27.7 8.4 9.2 Stockholders' Equity 1,616 2,111 2,267 2,455 Interest Coverage Ratio (x) 2.3 6.2 9.3 11.1
Source: CJ E&M, Mirae Asset Daewoo Research estimates
28| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Top Pick SM Entertainment (041510 KQ)
Solid core businesses and promising new businesses
Investment points (Maintain) Buy • TVXQ and Super Junior have made a comeback with key members being discharged from military services; the expanded lineup will likely generate significant earnings momentum Target Price (12M, W) 44,000 • SM Entertainment stands to benefit most from the reopening of the Chinese market (concerts/entertainment management), given its partnership with Alibaba Group and the presence of a local subsidiary Share Price (11/30/17, W) 34,550 • The ad business will likely expand rapidly, driven by M&A with SKT (M&C: annual revenue of W120bn x OPM 5- 7% in 2016)
Expected Return 27% • The new ad business (stability↑, growth potential↓) and content production business (stability ↓, growth potential ↑) are expected to complement each other • Having media exposure prior to debut raises the chances of success for new artists: OP (17F, Wbn) 18 Platform development & channel diversification Increased in-house production by SM C&C More Consensus OP (17F, Wbn) 17 appearances by in-house artists EPS Growth (17F, %) 392.2 Risk factors Market EPS Growth (17F, %) 45.9 • Persistent risks related to artists (health conditions and contract renewals) P/E (17F, x) 41.5 • Revenue recognition for SKT-related ads began on October 24; SM Entertainment’s share of its captive Market P/E (17F, x) 10.4 customer’s ad demand needs to be checked
KOSDAQ 771.42
160 Market Cap (Wbn) 752 SM Entertainment FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F 150 Shares Outstanding (mn) 22 KOSDAQ Revenue (Wbn) 287 322 350 355 563 585 Free Float (%) 78.9 140 OP (Wbn) 34 38 21 18 59 69
Foreign Ownership (%) 16.9 130 OP margin (%) 11.8 11.8 6.0 5.1 10.5 11.8 Beta (12M) 1.11 120 NP (Wbn) 6 22 4 18 35 41
52-Week Low 22,150 110 EPS (W) 290 1,048 169 833 1,592 1,907 100 52-Week High 37,900 ROE (%) 2.5 8.3 1.2 5.4 9.6 10.4 90 (%) 1M 6M 12M P/E (x) 117.1 41.0 153.0 41.5 21.7 18.1 80 Absolute 2.7 21.2 38.5 P/B (x) 2.9 3.1 1.7 2.1 2.0 1.8 70 Relative -8.2 2.0 7.016.11 17.3 17.7 17.11 Div.Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: SM Entertainment, Mirae Asset Daewoo Research estimates
29| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Top Pick SM Entertainment (041510 KQ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 350 355 563 585 Current Assets 293 331 397 461 P/E (x) 153.0 41.5 21.7 18.1
Cost of Sales 248 238 366 378 Cash and Cash Equivalents 170 122 138 201 P/CF (x) 9.5 11.6 10.4 9.6
Gross Profit 102 117 197 207 AR & Other Receivables 44 74 92 92 P/B (x) 1.7 2.1 2.0 1.8
SG&A Expenses 82 100 138 139 Inventories 11 19 23 24 EV/EBITDA (x) 11.0 18.6 9.1 7.7
Operating Profit (Adj) 21 18 59 69 Other Current Assets 68 116 144 144 EPS (W) 169 833 1,592 1,907
Operating Profit 21 18 59 69 Non-Current Assets 232 270 284 269 CFPS (W) 2,720 2,976 3,332 3,611
Non-Operating Profit 2 18 -4 -4 Investments in Associates 39 66 82 82 BPS (W) 15,144 16,070 17,663 19,570
Net Financial Income -1 1 0 1 Property, Plant and Equipment 104 90 80 71 DPS (W) 0 0 0 0
Net Gain from Inv in Associates 4 23 0 0 Intangible Assets 37 29 21 15 Payout ratio (%) 0.0 0.0 0.0 0.0
Pretax Profit 23 36 55 65 Total Assets 525 601 681 730 Dividend Yield (%) 0.0 0.0 0.0 0.0
Income Tax 17 23 13 16 Current Liabilities 135 200 236 236 Revenue Growth (%) 8.7 1.4 58.6 3.9
Profit from Continuing Operations 6 13 42 49 AP & Other Payables 43 72 89 90 EBITDA Growth (%) -26.7 -13.6 100.0 9.2
Profit from Discontinued Operations -2 0 0 0 Short-Term Financial Liabilities 46 50 50 50 Operating Profit Growth (%) -44.7 -14.3 227.8 16.9
Net Profit 4 13 42 49 Other Current Liabilities 46 78 97 96 EPS Growth (%) -83.9 392.9 91.1 19.8
Controlling Interests 4 18 35 41 Non-Current Liabilities 15 16 17 17 Accounts Receivable Turnover (x) 8.5 6.0 6.8 6.4
Non-Controlling Interests1-578Long-Term Financial Liabilities11999Inventory Turnover (x)33.023.626.524.9
Total Comprehensive Profit 5 12 42 49 Other Non-Current Liabilities 4788Accounts Payable Turnover (x)8.16.57.16.7
Controlling Interests 4 14 42 50 Total Liabilities 150 215 253 254 ROA (%) 0.9 2.3 6.5 7.0
Non-Controlling Interests 1 -2 -1 -1 Controlling Interests 330 344 379 420 ROE (%) 1.2 5.4 9.6 10.4
EBITDA 44387683Capital Stock 11111111ROIC (%) 3.23.827.234.2
FCF (Free Cash Flow) 7 21 52 64 Capital Surplus 165 170 170 170 Liability to Equity Ratio (%) 39.8 55.8 59.2 53.2
EBITDA Margin (%) 12.6 10.7 13.5 14.2 Retained Earnings 131 149 184 225 Current Ratio (%) 217.9 165.8 168.4 195.1
Operating Profit Margin (%) 6.0 5.1 10.5 11.8 Non-Controlling Interests 46 42 49 57 Net Debt to Equity Ratio (%) -33.2 -21.7 -24.4 -35.1
Net Profit Margin (%) 1.1 5.1 6.2 7.0 Stockholders' Equity 376 386 428 477 Interest Coverage Ratio (x) 12.1 17.3 62.7 73.6
Source: SM Entertainment, Mirae Asset Daewoo Research estimates
30| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch J Contentree (036420 KQ)
Improvements in broadcasting and multiplex businesses
Investment points (Maintain) Buy • J Contentree is a beneficiary of the development of the global content market • Earnings upside includes: 1) an increase in OTT-bound content distribution; 2) recovery in China-bound sales; Target Price (12M, W) 5,800 and 3) advances to Southeast Asian and US markets • Content revenue will likely expand, driven by JTBC’s drama programming expansion (from eight dramas in Share Price (11/30/17, W) 4,925 2017 to 12 dramas in 2018) • The broadcasting business has enhanced content competitiveness: The peak viewership rating has exceeded Expected Return 18% 7% in 2017 from 3% ranges during 2014 and 2016 • The domestic theater market is expected to improve, given greater stability in theater attendance & upside in ticket prices OP (17F, Wbn) 37 • Megabox places a greater focus on profitability: New theater rollouts will likely fall to around 5 from 10, on an Consensus OP (17F, Wbn) 36 annual basis EPS Growth (17F, %) -37.9 • The multiplex business’ operating margin is expected to rise to 9% from 7%: Fewer new locations + ticket price Market EPS Growth (17F, %) 45.9 hikes ＞ an increase in minimum wage levels P/E (17F, x) 47.0 Risk factors Market P/E (17F, x) 10.4 • Broadcasting ad market conditions; likelihood of approval for mid-program advertising; the impact of JTBC’s KOSDAQ 771.42 earnings performance on programming 140 Market Cap (Wbn) 562 J Contentree FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 114 KOSDAQ Revenue (Wbn) 369 306 335 418 542 612 130 Free Float (%) 65.4 OP (Wbn)363329376179
Foreign Ownership (%) 2.1 120 OP margin (%) 9.8 10.8 8.7 8.9 11.3 12.9
Beta (12M) 0.80 NP (Wbn) 0 11 19 12 28 37 110 52-Week Low 3,605 EPS (W) -1 128 169 105 249 324 100 52-Week High 5,370 ROE (%) -0.1 15.0 26.3 6.5 9.5 11.1
(%) 1M 6M 12M90 P/E (x) - 43.9 22.9 47.0 19.7 15.2 Absolute 19.2 21.0 31.0 P/B (x) 2.3 9.5 5.0 1.9 1.8 1.6 80 Relative 6.6 1.8 1.216.11 17.3 17.7 17.11 Div.Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: J Contentree, Mirae Asset Daewoo Research estimates
31| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch J Contentree (036420 KQ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 335 418 542 612 Current Assets 136 242 260 297 P/E (x) 22.9 47.0 19.7 15.2
Cost of Sales 153 191 243 270 Cash and Cash Equivalents 55 76 48 69 P/CF (x) 11.4 19.0 18.1 13.1
Gross Profit 182 227 299 342 AR & Other Receivables 38 78 100 108 P/B (x) 5.0 1.9 1.8 1.6
SG&A Expenses 154 190 238 263 Inventories 23 48 61 66 EV/EBITDA (x) 16.9 28.6 23.7 17.6
Operating Profit (Adj) 29 37 61 79 Other Current Assets 20 40 51 54 EPS (W) 169 105 249 324
Operating Profit 29 37 61 79 Non-Current Assets 414 594 694 740 CFPS (W) 340 259 272 377
Non-Operating Profit 6-10-4-4Investments in Associates1112BPS (W) 7802,5382,7873,111
Net Financial Income -1 0 0 0 Property, Plant and Equipment 213 205 266 298 DPS (W) 0 0 0 0
Net Gain from Inv in Associates 7 0 0 0 Intangible Assets 76 84 85 86 Payout ratio (%) 0.0 0.0 0.0 0.0
Pretax Profit 35 27 57 75 Total Assets 550 835 954 1,038 Dividend Yield (%) 0.0 0.0 0.0 0.0
Income Tax 9 7 14 18 Current Liabilities 330 373 431 451 Revenue Growth (%) 9.5 24.8 29.7 12.9
Profit from Continuing Operations 26 20 44 57 AP & Other Payables 56 115 148 159 EBITDA Growth (%) -14.0 -37.2 29.6 34.3
Profit from Discontinued Operations -3 0 0 0 Short-Term Financial Liabilities 235 179 182 184 Operating Profit Growth (%) -12.1 27.6 64.9 29.5
Net Profit 22 20 44 57 Other Current Liabilities 39 79 101 108 EPS Growth (%) 32.0 -37.9 137.1 30.1
Controlling Interests 19 12 28 37 Non-Current Liabilities 96 108 125 131 Accounts Receivable Turnover (x) 10.2 8.7 7.4 7.2
Non-Controlling Interests 3 8 15 20 Long-Term Financial Liabilities 66 46 46 46 Inventory Turnover (x) 17.8 11.8 9.9 9.6
Total Comprehensive Profit 25 20 44 57 Other Non-Current Liabilities 30 62 79 85 Accounts Payable Turnover (x) 14.6 12.0 10.0 9.5
Controlling Interests 22 12 22 29 Total Liabilities 425 480 555 582 ROA (%) 4.5 2.9 4.9 5.8
Non-Controlling Interests 3 8 21 28 Controlling Interests 84 284 313 350 ROE (%) 26.3 6.5 9.5 11.1
EBITDA 43273547Capital Stock 57575757ROIC (%) 8.28.414.415.0
FCF (Free Cash Flow) -73 10 8 34 Capital Surplus -51 37 37 37 Liability to Equity Ratio (%) 340.1 135.3 139.4 127.6
EBITDA Margin (%) 12.8 6.5 6.5 7.7 Retained Earnings 69 81 109 146 Current Ratio (%) 41.4 64.9 60.3 66.0
Operating Profit Margin (%) 8.7 8.9 11.3 12.9 Non-Controlling Interests 41 71 86 106 Net Debt to Equity Ratio (%) 193.6 40.2 43.5 33.4
Net Profit Margin (%) 5.7 2.9 5.2 6.0 Stockholders' Equity 125 355 399 456 Interest Coverage Ratio (x) 3.1 0.0 0.0 0.0
Source: J Contentree, Mirae Asset Daewoo Research estimates
32| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch CJ CGV (079160 KS)
Iron grip on domestic market & aggressive entry into overseas markets
Investment points (Maintain) Buy • CJ CGV stands to benefit from its sizable exposure to high-growth overseas markets, such as Turkey, China, Vietnam, and Indonesia Target Price (12M, W) 96,000 • Improvement in the domestic theater market (stabilizing theater attendance, higher pricing, fewer location openings by a major rival) and profitability should be highlighted Share Price (11/30/17, W) 71,400 • The firm deserves valuation premium to its peers, given its relatively high exposure to high-growth markets • Contributions from domestic/overseas (high-growth) markets: 1) 70%/30% for screen count; 2) 54%/46% for Expected Return 34% revenue; and 3) 61%/39% for operating profit • The 4DX business is expected to display top- and bottom-line growth, driven by: 1) increase in global investments in theater facilities; and 2) margin growth, backed by an increase in cumulative screen counts OP (17F, Wbn) 75 • Korea: W694.1bn; China: W1.05tr; Turkey: W312bn; Vietnam: W332.1bn; 4DPLEX: W341bn Consensus OP (17F, Wbn) 70 Risk factors EPS Growth (17F, %) 133.7 Continued competition in the Chinese theater market Market EPS Growth (17F, %) 45.9 • Early slowing of margin growth P/E (17F, x) 52.4 •
Market P/E (17F, x) 10.4
KOSPI 2,476.37 Market Cap (Wbn) 1,511 130 FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F CJ CGV KOSPI Shares Outstanding (mn) 21 Revenue (Wbn) 1,039 1,194 1,432 1,718 1,908 2,099 120 Free Float (%) 60.9 OP (Wbn)52677075122159
Foreign Ownership (%) 17.1 110 OP margin (%) 5.0 5.6 4.9 4.4 6.4 7.6 Beta (12M) 0.44 NP (Wbn)1752122973102 100 52-Week Low 58,600 EPS (W) 787 2,455 583 1,363 3,447 4,819 90 52-Week High 88,200 ROE (%) 4.4 12.9 3.1 7.8 18.3 21.3
(%) 1M 6M 12M80 P/E (x) 68.6 51.3 120.7 52.4 20.7 14.8 Absolute 4.2 -15.3 17.2 P/B (x) 3.0 6.3 4.0 4.1 3.5 2.9 70 Relative 5.3 -19.8 -6.116.11 17.3 17.7 17.11 Div.Yield (%) 0.6 0.3 0.5 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 CGV, Mirae Asset Daewoo Research estimates
33| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch CJ CGV (079160 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 1,432 1,718 1,908 2,099 Current Assets 514 546 563 625 P/E (x) 120.7 52.4 20.7 14.8
Cost of Sales 703 852 915 994 Cash and Cash Equivalents 200 212 219 245 P/CF (x) 6.9 5.3 4.7 4.1
Gross Profit 729 866 993 1,105 AR & Other Receivables 174 184 190 209 P/B (x) 4.0 4.1 3.5 2.9
SG&A Expenses 659 792 871 945 Inventories 17 18 18 20 EV/EBITDA (x) 14.1 11.4 9.3 8.0
Operating Profit (Adj) 70 75 122 159 Other Current Assets 123 132 136 151 EPS (W) 583 1,363 3,447 4,819
Operating Profit 70 75 122 159 Non-Current Assets 2,028 2,141 2,265 2,377 CFPS (W) 10,153 13,575 15,109 17,414
Non-Operating Profit -52 -33 -25 -25 Investments in Associates 48 58 64 71 BPS (W) 17,654 17,317 20,414 24,884
Net Financial Income -32 -31 -31 -31 Property, Plant and Equipment 913 1,042 1,187 1,312 DPS (W) 350 350 350 350
Net Gain from Inv in Associates -6 4 4 4 Intangible Assets 893 809 771 743 Payout ratio (%) 131.7 20.7 9.8 7.1
Pretax Profit 18 42 97 134 Total Assets 2,542 2,687 2,828 3,002 Dividend Yield (%) 0.5 0.5 0.5 0.5
Income Tax 12 6 21 30 Current Liabilities 815 1,005 1,064 1,127 Revenue Growth (%) 19.9 20.0 11.1 10.0
Profit from Continuing Operations 6 36 76 105 AP & Other Payables 276 331 366 404 EBITDA Growth (%) 15.3 26.1 22.7 15.3
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 367 466 468 471 Operating Profit Growth (%) 4.5 7.1 62.7 30.3
Net Profit 6 36 76 105 Other Current Liabilities 172 208 230 252 EPS Growth (%) -76.3 133.8 152.9 39.8
Controlling Interests 12 29 73 102 Non-Current Liabilities 806 784 797 811 Accounts Receivable Turnover (x) 10.7 11.1 11.7 12.1
Non-Controlling Interests -7 7 3 3 Long-Term Financial Liabilities 704 661 661 661 Inventory Turnover (x) 94.2 99.2 105.3 108.6
Total Comprehensive Profit -133 -18 76 105 Other Non-Current Liabilities 102 123 136 150 Accounts Payable Turnover (x) 7.0 6.6 6.2 6.1
Controlling Interests -38 -23 22 30 Total Liabilities 1,621 1,789 1,861 1,938 ROA (%) 0.3 1.4 2.7 3.6
Non-Controlling Interests -95 5 54 74 Controlling Interests 373 366 432 527 ROE (%) 3.1 7.8 18.3 21.3
EBITDA 203 256 314 362 Capital Stock 11 11 11 11 ROIC (%) 1.8 3.7 5.8 7.3
FCF (Free Cash Flow) -4 -1 28 52 Capital Surplus 90 90 90 90 Liability to Equity Ratio (%) 176.1 199.1 192.6 182.2
EBITDA Margin (%) 14.2 14.9 16.5 17.2 Retained Earnings 330 344 409 504 Current Ratio (%) 63.1 54.3 52.9 55.4
Operating Profit Margin (%) 4.9 4.4 6.4 7.6 Non-Controlling Interests 547 532 534 537 Net Debt to Equity Ratio (%) 89.8 96.6 89.2 78.3
Net Profit Margin (%) 0.8 1.7 3.8 4.9 Stockholders' Equity 920 898 966 1,064 Interest Coverage Ratio (x) 2.0 2.1 3.4 4.5
Source: CJ CGV, Mirae Asset Daewoo Research estimates
34| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch YG Entertainment (122870 KQ)
Transition from artist manager to content producer
Investment points (Maintain) Buy • In response to platform diversification, YG Entertainment has expanded its talent pool (e.g., PD, writers ) and enhanced its content competitiveness Target Price (12M, W) 39,000 • YG Entertainment has been partnering with platform operators: Broadcasting stations (JTBC-content), OTT (NAVER–equity/content, Netflix-content): MIXNINE (JTBC), Standup Comedy (Netflix) Share Price (11/30/17, W) 30,650 • The firm’s artist lineup looks promising: iKON (Japan Dome Tour), Black Pink (successful debut in Japan), a new boy group (K-Pop Star participants)
Expected Return 27% Risk factors
OP (17F, Wbn) 38 • Earnings deterioration resulting from the absence of Big Bang (2H18 and onwards): Need to rapidly increase earnings visibility related to lineup diversification and content production Consensus OP (17F, Wbn) 33
EPS Growth (17F, %) 37.7
Market EPS Growth (17F, %) 45.9 P/E (17F, x) 20.4
Market P/E (17F, x) 10.4
KOSDAQ 771.42
140 Market Cap (Wbn) 557 YG Entertainment FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 20 KOSDAQ Revenue (Wbn) 156 193 322 368 348 327 130 Free Float (%) 62.7 OP (Wbn) 22 22 32 38 28 21
Foreign Ownership (%) 14.5 120 OP margin (%) 14.1 11.4 9.9 10.3 8.0 6.4 Beta (12M) 1.06 NP (Wbn) 19 28 19 29 26 19 110 52-Week Low 24,850 EPS (W) 1,290 1,700 1,094 1,506 1,337 972
52-Week High 36,150 100 ROE (%) 13.4 14.7 7.7 9.1 7.2 5.0
(%) 1M 6M 12M90 P/E (x) 34.3 26.2 25.9 20.4 22.9 31.5 Absolute 2.0 -11.0 13.3 P/B (x) 4.1 3.6 1.8 1.7 1.6 1.5 80 Relative -8.8 -25.1 -12.416.11 17.3 17.7 17.11 Div.Yield (%) 0.6 0.8 0.7 0.7 0.7 0.7 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: YG Entertainment, Mirae Asset Daewoo Research estimates
35| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch YG Entertainment (122870 KQ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 322 368 348 327 Current Assets 276 312 343 363 P/E (x) 25.9 20.4 22.9 31.5
Cost of Sales 227 251 236 218 Cash and Cash Equivalents 62 26 78 106 P/CF (x) 10.6 12.7 23.0 37.5
Gross Profit 95 117 112 109 AR & Other Receivables 29 38 35 34 P/B (x) 1.8 1.7 1.6 1.5
SG&A Expenses 63 80 84 88 Inventories 16 22 20 20 EV/EBITDA (x) 10.3 10.7 12.9 16.0
Operating Profit (Adj) 32 38 28 21 Other Current Assets 169 226 210 203 EPS (W) 1,094 1,506 1,337 972
Operating Profit 32 38 28 21 Non-Current Assets 210 284 264 254 CFPS (W) 2,678 2,411 1,332 817
Non-Operating Profit 1 0 0 0 Investments in Associates 14 18 17 16 BPS (W) 16,007 18,196 19,351 20,139
Net Financial Income 4 8 10 11 Property, Plant and Equipment 61 67 64 61 DPS (W) 200 200 200 200
Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 33 61 57 53 Payout ratio (%) 23.2 14.3 16.3 22.5
Pretax Profit 33 38 28 21 Total Assets 487 596 607 617 Dividend Yield (%) 0.7 0.7 0.7 0.7
Income Tax 19 13 6 5 Current Liabilities 68 92 85 82 Revenue Growth (%) 66.8 14.3 -5.4 -6.0
Profit from Continuing Operations 14 25 22 16 AP & Other Payables 32 43 39 38 EBITDA Growth (%) 50.0 20.5 -25.5 -22.9
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0000Operating Profit Growth (%)45.518.8-26.3-25.0
Net Profit 14 25 22 16 Other Current Liabilities 36 49 46 44 EPS Growth (%) -35.6 37.7 -11.2 -27.3
Controlling Interests 19 29 26 19 Non-Current Liabilities 68 71 71 71 Accounts Receivable Turnover (x) 13.0 11.4 9.8 9.7
Non-Controlling Interests -5 -4 -4 -3 Long-Term Financial Liabilities 67 69 69 69 Inventory Turnover (x) 20.5 19.2 16.5 16.4
Total Comprehensive Profit 19 22 22 16 Other Non-Current Liabilities 1222Accounts Payable Turnover (x)30.821.018.017.6
Controlling Interests 22 96 133 96 Total Liabilities 136 163 156 153 ROA (%) 3.3 4.7 3.7 2.6
Non-Controlling Interests -4 -74 -110 -80 Controlling Interests 281 350 372 388 ROE (%) 7.7 9.1 7.2 5.0
EBITDA 39473527Capital Stock 8999ROIC (%) 13.720.716.112.7
FCF (Free Cash Flow) 14 26 30 23 Capital Surplus 160 209 209 209 Liability to Equity Ratio (%) 38.9 37.6 34.5 33.1
EBITDA Margin (%) 12.1 12.8 10.1 8.3 Retained Earnings 110 129 152 167 Current Ratio (%) 404.8 340.2 404.9 440.5
Operating Profit Margin (%) 9.9 10.3 8.0 6.4 Non-Controlling Interests 69 83 79 76 Net Debt to Equity Ratio (%) -38.1 -32.5 -39.7 -43.5
Net Profit Margin (%) 5.9 7.9 7.5 5.8 Stockholders' Equity 350 433 451 464 Interest Coverage Ratio (x) 21.4 22.5 16.0 11.9
Source: YG Entertainment, Mirae Asset Daewoo Research estimates
36| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch Showbox (086980 KQ)
Waiting for its moment
Investment points (Maintain) Hold • Showbox is getting used to the shift to the digital-centered platform environment: Content production using different IPs Distribution through multiple channels. Target Price (12M, W) - • Showbox has been increasing its exposure to markets outside of China through direct investments and partnerships: Investments in an Indonesian film; a joint production in partnership with US studio Blumhouse Share Price (11/30/17, W) 5,670 Productions • China-bound exports are likely to resume, given easing tension with China: The company has renewed its joint investment contract with Huayi Brothers (one of the six co-production projects has been released), additional Expected Return - releases are expected for 2018 • Ticket prices are likely to increase in 2018, partly offsetting earnings downside in 2018 OP (17F, Wbn) 9 Risk factors Consensus OP (17F, Wbn) 10 • Stagnant box office numbers in Korea; intensifying competition among distributors (new entrants from Korea EPS Growth (17F, %) -47.1 and abroad) Market EPS Growth (17F, %) 45.9 • Chinese movies have gained competitiveness, thanks to investments by major Chinese corporations (Alibaba, P/E (17F, x) 50.2 Wanda) since 2016 reduced preference for imported films among Chinese audience Market P/E (17F, x) 10.4
KOSDAQ 771.42
130 Market Cap (Wbn) 355 Showbox FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 63 KOSDAQ Revenue (Wbn) 72 142 126 110 114 122 120 Free Float (%) 42.2 OP (Wbn) 2 14 15 9 10 11
Foreign Ownership (%) 2.3 110 OP margin (%) 2.8 9.9 11.9 8.2 8.8 9.0 Beta (12M) 1.19 NP (Wbn) -1 11 13 7 8 9 100 52-Week Low 4,515 EPS (W) -12 183 214 113 130 140 90 52-Week High 6,520 ROE (%) -0.7 10.4 11.0 5.6 6.3 6.5
(%) 1M 6M 12M80 P/E (x) - 40.4 26.4 50.2 43.8 40.4 Absolute 2.3 -8.0 20.1 P/B (x) 2.8 4.0 2.8 2.8 2.7 2.6 70 Relative -8.5 -22.6 -7.216.11 17.3 17.7 17.11 Div.Yield (%) 0.0 0.7 0.9 0.9 0.9 0.9 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Showbox, Mirae Asset Daewoo Research estimates
37| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch Showbox (086980 KQ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 126 110 114 122 Current Assets 153 146 154 167 P/E (x) 26.4 50.2 43.8 40.4
Cost of Sales 101 89 92 98 Cash and Cash Equivalents 102 102 107 114 P/CF (x) 5.2 6.8 7.9 32.9
Gross Profit 25212224AR & Other Receivables6556P/B (x) 2.82.82.72.6
SG&A Expenses 10121313Inventories 0000EV/EBITDA (x) 3.84.85.419.9
Operating Profit (Adj) 15 9 10 11 Other Current Assets 45 39 42 47 EPS (W) 214 113 130 140
Operating Profit 15 9 10 11 Non-Current Assets 44 42 43 45 CFPS (W) 1,074 829 719 173
Non-Operating Profit 1 0 0 0 Investments in Associates 12 10 11 12 BPS (W) 2,021 2,033 2,112 2,203
Net Financial Income 1111Property, Plant and Equipment2111DPS (W) 50505050
Net Gain from Inv in Associates0000Intangible Assets 1110Payout ratio (%) 23.344.138.535.5
Pretax Profit 16 9 10 11 Total Assets 197 188 196 211 Dividend Yield (%) 0.9 0.9 0.9 0.9
Income Tax 2 2 2 2 Current Liabilities 70 61 64 73 Revenue Growth (%) -11.3 -12.7 3.6 7.0
Profit from Continuing Operations 13 7 8 9 AP & Other Payables 38 32 34 39 EBITDA Growth (%) -25.8 -21.2 -11.5 -73.9
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0000Operating Profit Growth (%)7.1-40.011.110.0
Net Profit 13 7 8 9 Other Current Liabilities 32 29 30 34 EPS Growth (%) 16.9 -47.2 15.0 7.7
Controlling Interests 13 7 8 9 Non-Current Liabilities 1111Accounts Receivable Turnover (x)11.620.722.722.1
Non-Controlling Interests0000Long-Term Financial Liabilities0000Inventory Turnover (x)0.00.00.00.0
Total Comprehensive Profit 13 7 8 9 Other Non-Current Liabilities 1111Accounts Payable Turnover (x)2.83.03.33.2
Controlling Interests 13 7 8 9 Total Liabilities 71 61 64 74 ROA (%) 6.5 3.7 4.2 4.3
Non-Controlling Interests 0 0 0 0 Controlling Interests 126 127 132 138 ROE (%) 11.0 5.6 6.3 6.5
EBITDA 66 52 46 12 Capital Stock 31 31 31 31 ROIC (%) -112.3 686.4 311.5 19,871.8
FCF (Free Cash Flow) -6 30 45 13 Capital Surplus 36 36 36 36 Liability to Equity Ratio (%) 56.2 48.2 48.9 53.7
EBITDA Margin (%) 52.4 47.3 40.4 9.8 Retained Earnings 60 60 65 71 Current Ratio (%) 217.9 241.1 240.3 227.4
Operating Profit Margin (%)11.98.28.89.0Non-Controlling Interests0000Net Debt to Equity Ratio (%)-81.3-80.8-81.5-82.8
Net Profit Margin (%) 10.3 6.4 7.0 7.4 Stockholders' Equity 126 127 132 138 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0
Source: Showbox, Mirae Asset Daewoo Research estimates
38| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch SBS (034120 KS)
Fundamental changes needed
Investment points (Maintain) Hold • China-bound content sales are expected to resume in 2018; SBS stands to benefit from major sporting events in 2018 (e.g., PyeongChang 2018 Winter Olympics, 2018 FIFA World Cup Russia) Target Price (12M, W) - • Policy variables are considered positive: 1) Gradual increase in CPS; and 2) likelihood of approval for mid-program advertising Share Price (11/30/17, W) 23,000 • However, SBS has been slow to make the transition to digital in ad/content sales • Slowdown in ad demand on terrestrial broadcasting and strong growth in content sales are more unfavorable Expected Return - for SBS than its peers • Programming cutback will likely reduce production costs and slow the pace of earnings deterioration
OP (17F, Wbn) 26
Consensus OP (17F, Wbn) 24 Risk factors
EPS Growth (17F, %) - • Weakening competitiveness, relative to other media Market EPS Growth (17F, %) 45.9 • Weaker leverage in content sales, due to programming cutbacks (dramas) P/E (17F, x) 20.2
Market P/E (17F, x) 10.4
KOSPI 2,476.37 Market Cap (Wbn) 420 130 FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F SBS KOSPI Shares Outstanding (mn) 18 Revenue (Wbn) 796 773 799 718 749 760 120 Free Float (%) 60.0 OP (Wbn) -13 40 -9 26 -3 37
Foreign Ownership (%) 0.0 110 OP margin (%) -1.6 5.2 -1.1 3.6 -0.4 4.9 Beta (12M) 0.47 NP (Wbn) -3 35 -1 21 0 31 100 52-Week Low 23,000 EPS (W) -184 1,895 -59 1,136 20 1,717 90 52-Week High 30,000 ROE (%) -0.6 6.2 -0.2 3.8 0.1 5.5
(%) 1M 6M 12M80 P/E (x) - 18.5 - 20.2 1,133.4 13.4 Absolute -7.6 -17.3 -2.5 P/B (x) 1.0 1.1 0.9 0.7 0.7 0.7 70 Relative -6.7 -21.7 -21.916.11 17.3 17.7 17.11 Div.Yield (%) 0.0 2.1 0.0 0.0 0.0 0.0 Note: All figures are based on separate K-IFRS; NP refers to net profit attributable to controlling interests Source: SBS, Mirae Asset Daewoo Research estimates
39| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Stocks to watch SBS (034120 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 799 718 749 760 Current Assets 418 499 531 588 P/E (x) - 20.2 1,133.4 13.4
Cost of Sales 674 557 612 583 Cash and Cash Equivalents 4 120 135 187 P/CF (x) 12.4 6.5 14.4 6.4
Gross Profit 125 161 137 177 AR & Other Receivables 196 179 187 189 P/B (x) 0.9 0.7 0.7 0.7
SG&A Expenses 134135140140Inventories 2222EV/EBITDA (x) 21.95.211.23.6
Operating Profit (Adj) -9 26 -3 37 Other Current Assets 216 198 207 210 EPS (W) -59 1,136 20 1,717
Operating Profit -9 26 -3 37 Non-Current Assets 478 366 341 318 CFPS (W) 2,121 3,512 1,598 3,602
Non-Operating Profit 7 2 3 4 Investments in Associates 41 37 39 39 BPS (W) 30,572 30,975 30,995 32,712
Net Financial Income -1 -2 -1 -1 Property, Plant and Equipment 319 295 269 246 DPS (W) 0 0 0 0
Net Gain from Inv in Associates0000Intangible Assets 6644Payout ratio (%) 0.00.00.00.0
Pretax Profit -2 28 0 41 Total Assets 896 865 872 905 Dividend Yield (%) 0.0 0.0 0.0 0.0
Income Tax -1 7 0 10 Current Liabilities 220 243 249 251 Revenue Growth (%) 3.4 -10.1 4.3 1.5
Profit from Continuing Operations -1 21 0 31 AP & Other Payables 71 65 68 69 EBITDA Growth (%) -69.4 159.1 -57.9 154.2
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 70 105 105 105 Operating Profit Growth (%) - - - -
Net Profit -1 21 0 31 Other Current Liabilities 79 73 76 77 EPS Growth (%) - - -98.2 8,485.0
Controlling Interests -1 21 0 31 Non-Current Liabilities 133 72 73 73 Accounts Receivable Turnover (x) 4.1 3.9 4.2 4.1
Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 120 60 60 60 Inventory Turnover (x) 412.4 393.6 420.2 414.8
Total Comprehensive Profit -2 21 0 31 Other Non-Current Liabilities 13 12 13 13 Accounts Payable Turnover (x) 12.5 8.9 10.0 9.3
Controlling Interests -2 21 0 31 Total Liabilities 353 315 322 323 ROA (%) -0.1 2.4 0.0 3.5
Non-Controlling Interests 0 0 0 0 Controlling Interests 543 550 551 582 ROE (%) -0.2 3.8 0.1 5.5
EBITDA 22572461Capital Stock 91919191ROIC (%) -1.14.4-0.68.2
FCF (Free Cash Flow) -27 131 25 54 Capital Surplus 58 58 58 58 Liability to Equity Ratio (%) 65.0 57.2 58.4 55.6
EBITDA Margin (%) 2.8 7.9 3.2 8.0 Retained Earnings 409 416 416 448 Current Ratio (%) 190.1 205.4 213.4 234.4
Operating Profit Margin (%)-1.13.6-0.44.9Non-Controlling Interests0000Net Debt to Equity Ratio (%)0.1-22.5-26.7-34.5
Net Profit Margin (%) -0.1 2.9 0.0 4.1 Stockholders' Equity 543 550 551 582 Interest Coverage Ratio (x) -2.2 7.2 -0.9 10.6
Source: SBS, Mirae Asset Daewoo Research estimates
40| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research [Conclusion] Stock ratings and target prices
Investment ratings for media/entertainment stocks in the Mirae Asset Daewoo universe
CJ E&M SM Entertainment Top Picks (130960 KQ) (041510 KQ) TP: W109,000 TP: W44,000
J Contentree CJ CGV YG Entertainment Buy (036420 KQ) (079160 KS) (122870 KQ) TP: W5,800 TP: W96,000 TP: W39,000
Showbox SBS Hold (086980 KQ) (034120 KS)
Source: Mirae Asset Daewoo Research
41| 2017 Outlook [Media / Entertainment] 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 CJ E&M(130960) 11/13/2017 Buy 109,000 11/09/2016 Buy 95,000 10/19/2017 Buy 102,000 08/04/2016 Buy 105,000 09/05/2017 Buy 97,000 07/16/2016 AFTER 1YR 01/02/2017 No Coverage 07/16/2015 Buy 150,000 08/11/2016 AFTER 1YR YG Entertainment(122870) 12/05/2017 Buy 39,000 08/11/2015 Buy 110,000 09/05/2017 Buy 35,000 SM Entertainment(041510) 11/14/2017 Buy 44,000 01/02/2017 No Coverage 09/05/2017 Buy 37,000 11/09/2016 Buy 36,000 01/02/2017 No Coverage 08/11/2016 Buy 45,000 08/15/2016 Buy 40,000 05/12/2016 Buy 60,000 08/10/2016 AFTER 1YR 03/22/2016 Buy 50,000 08/10/2015 Buy 59,000 11/15/2015 Buy 56,000 J Contentree(036420) 07/23/2017 Buy 5,800 Showbox(086980) 06/04/2017 Hold 04/17/2017 Buy 5,000 04/17/2017 Buy 6,300 01/03/2017 No Coverage 01/02/2017 No Coverage 11/14/2016 Buy 5,000 09/30/2016 AFTER 1YR 08/17/2016 Buy 4,900 09/30/2015 Buy 11,000 05/17/2016 Buy 6,200 SBS(034120) 09/05/2017 Hold 03/23/2016 Buy 6,000 01/02/2017 No Coverage 08/18/2015 Buy 7,000 10/21/2016 Buy 32,000 CJ CGV(079160) 08/11/2017 Buy 96,000 08/17/2016 Trading Buy 30,000 05/14/2017 Buy 105,000 05/17/2016 Trading Buy 33,000 04/17/2017 Buy 120,000 02/21/2016 Buy 39,000 01/02/2017 No Coverage 11/17/2015 Buy 49,000
42| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research (W) CJ E&M (W) SM Entertainment(W) J Contentree (W) CJ CGV (W) YG Entertainment
120,000 80,000 8,000 200,000 80,000
100,000 60,000 6,000 150,000 60,000 80,000
60,000 40,000 4,000 100,000 40,000
40,000 20,000 2,000 50,000 20,000 20,000
0 0 0 0 0 Dec 15 Dec 16Dec Dec 15 17 Dec 16Dec Dec 15 17 Dec 16Dec Dec 15 17 Dec 16Dec Dec 15 17 Dec 16 Dec 17
(W) Showbox (W) SBS
12,000 60,000 10,000 50,000 8,000 40,000
6,000 30,000
4,000 20,000
2,000 10,000
0 0 Dec 15 Dec 16Dec Dec 15 17 Dec 16 Dec 17
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 74.52% 12.50% 12.98% 0.00% Investment Banking Services 70.73% 19.51% 9.76% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2017)
Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has been acting as a financial advisor to SM Entertainment for its treasury stock trust.
43| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research 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.
Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.
44| 2017 Outlook [Media / Entertainment] Mirae Asset Daewoo Research Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Mirae Asset Securities (HK) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
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