Deliver Us from Social Distancing

CJ CGV (079160.KS) Deliver us from social distancing

Affected by the prolonging of the Covid-19 crisis, the external environment Company Note │ Aug 22, 2020 surrounding the theater industry remains extremely unfriendly. Accordingly, while CJ CGV is making efforts to improve operating cost efficiency and ※Refer to page 2 for raise capital, such moves are insufficient to offset sales decline at its main ESG index/event tables business. We maintain a Hold rating and TP of W20,000. Hold (maintain) TP (12-mth) W20,000 (maintain) Amid prolonging of Covid-19, facing difficulties in business CP (’20/09/21) W23,050 normalization Sector Entertainment Kospi/Kosdaq 2,389.39 / 866.99 We maintain a Hold rating on CJ CGV. Admittedly, its earnings bottomed out in Market cap (common) US$694.9mn 1H20, when Covid-19 delivered its harshest blow. However, with: 1) its seat Outstanding shares (common) 35.1mn utilization rate remaining limited to 50% due to Covid-19-related social 52W high (’19/11/19) W35,739 low (’20/03/23) W12,835 distancing; and 2) the mid/long-term outlook for the external environment still Average trading value (60D) US$11.3mn unfavorable amid a trend towards online release for Hollywood blockbusters, Dividend yield (2020E) 0.00% the securing of future earnings momentum looks uncertain. Foreign ownership 5.4% Major shareholders We maintain a TP of W20,000, viewing both a 66% increase in its number of CJ Corp & 1 other 38.4% shares stemming from rights issuance and delayed normalization of operations Share perf 3M 6M 12M due to the prolonging of Covid-19 as obvious negatives. However, we hike our Absolute (%) 4.5 62.4 -26.1 2021 OP estimate to reflect the firm’s operating cost streamlining efforts, which Relative (%p) -6.3 6.4 -35.3 exceeded our expectations in 1H20. 2019 2020E 2021F 2022F Sales 1,942 727.6 1,571 1,832 Chg 9.8 -62.5 115.9 16.6 To improve financial soundness, metamorphosis of financial OP 122.0 -288.9 72.4 143.0 structure is needed Chg 57.0 TTL TTP 97.5 CJ CGV is working hard to improve its financial soundness via such efforts as OPM 6.3 -39.7 4.6 7.8 the securitization of theaters, a pre-IPO, and capital increase. Regarding the NP -152.6 -391.1 -119.8 16.6 repayment of total return swap (TRS)-related debt which is to reach maturity in EPS -6,358 -13,867 -3,413 473 Chg RR RR TTL TTP Apr 2021, a portion (W160bn) of the firm’s recent (August) capital increase is to P/E N/A N/A N/A 48.7 be used. However, in order to meaningfully shore up its financial soundness, the P/B 2.8 8.0 N/A N/A generation of profits at the main business is badly needed. For reference, EV/EBITDA 3.1 18.6 3.7 3.0 retained earnings at end-2019 totaled only W15.3bn. With sales recovery ROE -57.6 -210.7 -385.9 -54.4 remaining challenging amid the prolonging of Covid-19, it appears necessary Debt/equity 652.6 1,268.4 2,606.7 3,979.3 for the firm to undertake business slimming efforts (eg, theater restructuring) Net debt 465.6 439.0 702.0 648.0 which go beyond simple improvements to operating cost efficiency. Unit: Wbn, %, won, x Note 1: NP excludes minority interests Note 2: EPS, P/E, P/B, and ROE based on NP (excl minority interests) 3Q20 preview: Tenet not enough Source: NH I&S Research Center estimates CJ CGV is forecast to post consolidated 3Q20 sales of W187.8bn (-62% y-y) and an operating loss of W48.0bn (TTL y-y). While Chinese box offices are seeing a remarkable local movie-driven recovery, in Korea, box office normalization remains difficult despite the release of new films. In particular, weighed upon by the implementation of level 2.5 of social distancing measures, September results are likely to prove especially sluggish despite the opening of major film Tenet. In addition, the 4DX theater, Turkey, and Indonesia businesses are to continue being affected by the spread of Covid-19.

Hazell Lee, Analys 822)768-7535, [email protected] CJ CGV www.nhqv.com

Summary

CJ CGV is the number-one movie theater operator in Korea. It was the first firm to open multiplex theaters in Korea in 1998, and in 2009, it established the world’s first 4DX theater. CJ CGV has also advanced into the movie theater markets in China, Vietnam, Indonesia, and Turkey. In 2019, it booked consolidated sales of W1,942.3bn (+9.8% y-y), a figure that broke down as: domestic 54%, China 17%, Turkey 8%, Vietnam 10%, and 4DX 6%. With the theater industry already in a maturing stage, a key driver for the firm’s sales growth is to be a rise in moviegoers driven by the securing of hit content. We present a Hold rating and TP of W20,000 on CJ CGV.

Share price drivers/earnings momentum Downside risks

Easing in Covid-19 pandemic and release of new hit titles Sustained external negatives (Covid-19, lack of new content) Fading of Covid-19 crisis and recovering audience numbers OTT players taking greater share of blockbuster movie market

ASP hikes driven by increase in ticket prices, per-customer Deteriorating debt ratio stemming from additional borrowings to spending at concessions, and unit ad price per screen overcome financial difficulties

Cross valuations (Unit: x, %) Historical valuations (Unit: x, %)

P/E P/B ROE Company Valuations 2018 2019 2020E 2021F 2022F 2020E 2021F 2020E 2021F 2020E 2021F Cineplex Inc N/A N/A N/A 1.1 N/A -3.4 P/E N/A N/A N/A N/A 48.7 AMC Entertainment N/A N/A N/A N/A N/A N/A P/B 3.3 2.7 8.0 N/A N/A PVR LTD 215.1 N/A 4.1 4.4 1.8 -34.6 P/S 0.5 0.4 0.9 0.5 0.4 Hengdian Ent. N/A 33.9 5.8 5.0 -11.3 14.7 ROE -49.6 -57.6 -210.7 -385.9 -54.4 J Contentree N/A 22.6 1.5 1.4 -11.8 6.1 ROIC 1.0 4.3 -8.5 2.3 5.0 Source: FactSet, NH I&S Research Center Source: NH I&S Research Center

ESG index (Unit: %, years, hours, ‘000TJ, mn tCO2e, mn tons)

BOD composition Human resources 2017 2018 2019 Choi Byung-hwan CEO, BOD chair, Remuneration Committee chair Inside Portion of female employees 50.6 54.9 54.5 Lee Dong-hyun Remuneration Committee member Inside Portion of contract workers 0.4 0.0 28.4 Oh Joon Outside Director Recommendation Committee chair Outside Avg service period per employee 6.5 7.3 8.0 Kim Se-hyung Internal Trading Committee chair Outside Avg training hours per employee N/A N/A N/A Hwang Yi-seok Audit Committee chair Outside Environment 2017 2018 2019 Energy consumption N/A N/A N/A Greenhouse gas emissions N/A N/A N/A Recycled water consumption N/A N/A N/A Recycled waste N/A N/A N/A Source: CJ CGV, NH I&S Research Center

ESG events

– An environmental group pointed out that CJ CGV theaters have yet to conform to the government’s recommendation of cutting down E 2019.03 on the use of disposable materials 2017.07 – Converted 100 temporary workers to regular workers as part of its efforts to improve its employment structure and work environment – Received a corrective order and penalties for unfair practices regarding the selection of an ad agency (for screen ads) and illegal S 2016.10 support for affiliates 2015.07 – Received a corrective order and penalties for unfair practices regarding the allocation of screens for movies distributed by affiliates – No dividend distribution likely in 2020, but until recently, the firm has distributed dividends in spite of it being in the red, as a part of G - its efforts to strengthen shareholders’ value Source: CJ CGV, NH I&S Research Center

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Amid prolonging of Covid-19, facing difficulties in business normalization Maintain Hold We maintain a Hold rating on CJ CGV. Admittedly, its earnings bottomed out in 1H20, rating when Covid-19 delivered its harshest blow, and its share price already reflects related negatives. However, with: 1) its seat utilization rate remaining limited to 50% due to Covid-19-related social distancing measures; and 2) the mid/long-term outlook for the external environment still unfavorable amid a trend towards online release for Hollywood blockbusters, the securing of future earnings momentum looks challenging.

Adhere to TP of We adhere to a TP of W20,000. Continuing to use an SOTP-valuation method to W20,000 calculate our TP, we note that: 1) CJ CGV’s overseas markets are in different stages of maturity; and 2) the firm operates a diverse range of businesses (including 4DX). For the headquarters, Turkey, and 4DX businesses, we applied EV/EBITDA multiples to calculate individual operating values. Meanwhile, for the firm’s 71% stake in CGI Holdings, a discount was applied to an operating value calculated using the stake disposal price given to the MBK consortium in Nov 2019.

We view both a 66% increase in its number of shares to 35.1mn stemming from rights issuance and delayed normalization of operations due to the prolonging of Covid-19 as obvious negatives. Still, we leave our TP unchanged, as we: 1) remove the 30% discount applied in our previous TP calculation (which reflected the fact that amid expanding financial market uncertainties, CJ CGV was likely to be one of the firms hit hardest by Covid-19); and 2) hike our 2021 OP estimate by 14% in reflection of the firm’s cost streamlining efforts, which were proven by its 1H20 earnings.

SOTP valuation (Unit: x, %, Wbn, won, shrs) 2021F Multiple (x) Stake Value Note Operating value (A) 1,389.4 (1) Headquarters 108.5 EV/EBITDA 6.0 100% 650.8 Global peer average in maturing markets (2) Turkey 12.0 EV/EBITDA 7.0 39% 32.9 Global peer average in growing markets (3) 4DX 13.6 EV/EBITDA 6.5 90% 80.1 Avg of IMAX and IMAX China Discount applied to operating value calculated using stake (4) CGI Holdings 1,167.7 Market Value 71% 625.5 disposal price given to MBK consortium in Nov 2019 Net debt (B) 702.0 Total enterprise value 687.4 (A)-(B) Fair value/share 19,584 Discount 20,000 Upside -13.2% TP 35,100,000 Note 1: CGI Holdings is a consolidated subsidiary for CJ CGV’s businesses in China, Vietnam, and Indonesia Note 2: EBITDA multiples adjusted for changes in earnings (rising COGS and declining depreciation) in relation to lease Source: NH I&S Research Center

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Sales recovery With the Covid-19 crisis still ongoing, a meaningful earnings recovery is unlikely to be appears remote; witnessed before 2H21. Accordingly, we lower our 2021 sales forecast by 14%. We but, operating expect the headquarters and 4DX businesses to suffer the toughest blow, given seat expenses to remain separation requirements due to ongoing social distancing measures and declining low installations of 4DX theaters. But, considering the firm’s continued efforts for cost streamlining, we expect 2021 operating expenses to arrive similar to those of 1H20.

3Q20 preview (K-IFRS consolidated) (Unit: Wbn, %) 3Q20E 3Q19 4Q19 1Q20 2Q20 4Q20F Estimate y-y q-q Previous Consen Sales 497.5 498.3 243.3 41.6 187.7 -62.3 351.4 N/A 208.2 254.9 OP 31.0 44.0 -71.6 -130.5 -48.0 TTL RR N/A -51.2 -38.8 OPM 6.2 8.8 -29.4 -313.8 -25.6 -24.6 -15.2 Pre-tax profit -3.2 -207.7 -120.5 -177.4 -74.8 RR RR N/A -102.8 -136.6 NP (excl minority 1.8 -138.7 -95.5 -143.2 -46.0 TTL RR N/A -64.5 -106.4 interests) Source: FnGuide; NH I&S Research Center estimates

Earnings forecasts (IFRS consolidated) (Unit: Wbn, won, x, %) 2019 2020E 2021F 2022F Sales - Revised 1,942 727.6 1,571 1,832 - Previous - 1,447 1,831 1,874 - Change -49.7 -14.2 -2.2 OP - Revised 122.0 -288.9 72.4 143.0 - Previous - -39.9 63.5 72.0 - Change RR 14.0 98.6 OPM - Revised 6.3 -39.7 4.6 7.8 EBITDA 489.8 78.3 451.4 520.3 NP (excl minority interests) -152.6 -391.1 -119.8 16.6 EPS - Revised -7,213 -13,867 -3,413 473 - Previous -4,572 -2,589 -1,997 - Change RR RR TTP P/E N/A N/A N/A 48.7 P/B 2.7 8.0 N/A N/A EV/EBITDA 3.1 18.6 3.7 3.0 ROE -57.6 -210.7 -385.9 -54.4 Note: EPS, P/E, P/B, and ROE based on NP (excluding minority interests) Source: NH I&S Research Center estimates

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Crucial for cinema business to recover Distancing of While the Covid-19 crisis persists, global theaters are resuming operations gradually. In theater seats serving the US, however, while signs of a rebound in box-office revenue should motivate as obstacle for box- production companies to release Hollywood flicks in theaters, it will likely be some time office recovery before box-office revenue recovers. Theaters in large US cities such as Los Angeles, New York, and San Franciso have yet to reopen, and those that have already reopened from end-August have operated at around 50% of their seating capacity. In the case of China, box-office revenue has returned to the 2019 level, backed by strong performances for local Chinese movies. But, in Korea, despite the success of some local Korean movies, it is predicted to be some time before box-office revenue rebounds, owing to the ongoing distancing of theater seats.

Even high-quality Despite expectations for a cinema market rebound upon the release of the greatly- content cannot anticipated Tenet, such hopes have largely been dashed by the film’s disappointing overcome Covid-19 results. It appears that consumers are choosing the safety of home over even high-quality theater content—a development proving that even desirable content cannot overcome Covid-19. Meanwhile, as another anticipated film, Mulan has gone straight to the Disney+ streaming service, reaping better profits than Tenet as a result. In our view, a series of such successes is likely to create a trend towards straight-to-streaming release. Should enough high-quality content go straight to streaming services, the number of moviegoers is unlikely to fully recover once the Covid-19 crisis is over.

Amid unfavorable Amid sustained deterioration of the business environment, it remains uncertain when CJ business CGV’s main business will get back to normal. Against this backdrop, the company has environment, CJ been making painstaking efforts to improve its financial soundness. The firm has secured CGV has made sizable liquidity through perpetual bond issuance in Nov 2018, securitization of its efforts to improve theater assets in Dec 2018, foreign capital-raised via pre-IPO in Nov 2019, and a rights financial soundness offering in Aug 2020. And, most of the funds raised are set for debt repayment and the securing of working capital. Regarding the repayment of TRS-related debt which is to reach maturity in Apr 2021 (about W300bn including interest expense), a portion (W160bn) of the firm’s recent capital increase is to be used, with the remainder likely to be refinanced.

Efforts to However, in order to meaningfully shore up its financial soundness, the generation of strengthen profits at the main business is badly needed. For reference, retained earnings at end-2019 fundamentals badly totaled only W15.3bn. With sales recovery remaining challenging amid the prolonging of needed Covid-19, it appears necessary for the company to undertake business slimming efforts (eg, theater restructuring) which go some ways beyond simple improvements to operating cost efficiency.

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Earnings forecasts (Unit: Wbn, %) 3Q20 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 4Q20F 2018 2019 2020E 2021F E Sales 441.2 404.8 473.0 450.4 464.6 481.9 497.5 498.3 243.3 41.6 187.7 254.9 1,769 1,942 727.6 1,571 Non-consolidated 220.2 221.4 278.4 243.4 248.8 266.3 282.1 256.7 127.8 36.0 93.7 122.7 963.4 1,054 380.3 934.5 (domestic) Subsidiaries 221.0 183.4 205.2 209.2 224.6 225.9 221.7 248.5 120.5 8.5 94.0 132.2 818.8 920.7 355.2 636.2 China 85.7 62.0 80.1 62.1 90.8 77.7 87.2 82.0 12.2 0.7 28.5 47.6 289.9 337.7 89.0 245.7 (consolidated) Turkey 62.7 31.7 21.2 52.1 38.7 26.3 25.6 55.0 33.7 0.0 12.9 22.0 167.7 145.6 68.6 140.3 Vietnam 32.0 40.3 34.5 30.8 45.7 53.4 45.1 41.9 30.3 6.3 24.6 30.0 137.6 186.1 91.2 98.2 4DX 21.8 29.4 37.4 33.9 20.9 31.9 28.3 31.8 21.4 1.4 9.1 13.2 122.5 112.9 45.1 64.0 y-y (%) Sales 8.8 5.8 0.2 -0.8 5.3 19.1 5.2 10.6 -47.6 -91.4 -62.3 -48.8 3.2 9.8 -62.5 115.9 Non-consolidated 1.6 12.2 3.4 -2.2 13.0 20.3 1.3 5.4 -48.6 -86.5 -66.8 -52.2 3.4 9.4 -63.9 145.7 (domestic) Subsidiaries 17.1 -1.0 1.1 2.0 1.6 23.2 8.1 18.8 -46.3 -96.3 -57.6 -46.8 4.7 12.4 -61.4 79.1 China 38.7 3.3 19.2 -5.3 6.0 25.3 8.9 32.0 -86.6 -99.1 -67.3 -41.9 13.9 16.5 -73.7 176.2 (consolidated) Turkey -3.4 -27.3 -43.5 -19.7 -38.3 -17.0 20.8 5.6 -12.9 -100.0 -49.5 -60.0 -20.5 -13.2 -52.9 104.4 Vietnam -6.7 3.9 16.9 10.0 42.8 32.5 30.7 36.0 -33.7 -88.2 -45.5 -28.3 5.4 35.2 -51.0 7.6 4DX 63.9 14.8 -24.9 27.4 -4.1 8.5 -24.3 -6.2 2.4 -95.6 -67.9 -58.4 6.2 -7.8 -60.1 41.9 GP 226.3 204.3 244.3 237.4 182.2 187.9 199.8 215.1 66.1 -50.4 32.7 61.4 912.3 785.0 109.8 616.6 GPM 51.3 50.5 51.7 52.7 39.2 39.0 40.2 43.2 27.2 -121.1 17.4 24.1 51.6 40.4 15.1 39.3 OP 19.2 0.3 32.7 25.6 23.5 23.5 31.0 45.2 -71.6 -130.5 -48.0 -38.8 77.7 123.2 -288.9 72.4 Non-consolidated 1.1 -1.2 28.4 12.4 7.3 9.3 26.5 25.4 -32.9 -70.1 -44.8 -36.3 40.7 68.4 -184.1 71.6 (domestic) Subsidiaries 18.1 1.5 4.2 13.3 16.3 14.2 4.5 19.8 -38.7 -60.4 -3.2 -2.5 37.0 54.7 -104.8 0.8 China 8.4 -2.9 7.2 0.7 8.8 1.0 2.2 1.0 -28.4 -24.8 3.5 2.6 13.4 13.0 -47.1 18.7 (consolidated) Turkey 9.3 -5.6 -9.4 7.0 -0.7 -5.9 -8.0 9.2 -2.5 -4.6 -6.9 -0.8 1.3 -5.4 -14.8 -8.3 Vietnam 2.2 5.2 1.1 -0.6 7.2 6.4 4.1 2.5 0.6 -8.3 0.7 0.9 7.9 20.2 -6.1 1.9 4DX -0.3 4.0 6.0 3.8 -0.5 4.6 1.6 -4.4 -3.2 -9.4 -0.9 -1.8 13.5 1.3 -15.3 -1.0 OPM 4.3 0.1 6.9 5.7 5.1 4.9 6.2 9.1 -29.4 -313.8 -25.6 -15.2 4.4 6.3 -39.7 4.6 OPM 0.5 -0.5 10.2 5.1 2.9 3.5 9.4 9.9 -25.8 -194.7 -47.8 -29.6 4.2 6.5 -48.4 7.7 (non-consolidated) OPM (subsidiaries) 8.4 1.2 3.3 6.7 6.7 5.5 1.8 5.7 -29.2 -663.8 -1.9 2.6 5.1 5.0 -25.3 3.0 y-y (%) OP 31.5 -108.5 1.4 -39.9 22.6 8,720 -5.1 76.6 TTL TTL TTL TTL -9.9 58.5 TTL TTP NP 2.9 -19.9 -4.0 -169.3 -8.6 -9.8 12.7 -233.4 -118.6 -174.9 -73.3 -133.8 -190.3 -239.1 -500.6 -162.8 NPM 0.7 -4.9 -0.9 -37.6 -1.8 -2.0 2.6 -46.8 -48.7 -420.5 -39.1 -52.5 -19.8 -22.7 -131.6 -17.4 Source: NH I&S Research Center estimates

CJ CGV’s efforts to improve financial soundness 2018.11 2018.12 2019.11 2020.08 Perpetual bond issuance Asset disposal Pre-IPO (foreign capital) Rights offering Amount W150bn W210bn W333.6bn W220.9bn Liquidity securing Purpose Securing financial soundness Debt repayment Debt repayment Debt repayment – 30yr maturity – 3rd party allocation (28.57%) – Early repayment options to be to MBK∙Mirae Asset – 3,938,687shrs exercisable after three years – Sale & lease back for 11 Daewoo PE – 66% of existing floating Remarks – Coupon rate 4.2%+ Step-up theaters – Subsidiary combining shares rate conditions (when call branches in China, Vietnam, options not exercised) and Indonesia Source: CJ CGV, NH I&S Research Center

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Movie attendance has dropped sharply since rise in number Change (y-y) in daily movie attendance of Covid-19 patients

('000) (ppl) (% y-y) Attendance (LHS) y-y 1,000 1,000 20 No. of new cases (RHS) 900 900 0 800 800 700 700 -20 600 600 -40 500 500 -60 400 400 300 300 -80 200 200 -100 100 100 0 0 -120 '20.2 '20.3 '20.4 '20.5 '20.6 '20.7 '20.8 '20.9 '20.2 '20.3 '20.4 '20.5 '20.6 '20.7 '20.8 '20.9

Source: KOFIC, NH I&S Research Center Source: KOFIC, NH I&S Research Center

Total movie screening: Began declining again after Aug 15 Attendance by screen: Began declining again after Aug 15

(no.) (ppl) 25,000 90 80 20,000 70 60 15,000 50 40 10,000 30

5,000 20 10 0 0 '20.1 '20.2 '20.3 '20.4 '20.5 '20.6 '20.7 '20.8 '20.1 '20.2 '20.3 '20.4 '20.5 '20.6 '20.7 '20.8

Source: KOFIC, NH I&S Research Center Source: KOFIC, NH I&S Research Center

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July~August top-five box office results (2020) (Unit: Wbn, mn ppl, won) Date Title Sales Attendance ATP Distributor '20.08 Deliver Us From Evil 37.7 4.3 8,864 CJ ENM '20.08 Steel Rain 2 10.7 1.3 8,472 Lotte Culture Works Lotte Entertainment '20.08 OK Madam 10.8 1.2 8,953 Megabox Plus M '20.08 Tenet 6.5 0.7 9,093 Warner Brothers Korea '20.08 Peninsular 5.1 0.6 8,605 NEW Aug 2020 total box office 77.2 8.8 8,740 Box office sales -63% y-y Aug 2020 top five sales 70.8 8.0 8,817 Attendance –64% y-y '20.07 Peninsular 28.0 3.2 8,689 NEW '20.07 #Alive 6.0 0.7 8,513 Lotte Culture Works Lotte Entertainment

'20.07 Steel Rain2 3.9 0.5 7,587 Lotte Culture Works Lotte Entertainment '20.07 Bombshell 1.4 0.2 8,503 Home Choice '20.07 Innocence 1.1 0.1 8,630 Sony Pictures Entertainment Korea , Kidari ENT Jul 2020 total box office 47.2 5.6 8,408 Box office sales –74% y-y Jul 2020 top five sales 40.3 4.7 8,535 Attendance –74% y-y Source: KOFIC, NH I&S Research Center

July~Aug top-five box offices (2019) (Unit: Wbn, mn ppl, won) Date Title Sales Attendance ATP Distributor '19.08 EXIT 70.6 8.3 8,525 CJ ENM '19.08 Battle of Fengwudong 39.7 4.7 8,493 Showbox '19.08 Fast & Furious Presents: Hobbs & Shaw 29.5 3.3 8,845 Universal Pictures Korea '19.08 Metamorphosis 11.7 1.4 8,546 AceMakers Movie Works '19.08 The Divine Fury 10.3 1.2 8,585 Lotte Culture Works Lotte Entertainment Aug 2019 total box office 209.2 24.8 8,433 Aug 2019 top five sales 161.9 18.9 8,579 '19.07 Spiderman: Far From Home 68.5 8.0 8,604 Sony Pictures Entertainment Korea '19.07 Lion King 36.5 4.1 8,822 Walt Disney Korea '19.07 Aladdin 31.0 3.7 8,473 Walt Disney Korea '19.07 Toy Story 4 9.3 1.1 8,283 Walt Disney Korea '19.07 The King’s Letters 7.4 0.9 8,255 Megabox Plus M Jul 2019 total box office 184.1 21.9 8,400 Jul 2019 top five sales 152.8 17.8 8,590 Source: KOFIC, NH I&S Research Center

8 CJ CGV www.nhqv.com

STATEMENT OF COMPREHENSIVE INCOME Valuation / Profitability / Stability (Wbn) 2019/12A 2020/12E 2021/12F 2022/12F 2019/12A 2020/12E 2021/12F 2022/12F Sales 1,942 727.6 1,571 1,832 Price/ Earnings (X) N/A N/A N/A 48.7 Growth (%) 9.8 -62.5 115.9 16.6 Price/ Book Value (X) 2.8 8.0 N/A N/A COGS 1,157 617.8 954.1 1,080 Price/ Gross Cash Flow (X) 1.5 54.8 2.1 1.6 Gross Profit 785.0 109.8 616.6 752.1 Price/ Sales (X) 0.4 0.9 0.5 0.4 Gross margin (%) 40.4 15.1 39.2 41.1 EV/ EBITDA (X) 3.1 18.8 3.8 3.0 SG&A 663.0 398.7 544.2 609.1 EV/ EBIT (X) 12.5 -5.1 23.4 11.0 Operating Income 122.0 -288.9 72.4 143.0 Fully diluted EPS (W) -6,358 -13,867 -3,413 473 Growth (%) 57.0 TTL TTP 97.5 BVPS (W) 11,261 2,876 -1,107 -634 Operating margin (%) 6.3 -39.7 4.6 7.8 Sales PS (W) 80,898 25,798 44,749 52,198 EBITDA 489.8 78.3 451.4 520.3 ROE (%) -57.6 -210.7 -385.9 -54.4 Non-Operating Profit -350.5 -220.4 -234.0 -196.6 ROA (%) -7.1 -11.2 -3.8 -1.4 Financial Income(Costs) -228.4 -213.1 -210.6 -207.4 ROIC (%) 4.3 -8.5 2.3 5.0 Other Non-Operating Profit -127.0 -0.8 -18.2 20.1 Dividend Yield (%) 0.0 0.0 0.0 0.0 Gains(Losses) in Associates, Subsidiaries and JVs 4.9 -6.5 -5.2 -9.3 Payout Ratio (%) 0.0 0.0 0.0 0.0 Pre-tax Profit from Cont. Op. -228.6 -509.4 -161.6 -53.7 Total Cash Dividend (Wbn) 0.0 0.0 0.0 0.0 Income Taxes 10.5 -8.8 -2.8 -1.1 Cash DPS (W) 0 0 0 0 Profit from Continuing Op. -239.1 -500.6 -158.8 -52.6 Net debt(cash)/ equity (%) 77.5 136.3 489.6 713.5 Net Profit -239.1 -500.6 -158.8 -52.6 Debt/ equity (%) 652.6 1,268.4 2,606.7 3,979.3 Growth (%) RR RR RR RR Interest-Bearing Debts (Wbn) 822.1 998.7 998.7 998.7 Net margin (%) -12.3 -68.8 -10.1 -2.9 Current Ratio (%) 60.4 56.6 34.8 36.7 Net Profit of Parent -152.6 -391.1 -119.8 16.6 Total shares (mn) 24 35 35 35 Net Profit to Non-Controlling -86.4 -109.5 -39.0 -69.2 Par value (W) 500 500 500 500 Other Comprehensive Income -7.8 -7.8 -20.0 0.0 Share price (W) 31,340 23,050 23,050 23,050 Total Comprehensive Income -246.9 -508.4 -178.8 -52.6 Market Cap (Wbn) 731.1 809.1 809.1 809.1

STATEMENT OF FINANCIAL POSITION CASH FLOW STATEMENT (Wbn) 2019/12A 2020/12E 2021/12F 2022/12F (Wbn) 2019/12A 2020/12E 2021/12F 2022/12F Cash and Cash Equivalents 351.7 553.9 290.0 343.0 Operating Cash Flow 283.3 -61.9 404.8 480.5 Accounts Receivables 180.3 90.2 90.2 90.2 Net Profit -239.1 -500.6 -158.8 -52.6 Total Current Assets 677.0 790.1 468.2 493.0 Depreciation&Amortization 367.8 367.3 379.0 377.3 Tangible Assets 924.2 744.9 554.9 365.7 + Loss(Gains) from Subs -4.9 0.0 0.0 0.0 Investment Assets 119.2 137.6 138.0 138.4 + FC translation loss(profit) -1.2 0.0 0.0 0.0 Non-Current Assets 3,847 3,618 3,412 3,211 Gross Cash Flow 510.9 11.9 388.1 496.6 Assets 4,524 4,408 3,880 3,704 - Incr. (Decr.) in WC -49.9 -43.5 68.2 29.3 Short-Term Debt 666.1 1,060 977.5 977.5 Investing Cash Flow -228.5 -86.7 -93.8 -77.7 Account Payables 120.9 36.3 36.3 36.3 + Decr. In Tangible Assets 14.1 40.0 40.0 40.0 Current Liabilities 1,120 1,396 1,344 1,344 - Incr. In Tangible Assets(CAPEX) -199.3 -85.0 -92.5 -96.3 Long-Term Debt 2,714 2,617 2,341 2,218 + Disp.(Acq.) of Inv. Assets -20.0 -18.4 -0.4 -0.4 Long-Term Allowance 1.3 1.9 1.9 1.9 Free Cash Flow 84.1 -146.9 312.3 384.2 Non-Current Liabilities 2,803 2,690 2,393 2,270 Net Cash Flow 54.9 -148.6 311.0 402.8 Liabilities 3,923 4,086 3,737 3,614 Financing Cash Flow 105.0 512.9 -374.9 -159.8 Capital Stock 10.6 17.6 17.6 17.6 Equity Financing 0.0 220.9 0.0 0.0 Capital Surplus 89.9 303.9 303.9 303.9 Debt Financing 105.0 292.0 -374.9 -159.8 Retained Earnings 15.3 -375.8 -495.6 -479.0 Incr.(Decr.) in Cash 166.3 202.2 -263.9 53.0 Non-Controlling Interests Equity 330.7 221.2 182.2 113.1 Ending Cash and Cash Equivalents 351.7 553.9 290.0 343.0 Shareholders' Equity 601.1 322.2 143.4 90.8 Net Debt (Cash) 465.6 439.0 702.0 648.0 Source: NH I&S Research Center

9 CJ CGV www.nhqv.com

Rating and TP update CJ CGV (079160.KS) Disparity ratio (%) Date Rating TP Avg Max/Min (won) 2020.03.27 Hold W20,000(12M) - - Closing Price 90,000 2019.05.11 Hold W45,000(12M) -26.5% - Target price(12M) 2019.02.13 Buy W48,000(12M) -7.6% 0.2% 72,000 2018.08.27 Buy W75,000(12M) -41.7% -27.1% 54,000 2018.01.02 Hold W77,000(12M) -11.0% - 36,000 18,000 0 '18.9 '19.1 '19.5 '19.9 '20.1 '20.5 '20.9

NH Investment & Securities stock ratings 1. Rating based on a stock’s forecasted absolute return over a period of 12 months from the date of publication.

l Buy: Greater than +15% l Hold: -15% to +15% l Sell: Less than -15% 2. Regarding listed companies under NH I&S’ coverage, our stock ratings break down as follows (as of Sep 4, 2020).

l NH I&S’ stock rating distribution Buy Hold Sell 70.3% 29.2% 0.5%

- The stock rating on an individual company can change at irregular intervals. Our stock rating distribution is calculated on a weekly basis.

Compliance notice

l NH I&S does not have a stake greater than or equal to 1% in CJ CGV as of the preparation date. l NH I&S has not provided this material to any institutional investor or other third party in advance. l The analyst and his/her spouse do not own any securities of CJ CGV as of the preparation date. l This report correctly reflects the analyst’s opinion and was written without any external influence or intervention.

Disclosures The research is based on current public information that NH I&S considers reliable, but NH I&S does not represent it as accurate or complete and it should not be relied on as such. Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and NH I&S is in no way legally responsible for future returns or loss of original capital. All materials in this report are the intellectual property of NH I&S. Copying, distributing, transmitting, transforming or lending of this material without NH I&S' consent is prohibited.