[Korea] Media October 12, 2020

CJ ENM Buy (035760 KQ ) (Upgrade)

Media’s comeback; upgrade to Buy TP: W185,000 ▲▲▲ Upside: 30.3%

Mirae Asset Daewoo Co., Ltd. Jeong -yeob Park [email protected]

Media ’s comeback Media margins to recover on pickup in ad market and production cost control ó The Korea Advertising Index has been rapidly recovering since June across all media types, including TV. ó We believe revenue at major ad-related companies will continue to rebound from the lows seen in May, when the impact of the pandemic was most severely felt. ó In particular, we expect CJ ENM’s broadcasting margins to recover to 5.4% in 2H20 (from 3.9% in 1H20), helped by production cost cuts (to just 10-15% of last year’s level of W610bn).

A digital powerhouse ; re -rating One o f Korea ’s top YouTubers (no. 3 in terms of subscribers, no. 1 in terms of views) of digital operations warranted ó CJ ENM’s media mix is improving, with the share of the growing digital segment increasing at the expense of the share of the struggling TV ad segment. ó The increasing expos ure to digital formats (e.g., YouTube and Tving) should help the media business return to stable profits. ó Video ads should continue to thrive, while Tving could potentially enter into partnerships following its recent spin-off.

3Q20 preview OP of W64.2bn (+0.3% YoY), slightly above the consensus ó For media, we forecast operating profit of W18.8bn, driven by a pickup in margins (QoQ recovery in top line and reduced production costs). ó For commerce, we expect operating profit of W42.9bn due to the positive effects of the contactless trend (higher exposure to digital channels and high-margin products). ó We believe the film and music divisions held up relatively well, supported by 1) the breakeven of newly released films and 2) JO1’s album/IZ*ONE’s virtual concert.

Valuation Upgrade from Trading Buy to Buy; raise TP by 28% to W185,000 ó Our target valuation of W4.1tr represents the sum of the value of the company’s equity holdings (W2.4tr) and the value of its key businesses (W2.1tr), minus net debt (W0.4tr). ó Key businesses: We applied a P/NOPLAT of 15x for media/music/film and 10x for commerce. ó Equity holdings: We conservatively applied a 50% discount. We could potentially reduce our discount depending on how the company utilizes its equity stakes. ó We recommend overweighting the stock, as: 1) media profits should improve on increasing exposure to digital, the bottoming out of TV ads, and production cost cuts; and 2) share price gains are likely despite our conservative approach to the value of the firm’s equity holdings.

Key data

Current price (10/8/20, W) 142,000 Market cap (Wbn) 3,114 160 CJ ENM KOSDAQ 140 OP (20F, Wbn) 256 Shares outstanding (mn) 22 120 Consensus OP (20F, Wbn) 243 Free float (%) 46.8 100 EPS growth (20F, %) 40.0 Foreign ownership (%) 20.4 80 P/E (20F, x) 21.3 Beta (12M) 0.85 60 40 Market P/E (20F, x) 16.7 52-week low (W) 81,500 10.19 2.20 6.20 10.20 KOSDAQ 871.62 52-week high (W) 174,000

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2016 2017 2018 2019 2020F 2021F Absolute 10.6 35.2 -9.8 Revenue (Wbn) 2,209 2,260 2,360 3,790 3,442 3,930 Relative 11.4 -5.8 -34.3 OP (Wbn) 179 224 182 269 256 324

OP margin (%) 8.1 9.9 7.7 7.1 7.4 8.2 NP (Wbn) 23 131 163 104 146 207 EPS (W) 3,769 21,054 11,514 4,754 6,655 9,460 ROE (%) 2.6 13.5 8.6 3.7 4.8 6.5 P/E (x) 43.2 11.0 17.5 33.6 21.3 15.0 P/B (x) 1.1 1.4 1.4 1.0 0.9 0.8 Dividend yield (%) 1.5 1.3 0.6 0.9 1.0 1.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Daewoo Research estimat es Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. October 12, 2020 CJ ENM

C O N T E N T S

Media’s comeback 3 Media margins to recover on pickup in ad market and production cost control 3 Media mix improving with increasing digital exposure 4 Growing exposure to YouTube and Tving, key digital platforms 6

Valuation 9 Target valuation of W4.1tr 9

Earnings outlook 11 3Q20 preview: OP of W64.2bn 11

Mirae Asset Daewoo Research 2 October 12, 2020 CJ ENM

Media’s comeback

Media margins to recover on pickup in ad market and production cost control

In 2H20, we believe CJ ENM’s media division will begin to benefit from a pickup in ad demand as well as production cost efficiency improvements. Revenue has been improving across domestic ad-related companies, but CJ ENM is also likely to see a rebound in margins.

Ad market conditions have been slowly improving since June across all media types. In particular, the Korea Advertising Index for terrestrial/cable TV—segments that were hit hard by the pandemic—has sharply bounced back from the May lows. As such, we expect major ad-related companies to report QoQ revenue growth for the otherwise seasonally weak 3Q20.

Meanwhile, CJ ENM’s media division has been making rigorous efforts to improve its cost efficiency. On its 1Q20 and 2Q20 earnings calls, management revealed plans to curtail its production costs (10-15% reduction from last year’s level of W610bn), as spending had continued to increase even as margins came under pressure due to the ad market downturn. The company intends to make profitability a key consideration in setting its future programming strategy. We believe the effects of such efforts will become more visible in 2H20.

Figure 1. Advertising market to rebound from 3Q20: Korea Advertising Index trending upward since May

(P) 110 Terrestrial TV Cable TV

105

100

95

90 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct.

Source: KOBACO, company data , Mirae Asset Daewoo Research

Figure 2. Improvement in production cost efficiency

(Wbn) 700

610 600

500

400

300 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 3 October 12, 2020 CJ ENM

Media mix improving with increasing digital exposure

The ad market continues to be dominated by mobile media. Internet companies, including YouTube, NAVER (035420 KS/Buy/TP: W430,000/CP: W301,000), and Kakao (035720 KS/Buy/TP: W460,000/CP: W379,000), delivered robust revenue in 1H20, despite advertisers cutting back their spending. Recent ad revenue trends show that mobile video formats, such as YouTube, remain the standout leader of the ad market.

In response to these dynamics, CJ ENM has been taking steps to increase its digital exposure through YouTube and Tving. In addition to its existing multi-channel network (MCN) business, the company launched a digital studio in 2018 to manage its YouTube channels and strengthen its digital media profile.

In the process, CJ ENM’s media mix has improved significantly, with the share of the growing digital segment increasing at the expense of the share of the struggling TV ad segment. We believe the company has upgraded its ability to monetize content, aided by its digital channels. Following a tough year in 2020, we expect media revenue to grow from 2021.

Figure 3. Mixed performance by media format (1H20)

(%) +77% +79% 20 1Q20 YoY growth 2Q20 YoY growth 10

0

-10

-20

-30

-40 CJ ENM Cheil Worldwide SBS MBC NAVER Kakao Kakao (Talk Biz) (display ads) (Portal Biz)

Note: Based on TV ad revenue for CJ ENM, domestic agency revenue for Cheil Worldwide, and broadcasting ad revenue for SBS/MBC. Source: Company data , Mirae Asset Daewoo Research

Figure 4. Advertising market size by medium

(Wtr) 6 Broadcasting Print media Online search/display Mobile

4

2

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

Source: KOBACO, KOA, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 October 12, 2020 CJ ENM

With the media business now capable of generating stable profits, we believe investors should take a positive view on its valuation, given its improving mix and leaner production cost structure.

In 2016, as the licensing market began to take off, domestic drama production companies saw their revenue streams become more diversified and their margins improve. Their customer lineups expanded beyond broadcasting networks to include a range of OTTs, leading to an increase in the share of large-scale, high-margin projects. The resulting earnings growth and scalability justified high valuations for quite some time.

At present, CJ ENM is continuing to benefit from the growth of the licensing market through a key subsidiary, while also gaining meaningful revenue exposure to digital channels. This has set the stage for a rebound in parent margins. While the cost for securing content is declining, the scope of content utilization is expanding. Encouragingly, digital ad platforms are also providing more ways to utilize clips of not only titles being aired but also old titles.

Figure 5. Licensing market growth has driven production profit growth since 2016

(%) 180 Increased mix of high-quality projects Margin: 60%

150 Product placement, 15 Margin: 30% Distribution, 15 Margin: 15% 120 Margin: 10% Product placement, 15 Product placement, 15 Distribution, 15 iQIYI/Tencent, 40 90 Distribution, 30 Staff/art, 50 Netflix, 50 Broadcaster, 65 Netflix, 50 60 Netflix, 115 Creator, 20 30 Broadcaster, 65 Broadcaster, 50 Broadcaster, 40 Leading role, 30 Studio/agency, 35 0 Production costs Production investments Brodacaster only + Netflix + China OTT Netflix original

Source: Mirae Asset Daewoo Research estimates

Figure 6. Increased exposure to digital channels ‰‰‰ Enhanced content monetization

(Wbn) Increased digital exposure (Wbn) 1,000 TV ads (L) to drive earnings growth 350 TV ad market slump Digital ads (L) (Shift to diginal channels) Ads - production costs (R) 300 800 Rapid growth 250 in TV ad rates 600 200

150 400

100 200 50

0 0 15 16 17 18 19 20F 21F

Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 5 October 12, 2020 CJ ENM

Growing exposure to YouTube and Tving, key digital platforms

Despite a slowdown in the ad market in 1H20, CJ ENM’s digital revenue grew 29.0% YoY in 1Q20 and 16.6% YoY in 2Q20, supported by increases in YouTube traffic and Tving subscribers. We expect CJ ENM’s digital revenue to continue to expand, in light of: 1) the continued strength of the video ad market; and 2) opportunities to collaborate with domestic subscription video-on-demand (SVOD) providers.

As of end-September, CJ ENM operates over 30 YouTube channels, which attract steady traffic with YouTube-exclusive content offerings and original digital content. The firm’s major YouTube channels boast a combined subscriber count of around 50mn and 1.5bn monthly views. CJ ENM is outperforming media companies such as JTBC (12.5mn subscribers/520mn views in September), SBS (3.4mn/150mn), and MBC (2.5mn/200mn). Among major entertainment companies, CJ ENM is no. 3 in terms of subscribers and no. 1 in terms of views.

We also note the growth potential of Tving, CJ ENM’s OTT platform, which has solidified its position in the domestic OTT market. Tving is seeing continued growth in paid subscribers (+66.2% YoY in 2Q20) and monthly average unique visitors. Following the spin-off on Oct. 1, Tving is ready for content/platform collaboration with various partners, such as JTBC.

Figure 7. Tving has solidified its position in the domestic OTT market

(mn) 3 Tving MUVs

2

1

0 5/19 8/19 11/19 2/20 5/20 8/20

Source: Koreanclick, Mirae Asset Daewoo Research

Table 1. CJ ENM’s major YouTube channels (‘000) Channel Establishment Subs Notes Channel Establishment Subs Notes Mnet K-POP Mar .2006 15,400 K-pop. music videos The Haunted House Feb. 2014 481 Official channel for cartoon Stone Music Ent. Mar. 2011 9,030 Music videos, etc. Movmov Feb. 2012 475 Movie-related content (interviews, etc.) Mnet Official Dec. 2013 7,640 Mnet Shinbi & Dragon D Sep.2017 450 Children’s songs M2 content M2 Apr. 2014 6,270 OCN Feb.2006 417 Dramas and movies (music videos, etc.) tvN DRAMA Nov. 2011 4,370 tvN dramas XtvN Oct. 2010 405 xtvN content tvN Sep. 2010 2,790 tvN entertainment Mwave Apr. 2014 345 Mwave content tvN D ENT Jun. 2013 2,140 tvN D entertainment B44 Jan. 2015 230 Gaming tvN D STORY Aug. 2011 1,840 tvN D drama TVING Feb. 2018 158 Entertainment/drama/ movie content STUDIO CHOOM Oct. 2018 1,290 K-op dance videos tvN D VAVA Nov. 2019 87 tvND original entertainment tvN D CLASSIC Mar. 2019 1,050 Past tvN programs CJ Ent. Official Jan. 2012 79 Movie-related (reviews, interviews) Tooniverse Feb. 2014 1,030 Tooniverse cartoon content 1stLook Jul. 2011 34 Magazine behind-the-scenes videos CHOIZAROAD Apr. 2014 719 Restaurant content CJ MUSICAL Feb. 2013 31 Musicals Robot Trains Official Jun. 2014 578 RobotTrains cartoon content O tvN Aug. 2015 31 O tvN entertainment and drama Million Views Mar.2013 575 Variety TheSuperactiontv Oct. 2011 9 Movies, UFC OGN Oct. 2011 527 Gaming catchon Jun. 2011 1 Catchon content Olive Oct. 2005 496 Olive programs - - - - Source : YouTube, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 October 12, 2020 CJ ENM

Figure 8. Monthly mobile video advertising spend

(Wbn) (%) 120 YouTube (L) Facebook (L) 70 NAVER (L) Other (L) 100 YouTube % (R) 60

50 80 40 60 30 40 20

20 10

0 0 7/18 10/18 1/19 4/19 7/19 10/19 1/20 4/20 7/20

Source: KOA, Mirae Asset Daewoo Research

Figure 9. Media mix improving with increasing digital exposure

(Wbn) Media: -2.2% Media: +9.4% TV ads: -18.9% TV ads: +5.0% 1,000 CJ ENM digital ads Digital ads: +23.0% Digital ads: +15.0% CJ ENM TV ads 800

600

400

200

0 2015 2016 2017 2018 2019 2020F 2021F

Source: Mirae Asset Daewoo Research estimates

Figure 11. Cumulative YouTube channel subscribers by Figure 10. YouTube channel view count by company (Sep.) company

(mn) (mn) 1,600 100

80 1,200

60

800 40

400 20

0 0 CJ ENM JTBC SBS MBC Big Hit YG JYP SM CJ ENM JTBC SBS MBC Big Hit YG JYP SM

Note: Based on combined view count of all company-affiliated channels in Sep. Note: As of Sep. Source: YouTube, Mirae Asset Daewoo Research Source: YouTube, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 7 October 12, 2020 CJ ENM

Figure 12. YouTube view count comparison: CJ ENM vs. entertainment firms

(bn) 2 CJ ENM (major channels) SM (SMTOWN) JYP (jypentertainment + TWICE) YG (YG ENTERTAINMENT + BLACKPINK + iKON + WINNER) Big Hit (Big Hit Labels + BANGTANTV)

1

0 1/18 4/18 7/18 10/18 1/19 4/19 7/19 10/19 1/20 4/20 7/20

Source: Mirae Asset Daewoo Research

Figure 13. CJ ENM ranks third in terms of YouTube subscribers

(mn) 100 CJ ENM (major channels) SM (SMTOWN) JYP (jypentertainment + TWICE) 80 YG (YG ENTERTAINMENT + BLACKPINK + iKON + WINNER) Big Hit (Big Hit Labels + BANGTANTV)

60

40

20

0 1/18 4/18 7/18 10/18 1/19 4/19 7/19 10/19 1/20 4/20 7/20

Source: Mirae Asset Daewoo Research

Figure 14. CJ ENM: Cumulative subscriber count of major Figure 15. CJ ENM: Monthly views of major YouT ube channels YouTube channels

(mn) (bn) 51mn total subscribers 1.5bn monthly views 60 Mnet Official tvN DRAMA +27.3% YoY 2 Mnet Official tvN DRAMA +26.8% YoY tvN tvN D ENT +2.9% MoM tvN tvN D ENT +16.4% MoM M2 Mnet K-POP 50 M2 Mnet K-POP tvN D STORY Stone Music Ent. tvN D STORY Stone Music Ent. 1.5 Tooniverse CHOIZAROAD Tooniverse CHOIZAROAD 40 CJ ENM CJ ENM

30 1

20 0.5 10

0 0 1/18 11/18 9/19 7/20 1/18 6/18 11/18 4/19 9/19 2/20 7/20

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 8 October 12, 2020 CJ ENM

Valuation

Target valuation of W4.1tr, even after conservatively applying a 50% discount to the value of equity holdings

Our target valuation of W4.1tr represents the sum of the value of the company’s equity holdings in subsidiaries (W2.4tr) and the value of its key businesses (W2.1tr), minus net debt (W0.4tr). For equity holdings, we conservatively applied a 50% discount to the recent 20-day average market caps of subsidiaries. For key businesses, we applied a 2021F P/NOPLAT of 15x for the non-commerce (media/music/film) segments and 10x for commerce.

Table 2. CJ ENM: Valuation (Wbn)

Valuation – SOTP 20F 21F Current price (W) 142,000 142,000 Shares outstanding (mn shares) 21.9 21.9 Treasury stock: 23,000 shares Market cap (Wbn) 3,113.5 3,113.5 1. Listed subsidiaries 2,362 2,362 1 = (a)+(b) (a) Netmarble stake value 1,682 1,682 Stake: 21.83% Market cap 15,412 15,412 20-day avg. Discount 50.0 50.0 (b) Studio Dragon stake value 680 680 Stake: 58.18% Market cap 2,337 2,337 20-day avg. Discount 50.0 50.0 2. Other valuations (excl. listed subsidiaries) 1,618 2,122 Media 20F NOPLAT (excl. Studio Dragon) 18 53 (Media) + (Movie) + (Music) - (Studio Dragon) Target P/NOPLAT (x) 15.0 15.0 Factored in for digital advertising and content sales growth Commerce 20F NOPLAT (excl. CJ Hello) 135 133 Target P/NOPLAT (x) 10.0 10.0 Home shopping market avg. multiple 3. Net debt 431 431 Total adj. shareholder value (c) 3,549 4,053 1 + 2 - 3 Target price (W) 161,861 184,851 (c)/no. of shares Expected return (%) 14.0 30.3 Source : Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 9 October 12, 2020 CJ ENM

Of note, while CJ ENM’s share performance had long moved in line with tvN’s viewership ratings, we note that the two have been diverging recently. TV viewership ratings—a measure of content competitiveness—previously served as a leading indicator of ad revenue. Today, with the revenue mix of digital ads steadily increasing, viewership ratings are less reliable as an indicator of ad revenue growth.

We expect the gap between viewership ratings and share prices to narrow as the company’s digital competitiveness translates into earnings. This should begin with the release of 3Q20 earnings, in light of: 1) the steady increase in YouTube views; 2) Tving’s continued strong performance; and 3) well-managed production costs.

Figure 16. Until early 2018, CJ ENM’s share performance moved in line with tvN’s ratings

(Wtr) (%) 4.5 Market cap (L) 1.5 tvN viewership share (R)

3.0 1

Ratings are a key indicator of TV ad revenue

1.5 0.5

0.0 0 2/11 8/11 2/12 8/12 2/13 8/13 2/14 8/14 2/15 8/15 2/16 8/16 2/17 8/17 2/18

Source: Nielsen, Mirae Asset Daewoo Research

Figure 17. In recent years, CJ ENM’s share performance has de-coupled from tvN’s ratings; however, the divergence should narrow going forward

(Wtr) (%) 6.0 Market cap (L) 1.5 tvN viewership share (R)

4.5 1 1) M&A-driven market cap growth 2) Ratings are less reliable as an indicator of revenue growth amid the decreasing revenue contribution of TV ads 3.0 0.5

1.5 0 7/18 10/18 1/19 4/19 7/19 10/19 1/20 4/20 7/20

Source: Nielsen, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 10 October 12, 2020 CJ ENM

Earnings outlook

3Q20 preview: OP of W64.2bn

For 3Q20, we forecast CJ ENM to post revenue of W854.8bn (-25.9% YoY) and operating profit of W64.2bn (+0.3% YoY). Operating profit is likely to exceed the consensus (W61bn), in light of: 1) the ad market pickup across the TV and mobile segments; and 2) the strength of the commerce business amid the proliferation of contactless consumption.

By division, we estimate the media business’s operating profit at W18.8bn, supported by the bottoming out of ads and drastic cost reductions. Despite a resurgence of COVID-19 in August, the Korea Advertising Index has been recovering since June across all media types. We believe CJ ENM’s media earnings in 3Q20 were supported by: 1) the success of Record of Youth and Stranger 2 ; and 2) increases in Tving subscribers and YouTube content views. Looking to 4Q20, the firm has a promising lineup of in-house produced dramas (e.g., Search and Birthcare Center ) and co-productions ( Startups with Studio Dragon).

We estimate the commerce business’s operating profit at W42.9bn, aided by the contactless consumption trend. The commerce business (home shopping channels) likely fared well despite weak seasonality (Chuseok holiday). We believe margins were supported by the increased mix of digital channels and high-margin products.

Despite an unfavorable environment, we estimate the film segment’s operating profit at W800mn, as new films (Deliver Us from Evil and Pawn ) surpassed breakeven. Meanwhile, the music division likely fared better than feared with operating profit of W1.8bn, aided by JO1’s second single in Japan in August (initial sales of 290,000 copies) and IZ*ONE’s https://namu.wiki/w/IZ*ONE/%ED%99%9C%EB%8F%99 virtual concert.

Table 3. CJ E&M: Consolidated earnings and forecasts (Wbn, %, mn persons, %p) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20F 4Q20F 2019 2020F 2021F Revenue 1,105 1,260 1,153 1,014 811 838 855 939 4,532 3,442 3,930 Media 380 426 427 445 341 406 412 482 1,678 1,641 1,806 Commerce 324 358 336 410 376 376 375 398 1,427 1,525 1,594 Movie 104 68 84 93 54 13 23 26 349 115 224 Music 52 154 63 66 40 43 44 34 335 161 305 CJ Hello 245 255 243 0 0 0 0 0 743 0 0 OP 92 97 64 16 40 73 64 79 269 256 324 OP margin 8.3 7.7 5.6 1.6 4.9 8.8 7.5 8.4 5.9 7.4 8.3 Media 14 37 16 5 4 25 19 30 71 77 128 Commerce 42 36 29 42 38 50 43 47 149 178 175 Movie 19 10 16 -1 -2 -3 1 1 44 -4 9 Music 5 5 -1 -3 0 2 2 1 6 5 12 CJ Hello 13 9 4 0 0 0 0 0 26 0 0 Pretax profit 86 95 51 -43 39 51 51 65 190 206 282 NP 49 66 31 -87 30 39 40 50 59 159 218 Net margin 4.4 5.2 2.7 -8.6 3.7 4.7 4.6 5.3 1.3 4.6 5.6 Owners of the parent 43 63 29 -30 27 34 38 48 104 146 207 YoY Revenue 7.1 20.1 6.9 -15.4 -26.6 -33.6 -25.9 -7.4 4.0 -24.0 14.2 Media 11.6 15.4 4.9 -1.3 -10.3 -4.7 -3.4 8.2 7.1 -2.2 10.0 Commerce 11.4 16.3 14.7 1.9 16.0 5.2 11.7 -2.9 10.4 6.9 4.5 Movie 30.2 88.2 87.5 78.2 -47.9 -81.5 -72.9 -72.5 63.8 -67.0 94.6 Music -7.3 131.2 8.1 25.6 -23.5 -72.3 -29.4 -48.7 43.4 -52.0 90.0 CJ Hello 2.4 22.3 -16.3 3,800.0 -56.9 -24.2 0.3 381.0 9.5 -4.9 26.6 OP -21.9 137.7 -43.0 TTR -38.4 -40.0 28.2 TTB -68.2 171.7 37.1 Note: Under consolidated K-IFRS Source : Company data , Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 11 October 12, 2020 CJ ENM

CJ ENM (035760 KQ)

Income statement (summarized) Balance sheet (summarized) (Wbn) 2018 2019 2020F 2021F (Wbn) 2018 2019 2020F 2021F Revenue 2,360 3,790 3,442 3,930 Current assets 1,807 1,676 2,282 2,532 Cost of revenue 1,234 2,328 1,831 2,135 Cash & equivalents 453 270 875 926 Gross profit 1,126 1,462 1,611 1,795 AR & other receivables 940 874 874 998 SG&A expenses 944 1,193 1,355 1,471 Inventory 94 121 121 138 OP (adj.) 182 269 256 324 Other current assets 320 411 412 470 OP 182 269 256 324 Non-current assets 4,948 3,759 3,693 3,555 Non-operating profit -18 -79 -50 -42 Investments in associates 1,241 1,333 1,333 1,521 Net financial income -10 -21 0 0 PP&E 1,398 948 943 885 Net income from associates -2 39 71 71 Intangible assets 1,827 1,038 852 562 Pretax profit 164 190 206 282 Total assets 6,755 5,435 5,975 6,087 Income tax 21 85 47 64 Current liabilities 2,022 1,661 1,745 1,628 Profit from continuing operations 143 104 159 218 AP & other payables 536 557 390 445 Profit from discontinued operations 41 -46 0 0 Short-term financial liabilities 894 453 897 659 NP 184 59 159 218 Other current liabilities 592 651 458 524 Attributable to owners 163 104 146 207 Non-current liabilities 1,308 622 835 874 Attributable to minority interests 22 -46 13 11 Long-term financial liabilities 1,039 380 557 557 Total comprehensive income 134 76 217 218 Other non-current liabilities 269 242 278 317 Attributable to owners 113 123 202 204 Total liabilities 3,329 2,283 2,580 2,502 Attributable to minority interests 20 -47 15 15 Equity attributable to owners 2,764 2,947 3,124 3,304 EBITDA 708 1,028 757 672 Capital stock 111 111 111 111 FCF 357 461 259 543 Capital surplus 2,245 2,330 2,419 2,419 EBITDA margin (%) 30.0 27.1 22.0 17.1 Retained earnings 1,070 1,146 1,251 1,431 OP margin (%) 7.7 7.1 7.4 8.2 Minority interests 662 205 270 281 Net margin (%) 6.9 2.7 4.2 5.3 Shareholders' equity 3,426 3,152 3,394 3,585

Cash flow statement (summarized) Key valuation metrics/ratios (Wbn) 2018 2019 2020F 2021F 2018 2019 2020F 2021F Operating cash flow 587 743 298 543 P/E (x) 17.5 33.6 21.3 15.0 NP 184 59 159 218 P/CF (x) 3.6 3.2 4.3 5.0 Non-cash income/expenses 611 1,037 566 403 P/B (x) 1.4 1.0 0.9 0.8 Depreciation 180 217 62 58 EV/EBITDA (x) 9.1 4.0 5.1 5.3 Amortization 346 542 439 290 EPS (W) 11,514 4,754 6,655 9,460 Other 85 278 65 55 CFPS (W) 56,294 49,967 33,091 28,341 Chg. in working capital -149 -258 -287 -24 BPS (W) 149,371 157,708 165,815 174,022 Chg. in AR & other receivables -100 -130 -8 -118 DPS (W) 1,200 1,400 1,400 1,400 Chg. in inventory -9 -41 -5 -17 Dividend payout ratio (%) 12.8 46.9 17.3 12.6 Chg. in AP & other payables -7 102 -77 27 Dividend yield (%) 0.6 0.9 1.0 1.0 Income tax -38 -69 -136 -64 Revenue growth (%) 4.4 60.6 -9.2 14.2 Cash flow from investing activities -158 -288 -512 -37 EBITDA growth (%) 51.0 45.2 -26.4 -11.2 Chg. in PP&E -226 -278 -38 0 OP growth (%) -18.8 47.8 -4.8 26.6 Chg. in intangible assets -296 -595 -295 0 EPS growth (%) -45.3 -58.7 40.0 42.1 Chg. in financial assets 104 14 -108 -37 AR turnover (x) 3.9 4.4 4.1 4.4 Other 260 571 -71 0 Inventory turnover (x) 27.7 35.3 28.6 30.4 Cash flow from financing activities -89 -641 756 -266 AP turnover (x) 11.1 10.2 8.0 10.6 Chg. in financial liabilities 1,247 -1,101 621 -238 ROA (%) 3.9 1.0 2.8 3.6 Chg. in equity 2,244 85 90 0 ROE (%) 8.6 3.7 4.8 6.5 Dividends -21 -26 -27 -27 ROIC (%) 6.0 5.1 8.8 12.2 Other -3,559 401 72 -1 Debt-to-equity ratio (%) 97.2 72.4 76.0 69.8 Chg. in cash 339 -183 605 51 Current ratio (%) 89.4 100.9 130.7 155.6 Beginning balance 114 453 270 875 Net debt-to-equity ratio (%) 40.4 14.3 13.7 4.4 Ending balance 453 270 875 926 Interest coverage ratio (x) 12.3 9.1 0.0 0.0 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 12 October 12, 2020 CJ ENM

Appendix 1

Important disclosures and disclaimers Two-year rating and TP history

Company Date Rating TP (W) (W) CJ ENM CJ ENM (035760) 10/12/20 Buy 185,000 400,000 05/08/20 Trading Buy 145,000 02/14/20 Trading Buy 190,000 300,000 11/08/19 Trading Buy 195,000 07/21/19 Buy 260,000 200,000 05/10/19 Buy 285,000 100,000 04/03/19 Buy 310,000

0 Oct 18 Oct 19 Oct 20

Stock ratings Sector ratings Buy Expected 12-month performance: +20% or greater Overweight Expected to outperform the market over 12 months Trading Buy Expected 12-month performance: +10% to +20% Neutral Expected to perform in line with the market over 12 months Hold Expected 12-month performance: -10% to +10% Underweight Expected to underperform the market over 12 months Sell Expected 12-month performance: -10% or worse

Rating and TP history: Share price (─), TP (▬), Not Rated ( ■), Buy (▲), Trading Buy (■), Hold (●), Sell ( ◆) * Our investment rating is a guide to the expected return of the stock over the next 12 months. * Outside of the official ratings of Mirae Asset Daewoo Co., Ltd., analysts may call trading opportunities should technical or short-term material developments arise. * The TP was determined by the research analyst through valuation methods discussed in this report, in part based on estimates of future earnings. * TP achievement may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Ratings distribution and investment banking services Buy Trading Buy Hold Sell Ratings distribution 73.62% 14.11% 11.04% 1.23% Investment banking services 72.22% 11.11% 16.67% 0.00% * Based on recommendations in the last 12 months (as of September 30, 2020)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

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 divisions. 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 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

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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. For further information regarding company-specific information as it pertains to the representations and disclosures in this Appendix 1, please contact [email protected] or +1 (212) 407-1000.

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 report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, 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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Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. One-Asia Equity Sales Team Units 8501, 8507-8508, 85/F 41st Floor, Tower 42 Mirae Asset Center 1 Building International Commerce Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 1 Austin Road West London EC2N 1HQ Korea Kowloon United Kingdom Hong Kong Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

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PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities (Vietnam) LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52 -53 Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City Jakarta Selatan 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China China

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