[Click eStock] "CJ ENM, Media Driving Stock Growth This Year"

[Asia Economy Reporter Song Hwajeong] NH Investment & Securities maintained its 'Buy' rating and target price of 220,000 KRW for CJ ENM on the 22nd, viewing the key to this year's stock price as the core business, the media sector.

Researcher Ihwa Jeong of NH Investment & Securities said, "The key to the stock price in 2020 is media," adding, "With costs expected to stabilize, the focus is on whether new businesses in content sales and the digital sector will grow."

This year, the annual production cost for media is expected to remain at a level similar to last year. The researcher explained, "There will be no additional drama slots, and the quarterly amortization increase due to library accumulation is expected to slow down," adding, "As cost stabilization is anticipated, this is a phase where profit leverage can increase through growth in content sales revenue and digital sales." He also noted, "It is particularly important to pay attention to the fact that when selling dramas, not only the subsidiary consolidation effect but also about 15% of the selling price can be separately recognized as distribution commission revenue."

Fourth-quarter earnings last year are expected to fall short of consensus. NH Investment & Securities estimated CJ ENM's consolidated fourth-quarter sales and operating profit at 1.167 trillion KRW and 65.6 billion KRW, respectively, representing decreases of 2.6% and 5.4% compared to the same period last year. The researcher analyzed, "CJ ENM's fourth-quarter results will significantly miss consensus," adding, "Media's fourth-quarter operating profit is expected to decrease by 3.4% to 19.8 billion KRW, as some advertisers reduced spending, limiting the benefits of the advertising peak season, and the high production costs due to accumulated drama library were reflected." He further explained, "Additionally, the temporary decrease in drama slots for consolidated subsidiaries tvN and OCN reduced the number of dramas reflected in quarterly results, leading to sluggish sales revenue, which is also a burden. In the film sector, 'The Divine Move: The Wrathful' released in November failed to break even, and the music sector was hindered by the 'Produce series'."

However, the commerce sector is expected to show favorable results. The researcher said, "Fourth-quarter operating profit in the commerce sector is expected to increase by 8.7% to 32.9 billion KRW," adding, "Profitability improvement through private brand (PB) products continues, and the peak season effect in the fourth quarter is also expected."

This content was produced with the assistance of AI translation services.