[Click eStock] CGV Still in the Fog... 2Q Remains Challenging

Business Resumption Started but Concerns Over COVID-19 Resurgence
Demand Recovery Uncertain... Overseas Business Resumption Also Challenging

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] CJ CGV recorded a large-scale deficit in the first quarter of this year due to business disruptions caused by the novel coronavirus infection (COVID-19). With the recent resurgence of COVID-19, there are forecasts that the second quarter will also be challenging.

On the 13th, Hyundai Motor Securities adjusted its investment opinion on CJ CGV from 'Buy' to 'Market Perform (Neutral)' and lowered the target stock price from 27,000 KRW to 22,000 KRW. The closing price the previous day was 21,750 KRW. This decision was based on the judgment that the second quarter's performance remains uncertain due to the impact of COVID-19.

The first quarter results were already significantly poor. On a consolidated basis, sales were 243.3 billion KRW, with an operating loss of 71.6 billion KRW. Compared to the same period last year, sales decreased by 47.6%, turning into a deficit. Sales dropped sharply across all global sectors: domestic -47.6%, China -85.6%, Vietnam -33.7%. Researcher Seongjin Hwang of Hyundai Motor Securities explained, "Almost all theaters worldwide have begun to suspend (or reduce) operations," adding, "While some countries are showing signs of resuming operations, demand contraction due to the uncertainty of COVID-19 remains inevitable."

The recent decision to raise 250 billion KRW through a paid-in capital increase was also to prepare for such uncertainties. Researcher Hwang said, "Following the external capital attraction from CGI Holdings in November last year (28.57%, 333.6 billion KRW), this is seen as an additional effort to improve the financial structure. However, fundamental improvement is only possible if the uncertainty of COVID-19 is resolved and demand in the theater market recovers," adding, "Uncertainty regarding the maturity issue of Turkey's total return swap (TRS) in 2021 still remains, and a decline in shareholder value due to stock dilution is also inevitable."

The second quarter outlook is also bleak. Although operations at closed branches resumed from the 29th of last month, the recent increase in concerns over the resurgence of COVID-19 makes business disruptions unavoidable. Some operations in China and Vietnam are expected to resume this month, but whether demand will recover is uncertain. Turkey and Indonesia are expected to resume operations only after next month. Researcher Hwang analyzed, "It will take time and a process to confirm whether fundamental indicators will reverse upward," adding, "Given the difficulty in predicting the end of COVID-19-related uncertainties, it is also difficult to anticipate when the company's fundamental improvements will occur."

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