[Good Morning Stock Market] Expectations Rise for Related Industries on Hanhanryeong Easing News

On May 18th, the duty-free shop at Terminal 1 of Incheon International Airport was quiet due to the impact of the novel coronavirus infection (COVID-19).
Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kum Boryeong] On the 30th of last month, the cosmetics, duty-free, gaming, and entertainment/content sectors stirred amid expectations of a relaxation of China's 'Hanhanryeong (Korean Wave ban)'. On the 1st, the Korea Tourism Organization announced that it would jointly promote Korean tourism products through the 'Super BOSS Live Show' with China's largest travel company Trip.com Group's 'Ctrip'. Although some opinions say it is still too early to discuss the lifting of Hanhanryeong, it is analyzed that this is meaningful as the first tourism exchange initiative since the COVID-19 pandemic.

◆ Lee Ji-young, NH Investment & Securities Researcher = Since the end of March, amid the overall stock market rebound, the cosmetics sector had been relatively neglected, so it is judged that the stock price rise was significant due to the positive news that came after a long time. However, immediate changes are difficult to expect due to the COVID-19 situation. Nevertheless, if this trend continues and group tours resume, sales in major foreigner commercial districts as well as duty-free shops are expected to rise to levels higher than before COVID-19. Additionally, channel diversification beyond duty-free is expected to enable a more stable portfolio construction. As movements toward lifting Hanhanryeong become more concrete, duty-free related stocks are also expected to gain upward momentum. Of course, due to the prolonged COVID-19 pandemic, immediate changes in inbound tourism will not occur. However, once routine exchanges recover, Korea is likely to become a popular tourist destination among Chinese people.

The signal of visible benefits to the entertainment and content industry is the broadcast of Korean dramas in China. Since demand for Korean dramas and music remained high in China even during the Hanhanryeong period, once supply normalizes, monetization can proceed immediately. The benefit timing is faster for content producers than for agencies. The gaming industry is expected to benefit once the distribution of Korean game content becomes possible. The Chinese mobile game market is about 27 to 28 trillion won, more than three times larger than Korea's, and Chinese gamers prefer the MMORPG genre, which Korean companies excel at. Although Chinese companies' competitiveness has increased, Korean developers generally have higher development capabilities than local Chinese companies, so Korean games are judged to have a high chance of success.

◆ Lee Ki-hoon, Hana Financial Investment Researcher = In May, YG Entertainment's G-Dragon and Lisa signed contracts as advertising models for local Chinese brands, and SM C&C also sold the rights of an idol reality program to China's 'Huya Live'. Recently, some dramas such as 'Convenience Store Saetbyeol' have been sold to iQIYI, and the possibility of selling older works has also increased. Especially, at the end of May, new Chinese Ambassador to Korea Xing Haiming said in an interview that Chinese President Xi Jinping's visit to Korea would be a 'great event (a milestone that will be a significant turning point)', and predicted explosive growth and development in bilateral relations after the visit. The timing is expected within this year, and it is meaningful as an indirect acknowledgment of Hanhanryeong. Considering the actual sales to China and the weight of the ambassador's remarks, there is more room for expectations in the second half of the year than ever before.

The drama production industry will see 'Chinese rights sales ≒ operating profit' when Hanhanryeong is eased. The expected profit from Chinese rights sales in the industry is at least 90 billion won (for 15 titles), and the market capitalization is expected to increase by more than 2 trillion won. Agencies are also expected to achieve record-high operating profits once COVID-19 normalizes, as they are experiencing high growth due to localization through YouTube and the K-pop trickle-down effect from the global success of BTS and BLACKPINK. The potential for growth in sales to China, estimated from recent donation group-buying phenomena in China, is also considered quite high, with YG expected to see at least 100 billion won in increased sales.

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