Credit Rating Downgrade and Bleak Earnings... What Is the Outlook for CJ CGV Stock?

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[Asia Economy Reporter Ji-hwan Park] Attention is focused on the future stock price trend of CJ CGV, the No. 1 movie theater specialist company in Korea, which is facing a credit rating downgrade and bleak performance due to the direct impact of the novel coronavirus infection (COVID-19). The COVID-19 situation is prolonging longer than expected, and it is difficult to predict when domestic and international audience demand, which holds the decisive key to stock price direction, will fully recover.

According to the Korea Exchange on the 1st, CJ CGV was traded at 23,000 KRW on the KOSPI market as of 9:18 a.m., up 0.44% from the previous trading day. Compared to the year-end stock price of 34,550 KRW last year, this represents a 50.2% decline. Although the domestic stock market has been showing a rising relay, breaking record highs recently, CJ CGV’s stock price remains isolated from this atmosphere.

CJ CGV’s credit rating was downgraded by two levels this year. On the 30th of last month, NICE Credit Rating downgraded CGV’s credit rating from A to A-. Considering the distant timing of performance recovery, the credit rating outlook was maintained as negative. If business stability and financial soundness are not additionally secured, further credit rating downgrades are possible. On the same day, Korea Ratings also downgraded CJ CGV’s credit rating from A to A-. These credit rating agencies had previously lowered CJ CGV’s credit rating from 'A+' to 'A' by one notch each in May and June.

With the credit rating sharply downgraded, a red light has been lit for the company’s planned issuance of up to 200 billion KRW in corporate bonds next month. Although efforts to improve the financial structure, such as capital increase and equity sales, are underway, the actual financial burden remains high. As of the end of September this year, CJ CGV’s consolidated debt dependency ratio was 74.7%, and the debt ratio exceeded 1000%, indicating a significant deterioration in financial leverage indicators. NICE Credit Rating estimated, "A net loss exceeding 100 billion KRW per quarter is expected," and diagnosed, "If there is no performance improvement in the future, it will be difficult to secure soundness through financial measures alone."

The impact on performance is also significant. CJ CGV’s cumulative sales on a consolidated basis for the third quarter were 440.1 billion KRW, down 70% compared to the same period last year. The cumulative operating loss recorded was 299 billion KRW. This is due to the rapid contraction in movie theater demand as visits to multi-use facilities like cinemas were avoided amid the spread of COVID-19. Last month, the domestic box office audience decreased by 68.8% compared to the same period last year. In overseas regions where CJ CGV operates, the number of viewers also decreased by more than 60% year-on-year. NICE Credit Rating evaluated, "The COVID-19 situation is prolonging longer than expected," and "Despite the reopening of some screening rooms, domestic and international audience demand recovery remains at 30-40% compared to the previous year, significantly deteriorating business stability."

The general outlook is that CJ CGV’s stock price will find it difficult to return to previous levels for the time being. It is judged that it is not easy to predict when past movie demand will be restored. Hyun-ji Lee, a researcher at Eugene Investment & Securities, explained, "Considering the uncertain external environment and the financial burden such as short-term borrowings amounting to 620 billion KRW as of the end of the third quarter, the short-term rebound momentum is not significant," adding, "It is necessary to watch with a long-term perspective." Yong-hee Park, a researcher at IBK Investment & Securities, said, "Although restructuring through recent branch adjustments has begun, rapid restructuring is difficult, and additional funding seems necessary," and "Expectations for a COVID-19 vaccine also require more time."

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