[Into the Stocks] Jcontentree's 'Jiok' Appears, Avoid Blind Buying

Surging Over 20% Intraday on the 22nd
Stock Price Reflects Drama Success in Advance
Cost Issues Hinder Earnings Improvement

[Asia Economy Reporter Minji Lee] As the Netflix original series "Hellbound" competes for the number one spot in global drama rankings, investor interest in Jay Contents, a key beneficiary, is growing. However, the market expects that cost issues will continue to hinder earnings improvement for the time being, making it difficult for the stock price to show a significant rise as anticipated.

On the morning of the 22nd, Jay Contents surged over 20%, reaching 85,900 KRW. Compared to the low price two weeks ago, it has jumped by 50%. Although the company’s stock price fell about 3% over the past year due to poor performance in the film business caused by the COVID-19 pandemic, the broadcasting business growth this year has driven the stock price up by 102% since the beginning of the year.

Jay Contents soared after the Netflix original series "Hellbound" ranked number one in the global TV show category within 24 hours of its release, showing signs of faster popularity than "Squid Game." According to FlixPatrol, an OTT ranking site as of the previous day, "Hellbound" ranked second worldwide in Netflix TV shows, closely trailing the number one spot held by "Arcane." During the "Squid Game" boom, Bucket Studio, which holds a 15% stake in Artist Company, actor Lee Jung-jae’s agency, rose by up to 321% over three months, leading the market to expect further gains for Jay Contents.

Kim Hoe-jae, a researcher at Daishin Securities, explained, "While a single work does not have a large impact on earnings, the high attention to 'Hellbound' means that the operating losses of production subsidiaries, which recorded losses in the third quarter, are expected to improve."

However, experts believe this rapid stock price surge may be short-lived. They argue that expectations for "Hellbound" have already been reflected in the stock price, and subsidiary cost issues may suppress the stock price for the time being. DB Financial Investment and Meritz Securities set target prices at 62,000 KRW and 76,000 KRW respectively but advised a conservative approach to investment.

In the third quarter, Jay Contents recorded an operating loss of 30.1 billion KRW, continuing a significant deficit following the previous quarter’s 20.9 billion KRW loss. This was due to cost issues in the broadcasting segment, the company’s growth engine. The company shortened the amortization period of intangible assets from 18 months to 6 months for dramas simultaneously aired on OTT platforms starting from the fourth quarter of last year. However, the Tokyo Olympics broadcast in the third quarter temporarily reduced programming, increasing cost burdens. Additionally, the acquisition of the U.S. production company "Wiip" this year incurred about 6 billion KRW in initial investment costs, further enlarging the overall loss.

Revenue pressure is expected to increase further in the fourth quarter. The burden relative to revenue from intangible asset amortization is anticipated to continue through the fourth quarter of this year. Moreover, asset amortization for production companies "Wiip" and "Climax Studio," acquired with 400 billion KRW raised through a pre-IPO, will begin, adding to the burden.

Lee Hyo-jin, a researcher at Meritz Securities, said, "The company acquired a total of 4 to 5 production companies this year, and the expected goodwill amortization amount is between 70 to 100 billion KRW, with an annual loss of around 20 billion KRW expected. While many small and medium-sized production companies are expected to achieve record sales exceeding 100 billion KRW next year, the rapidly increasing subsidiary burden is a significant downside."

However, given the growing global recognition of the broadcasting business segment, long-term growth expectations appear to remain positive. As global OTT platforms such as Apple TV Plus and Disney Plus continue their launches in Asia, the company is actively collaborating by selling older works to Disney Plus and maintaining swift partnerships. The drama "Snowdrop" is scheduled for release next month.

Ji In-hae, a researcher at Hanwha Investment & Securities, analyzed, "Focus should be on revenue growth relative to costs. We also expect a stepwise increase in profits to stabilize after cost issues and an accelerated recovery of the film business segment, Megabox."

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