CJ ENM Performance and Momentum Are Excellent... But Physical Division May Cause Shareholder Value Dilution

Rapid Growth in Music Sector
If Music Is Included in the Physical Division, Remaining Businesses Are TV Advertising and Commerce... Low Growth Potential

[Asia Economy Reporter Gong Byung-sun] CJ ENM's fourth-quarter performance last year and remaining growth momentum are receiving positive evaluations from the securities industry. However, the upcoming physical division is expected to damage shareholder value.

On the 8th, Hana Financial Investment estimated CJ ENM's fourth-quarter sales last year at 936.3 billion KRW, down 1% year-on-year, and operating profit at 95.2 billion KRW, up 8% during the same period. This is 6.44% below and 1.38% above the respective market consensus forecasts.

The media sector showed growth despite Studio Dragon's sluggishness. TV and digital grew by 5% and 21%, respectively, and operating profit is estimated to have increased by 31% year-on-year. The commerce sector is also expected to rebound from the previous quarter due to seasonal peak demand.

Among these, the growth of the music sector is remarkable. Along with the achievements of Japanese groups such as 'JO1' and 'INI', the boy group 'NI'P' recorded sales exceeding one million copies. Operating profit in the music sector is estimated to increase by 1069% year-on-year.

There is also momentum. Domestic online video services (OTT) are growing. Tving's subscriber count is expected to reach about 2 million, nearly tripling in just one year due to the exclusive market (captive) for Naver and original content strategies.

Lee Ki-hoon, a researcher at Hana Financial Investment, explained, “Only 10 Tving originals have been announced by the Tving alliance including Studio Dragon and JTBC Content Hub, and considering Tentpole, the total investment is estimated to be around 200 to 250 billion KRW. If the year-end target of 4 million subscribers is achieved, annual subscription revenue alone could reach 350 billion KRW.”

However, the physical division is expected to damage shareholder value. On November 19 last year, CJ ENM announced it would pursue a physical division to establish a new corporation responsible for major production functions in entertainment, drama, film, and animation businesses. There are concerns that the music business, which showed growth last year, might also be split off. In that case, only low-growth TV advertising and commerce would remain at CJ ENM.

The researcher said, “Many investments are needed for content production and acquisition of U.S. production companies,” but added, “Physical division inevitably leads to shareholder value erosion.”

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