[Click eStock] "Studio Dragon, Growth Will Continue Despite Industry Concerns"

Kiwoom Securities Report

[Asia Economy Reporter Minji Lee] Kiwoom Securities maintained a buy rating on Studio Dragon on the 19th and set a target price of 105,000 KRW, down 12%.

Studio Dragon's sales in the third quarter are expected to increase by 17% year-on-year to 135.8 billion KRW. Operating profit is anticipated to rise by 25% to 18.2 billion KRW. The third-quarter lineup was also solid. "Little Women" and "Alchemy of Souls" performed well, and Disney Plus's "Link" was effective. On TVING, "Ants Are Riding," "Yumi's Cells Season 2," and simultaneous broadcasts of existing TV-oriented works are helping the company regain its position.

However, with the increase in OTT-oriented productions, the schedule for reflecting content production costs has become tight. The delayed profit settlement timing of the co-produced work "Balmaus" and the more conservative profitability of old work sales on Amazon Prime compared to Disney Plus are limiting the scope of earnings improvement.

The investment point for Studio Dragon is that it is correctly setting its growth direction. The reason the content industry has experienced stock price sluggishness so far is that expectations for primary profitability expansion of the business, such as IP ownership and global OTT expansion, and secondary growth potential like metaverse and media commerce have diminished. Namsoo Lee, a researcher at Kiwoom Securities, said, "The hit power of K-content has been confirmed through OTT, but the focus of domestic producers' work supply on OTT originals rather than the hit potential of works has highlighted profitability limitations."

To overcome this, the company is striving for globalization and diversification of programming formats. The company's sales revenue ratio is expected to increase from 46.8% in 2019 to 72% next year. Despite maintaining around 30 productions, the increase in the top line is due to the basic rise in production costs and the scale expansion toward global OTTs. As a result, the operating profit margin is expected to improve from 6.1% to 14% this year.

Looking at the works scheduled to air in the fourth quarter, there are "The Fabulous" and "The Glory" on Netflix, "Criminal Record" and "Connect" on Disney Plus, and "Big Door Prize" on Apple TV Plus. Considering this, the operating profit for the fourth quarter is expected to increase by 74% year-on-year to 23.6 billion KRW.

Researcher Namsoo Lee added, "Although intensified competition in the upstream industry and macroeconomic uncertainties raise doubts, the globalization of production capabilities and the diversity of OTT programming platforms will drive increased production costs and sales growth. However, considering the downward adjustment of multiples for growth stocks, the target price has been slightly lowered."

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