[Into the Stocks] CJ CGV's Expectations for 'Avatar' Returning After 13 Years

Stock Rebound Anticipated with Avatar 2 Screening
Q3 Operating Profit Turns Positive, Marking Start of Recovery
Financial Structure Improvement a Long-Term Task... Next Year's Performance Crucial

[Asia Economy Reporter Hyungsoo Park] As the release of the world's most anticipated blockbuster, "Avatar: The Way of Water," approaches, expectations for CJ CGV, the biggest stock victim of the COVID-19 pandemic, are driving up its stock price. It is uncertain whether the Avatar effect will be a one-time factor or a catalyst that brings audiences back to movie theaters. However, due to the large-scale losses recorded over the past two years, it is expected to take more time to secure financial soundness.

According to the financial investment industry on the 13th, CJ CGV's stock price rose about 60% in 32 trading days since hitting the year's lowest point of 12,450 won on October 27. Considering that the KOSPI rose 5.5% during the same period, the return relative to the market reached 53.8 percentage points. The sharp recent rise in CJ CGV's stock price is the result of improved earnings expectations ahead of the screening of Avatar 2, along with a return to profitability in the third quarter. CJ CGV recorded consolidated sales of 405.1 billion won and operating profit of 7.7 billion won in the third quarter of this year. Having succeeded in turning a profit, it has entered a full-fledged phase of earnings recovery. Following the quarterly operating profit turnaround, operating profit is also expected to be positive next year.

Avatar is playing a catalytic role in helping CJ CGV escape the shock of COVID-19. The number of advance bookings for Avatar has already exceeded 500,000, accounting for more than 87% of total movie reservations. Since bookings are mainly made for special screening rooms that maximize audiovisual effects, the effect of increased sales price is also expected to be significant. The original "Avatar," released in 2009, attracted 13.33 million viewers, demonstrating its popularity. Kim Hoe-jae, a researcher at Daishin Securities, said, "Starting with Avatar 2, highly anticipated films such as Secret Trade, Negotiation, Indiana Jones 5, Captain Marvel 2, and Mission Impossible 7 will be released one after another next year," estimating operating profit of 47 billion won next year.

Additional achievements and efforts are needed for CJ CGV to improve its financial structure. The company suffered a direct hit to its performance over the past three years due to gathering restrictions caused by COVID-19. CJ CGV's sales, which approached 2 trillion won in 2019, dropped to 583.4 billion won and 736.3 billion won in 2020 and last year, respectively. Although it is recovering with 946.8 billion won recorded cumulatively in the first three quarters of this year, it still has a long way to go compared to pre-COVID-19 levels. Its credit rating has also declined. While maintaining an A+ rating until the first half of 2020, it fell to A- after two rating adjustments.

As of the end of the third quarter on a consolidated basis, CJ CGV's debt ratio stood at 829.9%, and net debt dependency was 62.0%. Due to reduced cash-generating ability caused by COVID-19, the company issued a large amount of hybrid capital securities to repay borrowings and secure operating funds. In July, it issued 400 billion won worth of perpetual convertible bonds (CB). If the stock price exceeds the conversion price of 22,000 won, the potential issue of a large-scale sell-off (overhang) may increase. NICE Credit Rating analyzed that considering the lifting of food and drink restrictions inside domestic theaters since April this year and the release of major anticipated films that had been postponed, performance is expected to improve, but uncertainties remain regarding the speed of recovery.

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