[Click eStock] "CJ CGV, COVID-19 Related Stock Slump... A Buying Opportunity at Low Prices"

[Asia Economy Reporter Minji Lee] Yuanta Securities stated on the 15th that the stock price slump caused by the novel coronavirus disease (COVID-19) should be used as a buying opportunity and maintained a buy rating and a target price of 47,000 KRW for CJ CGV.

The company's fourth-quarter sales are expected to reach 498.3 billion KRW, and operating profit 45.2 billion KRW, increasing by 11% and 77% respectively compared to the same period last year. By segment, operating profits were 25.4 billion KRW for headquarters, 3.8 billion KRW for China, 2.5 billion KRW for Vietnam, 5.9 billion KRW for Indonesia, 12.2 billion KRW for Turkey, and 4DX recorded 4.4 billion KRW. Most subsidiaries, except for 4DX, posted strong results, exceeding market expectations by 20%.

The headquarters achieved a gross profit margin of 44%, recording a higher profit margin compared to the first and second quarters of last year. The fourth quarter of last year was the first full quarter after transferring the ScreenX division, which was previously under headquarters, to CJ 4DPLEX.

Seongho Park, a researcher at Yuanta Securities, said, “The ScreenX division is one of the future growth engines, but at this point, it has acted as a business that damages the headquarters’ GPM,” and added, “As the headquarters’ investment and distribution business has also been reduced, inefficiencies are estimated to have improved.” This year, the company’s investment and distribution film is only ‘Oh Moon-hee,’ so performance volatility due to the investment and distribution business is expected to decrease.

In Turkey, box office sales in the fourth quarter of last year reached 390 million lira, a 34% increase compared to the same period last year. Local films, whose release dates were delayed due to amendments to the Turkish film law, were released and attracted audiences. Researcher Park explained, “The average ticket price (ATP) in the Turkish market also recorded a significant upward trend as arbitrary ticket discount sales by theater operators were curbed, leading to improved performance.”

However, a goodwill impairment loss of 127.2 billion KRW related to Mars Entertainment in Turkey and a TRS valuation loss of 71.5 billion KRW were reflected, resulting in a pre-tax loss of 207.7 billion KRW. Despite no significant changes in the won-lira exchange rate, Mars Entertainment’s performance last year recorded negative growth in won terms due to the Turkish film law amendment issue. The remaining goodwill balance related to Turkey was 260.4 billion KRW as of the fourth quarter of 2018, and it is estimated that the remaining goodwill balance in the fourth quarter of last year was below 130 billion KRW.

Researcher Park said, “Due to the outbreak of COVID-19 in the first quarter of this year, a temporary performance slump will be experienced,” and added, “Historically, epidemic issues end within 3 to 4 months, so the first quarter performance slump this year should be used as a buying opportunity.”