CJ ENM, First Half Profit Estimates Inevitably Lowered... Target Stock Price Down 19%

[Asia Economy Reporter Minji Lee] CJ ENM is expected to face a downward revision in profit estimates for its advertising, film, and music sectors due to the prolonged impact of the novel coronavirus infection (COVID-19). Accordingly, Samsung Securities maintained a buy rating and set a target price of 150,000 KRW, down 19% from the previous target.

On the 28th, Samsung Securities forecasted that CJ ENM would record sales and operating profit of 377.5 billion KRW and 24.6 billion KRW, respectively, this year. The operating profit estimate was lowered by 9% compared to previous forecasts, reflecting the impact of COVID-19.

Minha Choi, a researcher at Samsung Securities, stated, "The broadcasting and advertising markets are directly hit by the economic downturn, making a downward revision of profits for the first half and the full year inevitable. The film distribution and music businesses will also require additional time to return to normal."

TV advertising accounts for about 36% of sales. Due to the revenue structure, a decline in TV advertising revenue makes it difficult to ease the burden of content production costs. Typically, the first quarter is considered an off-season for advertisers, and CJ ENM has traditionally adopted a strategy of overcoming the off-season with content. However, this year, it is difficult to avoid weak advertising demand caused by the severe economic recession, making downward revisions of first-half and full-year earnings estimates unavoidable.

The film and music businesses are also expected to face setbacks. Last year, operating profit reached a record high of 43.6 billion KRW, but this year, the movie theater market is expected to shrink significantly due to reduced external activities and social distancing campaigns. Researcher Choi said, "The release schedule for new films has been postponed indefinitely, and additional time will be needed for normalization. The music sector has already been sluggish since the second half of last year following the voting manipulation controversy in the Produce series. Artist performances and activities have been disrupted, making it difficult to avoid poor performance."

The only sector expected to grow is the digital business. The company announced on the 12th that it would spin off its OTT business division, Tving, to establish a new company. Minha Choi explained, "This decision was anticipated since the agreement to launch an integrated OTT platform with JTBC last September and is considered a preliminary step toward establishing a joint venture. As content consumption trends rapidly shift from offline to online, the proportion of digital advertising revenue is expected to increase further."