[Click eStock] "CJ CGV, Still Burdened with Significant Debt Despite Operating Value Improvement"

Yuanta Securities Report
Q3 Operating Loss Expected to Narrow

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a neutral investment rating on CJ CGV on the 25th and set a target price of 23,000 KRW. This decision is based on the judgment that although the number of viewers continues to increase, the debt could weigh down the improvement in performance.

In the second quarter, CJ CGV recorded a consolidated operating loss of 130.5 billion KRW. The subsidiaries with the largest deficits were the headquarters (-70.1 billion KRW) and China (-29.8 billion KRW).

[Image source=Yonhap News]

CJ CGV's consolidated operating loss for the third quarter is expected to improve to 85 billion KRW compared to the previous quarter. The expected deficit by subsidiary is projected to be -34.2 billion KRW for the headquarters and -27.9 billion KRW for China. With the release of anticipated Korean films in July and August, the cumulative number of viewers (QTD) as of the 23rd has reached 13.5 million. If the current trend continues, the domestic box office in the third quarter is expected to recover to a level similar to that of the first quarter.

In Korea, despite the resurgence of COVID-19, the reservation rate for "Tenet" reached 83% as of 8 PM on the 24th. In China, local films have been released recently, and "Tenet" is scheduled to premiere on the 4th of next month. Accordingly, the absolute level of the Chinese box office in the third quarter is likely to surpass that of the first quarter.

However, it is still considered premature to make a purchase. Sung-ho Park, a researcher at Yuanta Securities, explained, “The company's fair enterprise value is 780.5 billion KRW, applying a discount rate of 14.8%. The target price was calculated by treating all cumulative valuation losses related to the Turkey-related TRS product maturing in the second quarter of next year as net debt (liabilities).” He added, “Apart from the high value in operating terms, the large amount of debt acts as a pressure factor on the increase in corporate value.”