[Click eStock] "KeyEast, Expected Record High Performance This Year... Stock Undervalued"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities expressed on the 4th that there are many factors for KeyEast to achieve its best-ever performance this year.

KeyEast produced five dramas last year, achieving the highest number of dramas produced quantitatively in its history. In terms of quality, ‘Hyena’ secured its own IP and signed a licensing agreement for Netflix, increasing profitability, and the Netflix original ‘The School Nurse Files’ was produced with a season system in mind from the planning stage, which seems to have been significant in terms of accumulating production references.

This year, the company plans to produce at least four dramas. Although the number of works may decrease by about one compared to the previous year, two tentpole dramas are waiting for production: ‘Ask the Stars,’ which will have a production cost of over 40 billion KRW, and ‘Illumination,’ which is being planned with a production budget in the hundreds of billions of KRW.

Strong performance momentum is expected to form in the second half of the year. ‘The Wonderful Sight,’ in which actress Lee Young-ae is rumored to appear, is expected to generate high profits comparable to last year’s ‘Hyena.’ Park Seong-ho, a researcher at Yuanta Securities, said, “Although there are variables in the timing of revenue recognition for tentpole works, assuming that all revenues from these works are recognized this year, operating profit is estimated to grow 662% year-on-year to 16.4 billion KRW.”

It is also positive that the number of online video streaming (OTT) service providers purchasing Korean dramas is increasing significantly. Until 2019, Netflix was the only OTT purchasing Korean dramas on a global scale, but since last year, global OTTs such as iQIYI, DramaPlus, HBO Max, and Apple TV Plus have been actively contacting domestic production companies.

Currently, the price-to-earnings ratio (PER) based on this year’s performance for pure drama production companies Studio Dragon and Ace Story is forming around 50 times. Researcher Park Seong-ho explained, “Following the merger of SMEJ and SMC in the third quarter of last year, SMC, which had high performance uncertainty, was excluded from KeyEast’s consolidated subsidiaries, so KeyEast should be evaluated as a pure drama production company going forward,” and added, “The company’s PER is 21.3 times, which is absolutely undervalued compared to peer companies.”