[Click eStock] CJ ENM Lowers Earnings Outlook but Expands Investment... Investment Rating Down

Yuanta Securities

[Asia Economy Reporter Song Hwajeong] Yuanta Securities downgraded its investment opinion on CJ ENM from 'Buy' to 'Hold' on the 5th, stating that while earnings expectations are lowering, an investment expansion phase is approaching. The target price was maintained at 167,000 KRW.

CJ ENM provided an annual earnings guidance for this year, projecting sales of 3.8 trillion KRW, a 12% increase compared to the same period last year, and operating profit of 250 billion KRW, an 8% decrease. Although sales growth is expected across all business divisions, operating profit is anticipated to decline due to increased content investment focused on TVING originals.

Seongho Park, a researcher at Yuanta Securities, analyzed, "CJ ENM clearly conveyed the message that it aims to develop TVING, which was spun off last October, as a core growth engine. TVING plans to invest 400 billion KRW in production costs over the next three years. Assuming the second-year production cost of TVING is around 130 billion KRW, the average of 400 billion KRW, it can be inferred that the first-year production cost will be slightly lower than this."

While investment expansion can secure competitiveness, it is not yet the time to increase stock holdings. Researcher Park said, "TVING is expected to secure differentiated competitiveness among local online video services (OTT). However, as earnings expectations are lowering and an investment expansion phase is approaching, the current time is not suitable for increasing stock weight."

CJ ENM's fourth-quarter earnings last year slightly exceeded consensus. In the fourth quarter, CJ ENM recorded consolidated sales of 944.3 billion KRW, a 7% decrease compared to the same period last year, and operating profit of 87.9 billion KRW, a 106% increase. Researcher Park analyzed, "Operating profit slightly exceeded consensus. This result came from producing better-than-expected advertising performance during the advertising peak season and flexibly adjusting production cost expenditures."