[Click eStock] "Jcontentree, Q4 Earnings Disappoint... Content Success Needed"

Meritz Securities Report

[Asia Economy Reporter Minji Lee] Meritz Securities on the 5th gave Jay Contents a neutral investment opinion and suggested a fair stock price of 46,000 KRW.

In the fourth quarter of last year, Jay Contents recorded sales of 91.8 billion KRW, down 40% compared to the same period last year. Operating loss turned to 15.8 billion KRW, falling short of expectations. By segment, Megabox recorded an operating loss of 15.8 billion KRW, turning to a deficit, while the broadcasting division turned to a profit with 1 billion KRW.

Researcher Hyojin Lee of Meritz Securities said, "Last year, the recoupment of production costs was completed through the sale of rights such as the Netflix MOU, which led to this result," adding, "Going forward, the amortization period for overseas rights sales works is being shortened from the existing 18 months to 6 months."

The pre-tax loss in the fourth quarter was 99.4 billion KRW. This was due to an evaluation loss incurred after acquiring additional shares of Megabox in November last year. The company acquired 8 additional Megabox stores last year, holding 50 directly operated stores at Hyundai. The researcher explained, "While domestic vaccine distribution and the reopening of the global film industry will take time, fixed cost increases caused Megabox's operating loss to reach 42.6 billion KRW this year, so it is expected that recovery will take a long time."

Meritz Securities analyzed that the success of 2049 content is necessary for Jay Contents' investment attractiveness to increase. The drama rights contracts, which were monopolized only by top companies, have shifted to direct transactions between small and medium-sized production companies and online video (OTT) service providers, lowering the company's attractiveness within the industry.

Researcher Lee said, "Most of the company's works record ratings below 5%, struggling to cater to Korean viewers who serve as a test bed for the Asian market," adding, "In this ambiguous investment attractiveness, success in content is needed more than an increase in rights ratio."