[Click eStock] "CJ CGV, Entering Earnings Recovery Phase from Second Half... Target Price Up"

[Asia Economy Reporter Song Hwajeong] Yuanta Securities forecasted on the 3rd that CJ CGV will enter a performance recovery phase starting from the second half of this year and raised the target stock price from 23,000 KRW to 27,000 KRW. The investment rating was maintained at 'Hold.'

Researcher Park Seongho of Yuanta Securities stated, "The target price of 27,000 KRW is calculated under the assumption that CJ CGV's profit level will recover to the 2019 level within the next year and that the newly issued hybrid capital convertible bonds will be fully converted into common stock." He added, "Assuming herd immunity from COVID-19 is achieved by the end of 2021, CJ CGV's consolidated EBITDA is expected to increase from 491 billion KRW in 2019 to 561.9 billion KRW in 2022. Based on an annual EBITDA of 569.1 billion KRW, the appropriate operating value per share of CJ CGV could rise to 39,000 KRW."

Performance recovery is expected from the second half of the year. Yuanta Securities estimates CJ CGV's quarterly consolidated operating profit as a loss of 91.3 billion KRW in Q1, a loss of 81.8 billion KRW in Q2, a profit of 700 million KRW in Q3, and 20.8 billion KRW in Q4. Researcher Park explained, "This forecast takes into account the significant increase in Hollywood movie releases starting with 'Black Widow' in July and the expected rise in COVID-19 vaccination rates toward the end of the year."

The issuance of hybrid capital convertible bonds may pose an overhang issue after July. The expected conversion price for the hybrid capital convertible bonds scheduled for issuance in June by CJ CGV is 26,600 KRW per share, with conversion rights exercisable from July 8. Researcher Park said, "If all conversion rights are exercised, CJ CGV's common shares will increase by 32%, from the current 35.1 million shares to 46.38 million shares." He added, "The newly listed 11.28 million common shares will act as an overhang issue on the stock price." On the other hand, from the perspective of convertible bond investors, given CJ CGV's limited default risk and the expected meaningful performance recovery from Q3, there is an opportunity for profit realization through exercising conversion rights within the year.

Researcher Park stated, "CJ CGV's management policy and global expansion are shifting toward profitability-centered management." He continued, "After the end of COVID-19, CJ CGV's annual profit capacity could exceed our forecast, and we plan to monitor the performance recovery trend to consider whether to upgrade the investment rating in the future."