[Click eStock] "Jcontentree, Evidence Needed to Maintain Premium"

Meritz Securities "Maintain Jay Contentree Target Price at 46,000 Won"
Gap Narrowing with Small and Medium Producers... Time for Something New to Differentiate

[Asia Economy Reporter Gong Byung-sun] As the gap with small and medium-sized production companies has become negligible, an analysis has emerged that Jay Contents needs new grounds to maintain its current premium. On the 7th, Meritz Securities maintained a target price of 46,000 KRW and a 'Hold' investment rating for Jay Contents.

Jay Contents showed no particular abnormalities in its first-quarter earnings this year. The key profit driver in the broadcasting sector, ancillary rights, met expectations. Considering that the ending of 'Sisyphus,' which had large production costs alongside 'Monster,' occurred in the second quarter, the costs that were lower than estimated in the first quarter are expected to be incurred in the second quarter.

During COVID-19, Jay Contents' expansion turned into a burden. This contrasts with industries affected by COVID-19 that reduced costs by downsizing. The number of Jay Contents' cinemas increased last year. Researcher Lee Hyo-jin of Meritz Securities observed, "The effect of increased fixed costs will act as a burden on the turnaround of the cinema business."

There is an opinion that new grounds are needed to maintain the premium. The broadcasting sector, which accounts for most of Jay Contents' market capitalization, is traded at a premium compared to small and medium-sized production companies. However, due to industry changes, small and medium-sized production companies have also started to generate profits, showing little difference from Jay Contents. The attractiveness of top companies that monopolized profits in the drama market has diminished.

The cinema business is also challenging. The researcher said, "Many media companies owning film production companies are entering the Over-The-Top (OTT) industry and increasing the proportion of films released simultaneously on OTT platforms," adding, "Long-term industry damage is inevitable." Furthermore, he explained, "It is a time when something new is needed, such as presenting future directions like entering the U.S. mainland for differentiation."