[Click eStock] "Disappointing 2Q... Studio Dragon to Rebound in 3Q"

2Q Operating Profit Down 17.7% YoY, Significantly Below Market Expectations
Impact of Decreased Number of Broadcast Episodes... Normalization Expected from 3rd Quarter

[Asia Economy Reporter Minwoo Lee] Studio Dragon posted earnings in the second quarter of this year that fell significantly short of market consensus. This was due to the heavy earnings burden from the second quarter of last year as well as a decrease in the total number of aired episodes. In the third quarter, TV content and the OTT (Over-The-Top) platform 'Tving' exclusive works are scheduled, which is expected to resolve the shortfall in the number of aired episodes and enter a trend of expanded sales.

On the 6th, Kiwoom Securities maintained its 'Buy' rating and target price of 140,000 KRW for Studio Dragon based on these factors. The closing price the previous day was 92,600 KRW.

Studio Dragon recorded consolidated sales of 106 billion KRW and operating profit of 13.8 billion KRW in the second quarter of this year. These figures represent decreases of 34.3% and 17.7%, respectively, compared to the same period last year. Compared to market consensus, they were 9.7% and 8.5% below expectations, respectively. Namsoo Lee, a researcher at Kiwoom Securities, explained, "There was a high earnings burden from the flagship work 'The King' aired in the second quarter of last year, and the total number of aired episodes also decreased, leading to a drop in sales. Additionally, the programming sales of 28.2 billion KRW all occurred within internal transactions among affiliates, failing to achieve programming diversification, which is also one of the causes."

However, despite the lack of new releases, sales revenue continued to improve, reaching 67.5 billion KRW, which was evaluated positively. This reflects the judgment that Studio Dragon's core competitiveness, which is gaining global recognition, is being strengthened. Although cost recognition expanded due to content sales to OTT platforms, the notable improvement in sales revenue helped maintain low cost of sales ratio and selling and administrative expense ratio, which is expected to aid future profitability.

In the third quarter, TV contents such as 'Voice 4', 'The Devil Judge', and 'The Road', as well as Tving exclusive works like 'Welcome to Witch Restaurant', are scheduled, which is expected to resolve the shortfall in the number of aired episodes and enable genre diversification. Researcher Lee predicted, "Ultimately, having various intellectual properties (IP) will lead to external growth and profit enhancement through the expansion of overseas dramas and OTT broadcast content. Additionally, combined with sales of older works, profitability is expected to increase."