[Click eStock] "CJ ENM, Tving Initial Investment Performance Exceeds Expectations"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities on the 8th issued a buy rating and a target price of 210,000 KRW for CJ ENM. This is based on the expectation of solid profits in the third quarter and the investment performance of TVING exceeding expectations.

For the third quarter, CJ ENM is expected to report sales of 930 billion KRW and operating profit of 78.4 billion KRW, representing increases of 16% and 10% respectively compared to the same period last year. In the broadcasting segment, sales are projected at 470 billion KRW and operating profit at 45.2 billion KRW, up 26% and 55% year-on-year, respectively, estimated to be the highest quarterly profit ever recorded.

TV advertising, which was sluggish last year, is expected to achieve a rapid recovery with growth rates of 8% in Q4 last year, 25% in Q1, 30% in Q2, and around 21% in Q3. The digital advertising segment is forecasted to grow by 17%, maintaining high growth and expanding to account for 26% of broadcasting sales.

The commerce segment is expected to record sales of 350 billion KRW and operating profit of 33.8 billion KRW. Operating profit is anticipated to decline by 20% compared to last year, with TV decreasing by 8% year-on-year, marking six consecutive quarters of decline. Although the digital segment is expected to show strong growth of over 14%, intensified commerce competition is predicted to result in a sluggish operating profit margin in the 10% range.

The film segment is expected to post an operating loss of 1.8 billion KRW, but this would be an improvement of 2.3 billion KRW compared to a year ago. With investments and distribution in three films including ‘Restricted Call’ and achieving 2,000 nationwide viewers, the deficit is expected to narrow.

The company initially projected an operating profit forecast of 250 billion KRW at the beginning of the year, which was later raised to 300 billion KRW, but the second half operating profit is expected to significantly decrease to 120 billion KRW compared to the first half. Researcher Kim Hoe-jae of Daishin Securities explained, “The forecast reflects the expectation that profits will slow down due to increased costs from expanded investment in TVING original content starting in the second half, but the investment results have exceeded expectations.”

Following the first half’s ‘Writing Your Destiny,’ investments in original content have actively begun with titles such as ‘Come to the Witch’s Restaurant,’ ‘Yumi’s Cells,’ and ‘Transit Love,’ and it is understood that investments are being efficiently managed within the annual investment target of 100 billion KRW.

TVING subscribers have exceeded expectations, growing from 750,000 at the end of last year to 1.8 million in the third quarter of this year. Year-end subscribers are projected to reach 2.3 million, surpassing the target of 2 million. Due to the investment performance exceeding expectations, operating profit for this year is expected to surpass the revised guidance of 300 billion KRW, reaching 340 billion KRW.

Researcher Kim Hoe-jae said, “While TVING’s initial performance is positive, Netflix is expanding original content to respond to Disney+’s launch in Korea this November, and domestic OTTs such as Wavve and Season are also increasing investments. It is uncertain whether TVING’s performance will continue, so we need to observe further.”