[Click eStock] "Studio Dragon to Post Best Earnings Since Listing in Q2"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating on Studio Dragon on the 24th and set the target price at 120,000 KRW, down 8%. Although the target price was adjusted due to an increase in the discount rate caused by rising interest rates, the second-quarter earnings are expected to exceed profit estimates due to higher sales and margin improvements compared to previous forecasts.

In the second quarter, the company’s revenue is expected to reach 170 billion KRW, and operating profit 27.1 billion KRW, representing growth of 59% and 97% respectively compared to the same period last year. The number of productions is forecasted to be 13, and the number of broadcast episodes 103, which is an increase of 7 productions and 40 episodes compared to the previous year.

Researcher Kim Hoejae of Daishin Securities explained, “The reason for raising profit estimates by about 5 billion KRW compared to previous forecasts is that 10 older titles were sold to Disney+, and related profits and losses are recognized as they were released in the second quarter.” He added, “Although the exact scale is unknown, it is estimated that works still undergoing rights amortization are included.”

This year, the number of productions is expected to increase by 9 to 34 compared to last year. Of the 19 titles for tvN and OCN, 6 to 7 will be simultaneously aired on Netflix or other OTT platforms. There will be 13 to 14 OTT originals, 1 for Coupang Play, 2 to 3 for Netflix, 2 for Disney+, 6 for TVING, 1 for Apple TV+, 1 for other global OTTs, and 3 new platforms will be added.

The number of large-scale productions is also expected to increase. As of the first quarter, assets under construction amount to 220 billion KRW, which is expected to increase by 130% compared to the same period last year. The number of planned works is 180, the largest ever. The quarterly increase in assets under construction indicates that the number and scale of productions will trend upward.

For example, the drama ‘Hwanhon,’ which has been airing since the 18th, is estimated to have a production cost of 2 billion KRW per episode, totaling 40 billion KRW. It is the third-largest production in history and is simultaneously aired on Netflix, so the production margin is expected to comfortably exceed 20%.

Production margins are also increasing. ‘Link: Eat, Love, Kill,’ which has been airing since the 6th, is Dragon’s first simultaneous release on Disney+ and is predicted to have a margin higher than the usual 20% for simultaneous releases. One Netflix original scheduled for release in the second half of the year is estimated to significantly exceed the typical 20% production margin.