[Click eStock] CJ ENM, Lack of Mid-to-Long-Term Earnings Guidance... Target Price Downgraded

[Asia Economy Reporter Lee Seon-ae] Hana Securities announced on the 5th that it is lowering the target price of CJ ENM to 130,000 KRW. Considering factors such as weak second-quarter earnings and an increase in net borrowings, the SOTP-based target price was reduced by 10%. Lee Ki-hoon, a researcher at Hana Securities, explained, "It is uncertain when the investment period for Endeavor and TVING will end and at what level of earnings leverage it will return afterward, so the investment appeal during the contraction phase is not high. However, if a mid- to long-term direction is established, the valuation attractiveness at the current stock price is high."

The researcher judged that although Endeavor's performance improved significantly compared to the first quarter, it is targeting an annual BEP, and mid- to long-term earnings guidance is still lacking. He highly agrees with and expects the synergy potential through collaboration with its own drama studio due to the high preference for Korean content, but considering that it is still in the project development stage (12 to 18 months), delivery will take at least two years at the earliest. TVING's merger with KT Season is expected to positively affect next year's profitability by securing captive telecom subscribers and reducing production costs. However, since the deficit size has not yet recovered and it is still in the early growth stage, the investment period is likely to continue, making it difficult to achieve BEP quickly.

Meanwhile, second-quarter sales and operating profit were 1.2 trillion KRW and 55.6 billion KRW, respectively, falling short of consensus. By segment, media operating profit was sluggish at 25.4 billion KRW (-56% decrease) despite TV advertising growth (+6%) and Studio Dragon's record-high performance (OP 27 billion KRW). The researcher explained, "Considering Endeavor's sales and operating profit of 224.6 billion KRW and -6.2 billion KRW (Q1 -17.8 billion KRW), the deficit size of TVING is still at a burdensome level. Commerce recorded 19.5 billion KRW (-35%) due to a reverse base effect from reopening and continued increases in transmission fees, and film recorded -4.1 billion KRW due to the poor performance of Broker and Decision to Leave. Music recorded 14.8 billion KRW (589% increase) thanks to the comeback of Japanese groups. However, non-operating losses such as rights evaluation losses and M&A-related costs caused net profit to turn negative (-25 billion KRW)."