[Click eStock] "Studio Dragon, Target Price Down Due to Weak Business Conditions"

On the 31st, NH Investment & Securities lowered the target price of Studio Dragon to 74,000 KRW, down 4% from the previous estimate, considering the sluggish industry conditions. The investment rating was maintained as "Buy."

On the same day, researchers Hwajeong Lee and Seungjun Lee from NH Investment & Securities stated, "Although the earnings estimates have not changed, we have lowered the price-to-earnings ratio (PER) considering the difficult business environment." "The challenging operating environment has continued, leading to a sustained decline in Studio Dragon's stock price throughout the year," they added.

However, they noted, "the current stock price excessively reflects concerns." The researchers explained, "Studio Dragon has completed preparations for the worsening business environment and is expanding its trading platform by directly producing localized content in the United States and Japan. Additionally, it has proactively finalized volume contracts focused on Disney and TV/OTT simultaneous broadcast works, which will reduce original supply."

The researchers further explained, "We reconfirmed the trend of earnings stabilization in the third quarter. During this period, consolidated sales are expected to be 163.3 billion KRW, down 29% from last year, and operating profit is expected to be 16.8 billion KRW, down 11% from last year, but in line with market expectations."

Studio Dragon's TV scheduling in the third quarter is expected to record 62 episodes aired, down from 99 episodes in the same period last year and 68 episodes in the previous quarter. This is interpreted as an effect of a reduction in drama slots in the internal trading market. However, the recovery rate of production costs for TV and OTT simultaneous broadcast works is increasing, and the margin improvement per project continues due to the optimization of the global sales mix, which are positive factors.

For OTT originals, the number of episodes aired is expected to sharply decrease to 19, compared to 34 in the same period last year and 43 in the previous quarter. However, it is positively evaluated that the works aired were mainly those with a significant production scale contributing to earnings. The margin improvement effect per project is expected to fully materialize from next year.