Target Price Revised Downward by 13% Compared to Previous Level
On the 24th, NH Investment & Securities downgraded the target price of Studio Dragon from 70,000 KRW to 61,000 KRW, citing a disappointing short-term earnings trend due to sluggish conditions in the upstream industry. The investment rating was maintained at 'Buy.'
Researcher Lee Hwajeong of NH Investment & Securities explained, "The target price downgrade reflects lowered earnings estimates considering the slow recovery in the upstream industry (TV·OTT). Given the weak broadcasting advertising market, the absence of captive (affiliate) Wednesday and Thursday slots is likely to persist throughout the year, and considering the annual programming plans of global OTT (online video services), the number of original works to be sold within the year is expected to decline compared to the previous year."
Studio Dragon's first-quarter earnings this year are expected to fall short of market expectations. Lee said, "On a consolidated basis, first-quarter sales are expected to decrease by 28% year-on-year to 152.1 billion KRW, and operating profit is expected to drop by 36% to 13.8 billion KRW, falling short of consensus (average securities firm forecasts). While the success of new releases is encouraging, it was due to insufficient sales from older works." Regarding older works, there is an analysis that sales may decline because the number of older works available for sale has decreased as more titles were sold separately by country rather than simultaneously aired on global OTT platforms last year. For new works, although the number of episodes aired was 64, a 43% decrease compared to the same period last year, profitability per work appears to have continued to improve. Lee added, "With all TV works simultaneously aired on global OTT platforms, sales revenue performed well, and programming sales also held up thanks to hits like 'Nunmul-ui Yeowang' (Tears of the Queen) and 'Nae Nampyeongwa Gyeolhonhaejwo' (Marry My Husband), resulting in advertising incentive revenue secured through high viewership ratings."
Although short-term earnings are disappointing, attention should be paid to strengthening mid- to long-term growth drivers. Lee said, "While short-term earnings trends are disappointing due to sluggish upstream industry conditions, it is time to focus on profitability improvements driven by efforts to optimize the recoupment rate (production cost support ratio) per work and the resulting strengthening of mid- to long-term growth drivers. When upstream industry conditions improve in the future, the recovery of captive programming slots and expansion of OTT original supply will create strong upside potential in terms of the number of works."
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