Why CJ ENM, Resilient in the Market Crash, Is More Promising in the Second Half of the Year

Expecting Tving to Return to Profit in the Second Half
Despite CJ LiveCity Headwinds

Despite the recent plunge in the domestic stock market, CJ ENM's stock price, which has held up well, has been on the rise following the announcement of its Q2 earnings this year. Experts believe that Tving's successful turnaround to profitability in the second half of the year will drive the overall performance.

According to the Korea Exchange on the 12th, CJ ENM's stock closed down 2% on the 5th. That day saw the KOSPI and KOSDAQ plunge by 8% and 11%, respectively, due to concerns over a U.S. economic recession. CJ ENM defended its stock price with a 3% decline on the following day, the 6th. Then, on the 8th, the day it announced its Q2 earnings, the stock rose more than 10%, reaching a price higher than before the market crash.

CJ ENM posted sales of 1.1647 trillion KRW and an operating profit of 35.3 billion KRW in Q2 this year, marking an 11% increase and a return to profitability compared to the same period last year. This is attributed to Tving significantly reducing its operating losses through subscriber growth and price increases.

In Q2, Tving recorded an operating loss of 11.7 billion KRW, substantially reducing its deficit from the previous range of 20 to 40 billion KRW. The film and drama division's operating loss also sharply decreased to 18.2 billion KRW compared to the previous year, influenced by a 12.4 billion KRW improvement in operating losses at the U.S. production studio Fifth Season.

The music division posted an operating profit of 4.9 billion KRW. Although the profit margin relative to sales was low, this was due to the debut of the Japanese girl group DUB-Tip and the production costs of the Mnet audition program I-LAND 2. The commerce division continued its steady growth, recording an operating profit of 27.5 billion KRW, a 47% increase from the previous year.

Experts have focused on the reduction in Tving's operating losses. In Q2 this year, Tving's paid subscriber count is estimated to have reached approximately 4.9 million, a 29% increase from the same period last year. It is expected that by the end of the year, the paid subscriber count will surpass 5.3 million, exceeding CJ ENM's target of 5 million.

Hyundai Motor Securities analyst Kim Hyun-yong stated, "Last month, Tving recorded 7.56 million monthly active users (MAU), narrowing the gap with Netflix to 3.55 million and widening the gap with third-ranked Coupang Play to 1.46 million. Given the quarterly revenue of 120 to 130 billion KRW, we believe that reaching the break-even point (BEP) is possible, and Tving is expected to turn profitable as early as Q3 or by Q4 at the latest."

Additionally, the issue of CJ Live City, considered the biggest negative factor, is already reflected in the stock price. After receiving a notice of termination of the 'K-Culture Valley' project agreement with Gyeonggi Province, CJ ENM is currently conducting further negotiations.

Samsung Securities analyst Choi Min-ha analyzed, "CJ ENM has already accounted for all borrowings in its financial statements, so there is no additional financial burden, and it has stated that it can adequately respond to any future issues. The total amount of payment guarantees is about 480 billion KRW, but since the maturity and repayment points are spread out until 2026, the risk of sudden short-term financial burden is low."

Meanwhile, on the 9th, CJ ENM closed at 77,800 KRW, down 800 KRW (1.02%) from the previous day.