[Click eStock] "Studio Dragon Likely to Rebound with TV Advertising Market Recovery"

Maintain 'Buy' Investment Opinion and Target Price of 55,000 KRW
Advertising Revenue Maximization Possible with TV Ad Market Recovery Outlook
Potential Positive Factor: Improved Netflix Contract Renewal Terms

Daishin Securities maintained a 'Buy' rating and a target price of 55,000 KRW for Studio Dragon on the 23rd. This figure is based on an expected earnings per share of 1,782 KRW in 12 months and a price-to-earnings ratio (PER) of 31 times. Studio Dragon's closing price on the previous trading day was 37,450 KRW.

Kim Hoe-jae, a researcher at Daishin Securities, stated, "The tvN drama 'Jeongnyeon-i' produced by Studio Dragon recorded a 12.7% viewership rating at episode 4, achieving the second highest rating in the history of Dragon-tvN dramas." He added, "As this hit drama appeared at a time when the decline in TV advertising has passed its bottom and entered an upward trend, it is expected that advertising revenue maximization through special programming, if not the artificially extended episodes prevalent in the past, could be realized." Among tvN dramas produced by Studio Dragon, the highest viewership rating at episode 4 was 13% for 'The Queen of Tears,' which aired this year. This drama recorded a 24.8% viewership rating in its final episode.

Studio Dragon's advertising revenue had been burdened due to the sluggish TV advertising market. However, a recovery is expected from the third quarter. The parent company CJ ENM's TV advertising revenue is projected to grow by -6% in 2022, -28% in 2023, -4% in 2024, and +15% in 2025. This is seen as a result of advertisers' tightening and poor viewership ratings overlapping. TV advertising is expected to recover starting from the third quarter of 2024, which is analyzed as a rebound from excessive contraction compared to fundamentals.

Studio Dragon is expected to return to double-digit operating profit margin (OPM) from the second half of 2025. In 2026, marking its 10th anniversary, there is a possibility of starting shareholder returns with a 20% dividend payout ratio. Currently, renegotiations with Netflix are underway, and this contract is expected to improve under better conditions in the future. Researcher Kim said, "While Netflix is hitting historic highs, Dragon's stock price is hitting historic lows," adding, "Considering the fundamentals and the surrounding environment, there is sufficient reason for a stock price rebound."