J Contentree: Rather than Disappointing Performance, Look to Tomorrow 

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The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. — Ed.

For J Contentree, a 1Q22 operating loss looks inevitable, given both PPA amortization and sluggish cinema earnings. In the near term, however, we draw attention to earnings recovery stemming from a full-fledged rebound in theater attendance amid Covid-19’s transition to endemic status, and over the mid/long term, we look to growth momentum derived from the firm’s strengthening global negotiating power secured through successive successes. We maintain a Buy rating on J Contentree.

Rich content lineup + slow but recovering theater attendance

We maintain a Buy rating on J Contentree, favorably noting its strengthening position as a global producer thanks to the securing of several global box office hits. Netflix originals All of Us Are Dead and Hellbound are enjoying global success, and The Sound of Magic (6 episodes) has been confirmed for release in early May. In addition, titles such as Money Heist: Korea—Joint Economic Area, The Accidental Narco, A Model Family, and King of Savvy are waiting in the wings. Also positive, chances exist for additional revenue following a normalization of exports to China.

We maintain a TP of W73,000 on J Contentree. While the cinema division continues to face operational disruptions due to the influence of Omicron, the business environment should normalize in 2H22, considering ongoing discussions of Covid-19 transitioning to endemic status. In line, we change the base year for TP calculation to 2023F to fully reflect the operating value of the cinema division. For the broadcasting business, no change is made.

1Q22 preview: Theaters hampered by Omicron

J Contentree is forecast to post consensus-disappointing 1Q22 consolidated sales of W172.2bn (+43% y-y) and an operating loss of W7.4bn (RR y-y), weighed upon by both the effects of PPA amortization and a delayed recovery in theater attendance.

Broadcasting: We estimate OP at W10.2bn (-33% y-y). In 1Q22, alongside global simultaneous airing, 61 episodes (-2% y-y) of its works aired on captive channels. Also, sales for Netflix original All of Us Are Dead were fully reflected. In the case of Snowdrop, the contribution to revenue was limited, as sales from Disney were already booked in 4Q21. For PPA amortization, we previously estimated that it would be a temporary recognition in 4Q21, but it is now expected to be booked on a quarterly basis (W4.1bn per quarter). In line, our quarterly earnings estimates have been adjusted, but annual estimates remain unchanged.

Cinema: We predict a 1Q22 operating loss of W17.1bn (RR y-y), noting that: 1) the release schedule for blockbuster films was postponed again due to Omicron; and 2) business disruptions continued due to the shortening of business hours. Amid accelerating discussions of the transition to endemic status, earnings recovery is expected moving ahead on the release of Hollywood blockbuster Doctor Strange 2 in the May holiday season.


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