The author is an analyst at KB Securities. He can be contacted at [email protected] — Ed.
Initiate coverage with BUY and TP of 140,000 KRW
We are initiating a hedge for CJ ENM with a buy rating and target price of KRW 140,000 (up 38.3%). We forecast a 2021-2024E OP CAGR of 8.8% (vs. a 2021-2024E WMI500 CAGR of 9.0%). Derived using the DCF model (assuming a WACC of 6.85% and a TGR of 2.56%), our TP implies a 2022E P/E of 19.4x, a P/B of 0.83x and an EV/EBITDA of 3.7x.
Main investments: (1) OTT (Tving) expansion; (2) Increase in global production (Endeavor Content); (3) TV commercials as a cash cow
CJ ENM’s major investments include: (1) aggressive expansion into OTT services through subsidiary Tving; (2) increased global content production through Endeavor Content; and (3) stable revenues for television commercials. We see TVing reaching its subscriber target for 2022 (4mn-5mn) by producing original content and establishing partnerships. Endeavor Content is also expected to contribute to CJ ENM’s revenue growth given its plans to produce at least 40 film/drama titles by the end of 2023 (including 13-15 titles in 2022). Meanwhile, the TV advertising segment is expected to continue serving as the company’s cash cow by offering hybrid (TV and digital) marketing solutions.
Focus on growth momentum (2021-2024E CAGR of +16.8%)
We forecast 2024E revenue of 5.7 tn KRW (+16.8% CAGR over 3 years) and an OP of 382.5 billion KRW (+8.8% CAGR over 3 years; 6, 8% OPM), with media revenues reaching 3.4 tn KRW (+24.2% CAGR over 3 years). The company’s OPM is expected to decline 2.6pp yoy in 2022 as it increases its content investments and ventures into overseas markets in a bid to expand its presence in the OTT market. However, from 2023, when the company is likely to have succeeded in securing OTT subscribers and synergies from M&A transactions are expected, OPM should rebound (6.3% in 2023 → 6, 8% in 2024).
Risks: trade slowdown
Risks include the possibility of a downturn for the Commerce division on a decline in teleshopping users. Although CJ ENM has accelerated its digital transformation (i.e. all CJ O Shopping channels will be integrated and reorganized under CJ OnStyle from April 2021), gross merchandise volume (GMV) is declining .