CJ CGV: Return of new film releases
The author is an analyst for NH Investment & Securities. She can be reached at [email protected] – Ed.
For CJ CGV, the key to resuming attendance is the release of new films. Supported by a planned string of blockbuster Hollywood releases, such an upturn in attendance is expected to become visible this year. We raise our TP from 20,000 W to 28,000 W but maintain a Hold rating, given: 1) recovery expectations, which already seem to be reflected in CJ CGV’s share price; and 2) the company’s disappointing financial statements.
The lowest point has passed, but expectations are already reflected in the stock price
We are increasing our TP on CJ CGV by 40% from W20,000 to W28,000 and changing our valuation base year from 2021E to 2022F, when a strong earnings recovery trend is expected to emerge. In our opinion, a resumption of attendance becomes visible following: 1) the release of Godzilla vs Kong; and 2) the launch of several new Chinese films. Considering the key to improving sales to be the release of new movies, we note that Hollywood blockbusters such as Fast & Furious 9 (May) and Black Widow (July) have been confirmed for release this year. Amid strong pent-up demand for new films, CJ CGV is expected to start seeing a recovery in profits in 2H21.
However, we maintain a Hold note on CJ CGV. As expectations of a recovery in earnings appear to have already been reflected in the company’s share price, we believe there is limited room for maneuver for a further rise in the share price. Interest expense is also a factor, owing to hybrid securities (W280bn) and general bonds (W200bn) issued last year to ensure liquidity.
Worries about financial stress should only be alleviated if you gain greater visibility into profits
Amid its lingering financial concerns, CJ CGV has worked hard to bolster liquidity through efforts such as capital increases and the issuance of hybrid and perpetual convertible bonds. We believe that the secured funds will be sufficient to cover annual operating expenses as well as the repayment of Turkey-related Total Return Swap (TRS) debt (May, $ 360 billion) and other loan repayments. (November, $ 210 billion). However, in order for concerns about CJ CGV’s financial burden to be completely alleviated, it is essential to ensure greater visibility of profits.
1Q21 preview: signs of hope appear in China and Vietnam
CJ CGV is expected to record 1Q21 consolidated sales of 158.6 billion W (-35% yy) and an operating loss of 91.4 billion W (RR yy). Supported by the release of local films, Chinese box offices seem to have managed to recover their attendance figures before Covid-19. In Vietnam, new film launch effects are also emerging. Meanwhile, in Korea, the impact of the lack of new films continues to be felt, while in Turkey and 4DX businesses, the impacts of Covid-19 remain in play.