Eugene Investment & Securities on the 7th positively assessed profitability improvement at CJ ENM(035760) driven by the first turnaround to profit at the OTT service "Tving." It maintained a "buy" investment opinion and a target price of 48,000 won.
For the second quarter of this year on a consolidation basis, CJ ENM posted revenue of 1.2033 trillion won, down 8.3% from a year earlier, and operating profit of 33.4 billion won, up 16.9%, in line with market consensus (the average of securities firms' forecasts).
By business segment, TV advertising revenue in the media platform area fell 20.9% from a year earlier due to market contraction, marking negative growth for the sixth straight quarter, but the growth of Tving drove profitability.
Powered by subscriber net additions from the KBO broadcast effect and hits among its original content ("The Legend of the Military Cook," "Yumi's Cells 3"), along with 52% year-over-year growth in advertising revenue, Tving achieved its first operating profit since launch, turning to a surplus of 6 billion won.
The media platform segment as a whole also swung to a profit, with operating profit of 11 billion won. The film and drama segment saw a decline in revenue due to a delivery gap in TV series at Fifth Season, widening its operating loss.
The music segment, despite increased new investment, defended results on the back of artist activity, while the commerce segment delivered stable results in step with growth in mobile gross merchandise value.
Lee Hyun-ji, an analyst at Eugene Investment & Securities, said, "The turnarounds at Tving and Fifth Season are key variables for the share price and results, and it is encouraging that Tving posted its first quarterly profit this time, proving the possibility of a turnaround."
The analyst added regarding the outlook for the third quarter of this year, "Tving will likely continue to benefit from the KBO effect, but profitability could be lower than in the second quarter due to entering the off-season for ads and higher content acquisition costs, and Fifth Season is also likely to face unavoidable operating losses due to a smaller scale in the second half." She also said, "TV advertising revenue, which had recorded negative growth in the 20% range every year for the past two years, is expected to improve by nearly 30% in the second half compared with the first half, so a shift to net growth in TV ads is anticipated through the launch of integrated broadcast, digital and outdoor advertising products."
She went on to say, "Tving as well, in the long term, will gradually improve profitability as subscription and advertising revenue increase through expanding digital ad products via partnerships with other companies and by securing a wider variety of content."