CJ ENM earnings hold up after one-off costs are stripped out; new-business growth in focus

[Financial News] Securities analysts expect CJ ENM to continue growing, led by new businesses such as music and commerce, despite one-off costs related to TVING. A sizable operating loss is expected in the third and fourth quarters, but results are projected to meet market expectations excluding one-off costs. Expectations for improved medium- to long-term profitability also remain intact as some new businesses enter the investment recovery phase.
On the 12th, NH Investment & Securities maintained its Buy rating on CJ ENM. However, it lowered its target price by 6%, from 47,000 won to 44,000 won, reflecting the burden of investment costs for new businesses and changes in peer-company valuations.
Lee Hwa-jung, an analyst at NH Investment & Securities, estimated CJ ENM's consolidated third-quarter revenue at 1.2 trillion won and its operating loss at 161.4 billion won. However, excluding the assumed 195.3 billion won in compensation costs related to the TVING personal information leak, operating profit is expected to reach 33.9 billion won, in line with market consensus.
Growth in the music and commerce businesses is drawing particular attention. Operating profit in the music segment is forecast to rise 165% year over year to 5 billion won. Intellectual property (IP) activities centered on LAPONE remain brisk, while investment continues in new IP and Mnet Plus original content.
Operating profit in the commerce segment is also estimated to rise 80% year over year to 22.7 billion won. The analyst said, "Top-line growth continues, led by mobile live commerce (MLC), and solid earnings growth is expected despite higher promotional spending on coupons and loyalty credits." 
In addition, in the content segment, strong deliveries from the Film Business Division and Studios are expected to partially cushion results despite a decline in film deliveries from Fifth Season.
NH Investment & Securities noted that although the initial investment burden remains for key new businesses such as TVING, music and MLC, some businesses have entered the payback phase.
The view is that operating leverage could increase as monetization gains momentum.
The analyst said, "Investment across new businesses is continuing, while some businesses are entering the payback phase. Although they are still at an early stage, which brings concerns about profitability and quarterly earnings volatility, we can expect operating leverage effects as the payback phase gets fully underway."


[email protected] Kim Kyung-ah Reporter