Company Report (079160 KS) Entertainment Strong popularity of Masquerade likely to drive 4Q earnings Chinese and Vietnamese movie markets expected to grow rapidly According to PricewaterhouseCoopers (PwC), the Chinese movie market is likely to show a CAGR of 26.6% until end-2015. And the Vietnamese market is likely to show the second-strongest growth in Asia, with a CAGR of 23.2% during that period. And the Korean movie market is projected to display a CAGR of 6.7% until end-2015. PwC anticipates the Chinese market will be three times larger than the Korean market by 2015. We project, which is running 11 multiplexes in China, to incur an operating loss of W15bn in China this year. But the company is likely to post a net profit of W6bn from nine multiplexes in Vietnam in 2012. plans to open three to five new multiplexes in China and Vietnam (each) in 2013. In addition, the company is likely to expand into the rest of Asia (e.g., Indonesia, Malaysia, and Laos). We believe the companyês overseas expansion will bear fruit at full-swing in 2013. 3Q review: Better than expected; 4Q earnings likely to stay robust Ês 3Q results significantly exceeded our estimates and the consensus. In 3Q, the number of moviegoers in Korea expanded 15.5% YoY on the back of the popularity of Korean movies, such as The Thieves, Masquerade, and Deranged. The Korean movie market has displayed strong growth for six consecutive quarters. Ês 3Q average ticket price (ATP) decreased to W7,154 (from W7,476 in 3Q11) due to the diminishing popularity of 3D movies. And the companyês concession sales per person decreased to W1,931 (from W1,942 in 3Q11) because customers are now allowed to bring food into theaters. However, the companyês 3Q revenues expanded 17.8% YoY. Despite one-off marketing expenses of more than W9bn, Ês 3Q operating profit jumped 63.2% YoY to W55.1bn thanks to gains from the disposal of assets (W26bn). Furthermore, the movie Masquerade attracted audiences of more than 6mn in October alone. In large part because of the strong popularity of Masquerade, we project the companyês 4Q revenues and operating profit to jump 16.2% YoY and 91.1% YoY, respectively. Raise TP to W42,000; Maintain Buy call Taking into account the better-than-expected 3Q results, we are revising up our 2012, 2013, and 2014 EPS estimates by 32.7%, 9.3%, and 7.5%, respectively. As such, we are raising our target price from W38,000 to W42,000. We are optimistic about the company, as: 1) the Korean movie market is expected to stay strong; and 2) the companyês expansion into other Asian markets is picking up speed. Earnings & Valuation Metrics FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 12/10 500 60 11.9 41 1,965 92 20 15.4 14.3 2.1 8.8 12/11 548 71 12.9 39 1,873 105 34 12.5 14.2 1.9 8.4 12/12F 648 107 16.5 75 3,625 136 61 20.9 9.3 1.9 8.4 12/13F 680 96 14.1 71 3,465 123 93 16.9 9.8 1.6 10.1 12/14F 728 111 15.2 79 3,819 135 99 16.0 8.9 1.4 10.0 Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests; Source: Company data, estimates Daewoo Securities Co., Ltd. Chang-kwean Kim +822-768-4321 changkwean.kim@dwsec.com Buy (Maintain) Target Price (12M, W) 42,000 Share Price (10/31/12, W) 33,800 Expected Return (%) 24.3 EPS Growth (12F, %) 93.6 Market EPS Growth (12F, %) 9.0 P/E (12F, x) 9.3 Market P/E (12F, x) 10.2 KOSPI 1,912.06 Market Cap (Wbn) 697 Shares Outstanding (mn) 21 Avg Trading Volume (60D, '000) 95 Avg Trading Value (60D, Wbn) 3 Dividend Yield (12F, %) 1.0 Free Float (%) 60.0 52-Week Low (W) 24,200 52-Week High (W) 34,050 Beta (12M, Daily Rate of Return) 0.33 Price Return Volatility (12M Daily, %, SD) 1.6 Foreign Ownership (%) 17.8 Major Shareholder(s) CJ Corporation (40.05%) NPS (8.53%) Korea Investment Management (7.86%) Price Performance (%) 1M 6M 12M Absolute 17.6 27.3 31.0 Relative 21.8 30.8 30.9 Key Business is a multiplex cinema operator. 150 140 130 120 110 100 90 80 Share price KOSPI 10/11 2/12 6/12 10/12 Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
Table 1. 3Q earnings results (Wbn, %) 3Q11 2Q12 3Q12P Growth Actual KDB Daewoo Consensus YoY QoQ Revenues 169 154 199 191 192 17.8 29.2 Operating profit 34 24 55 33 36 63.2 128.9 OP margin 20.0 15.6 27.7 17.4 18.9 7.7 12.1 Pretax profit 29 21 53 30 33 81.4 150.4 Net profit 22 16 40 22 26 82.8 150.3 Note: Figures are based on non-consolidated K-IFRS Sources: Company data, FN Guide, Table 2. Quarterly and annual earnings results and forecasts (Wbn, %, mn people, websites, screens, theaters, W) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12P 4Q12F 2011 2012F Revenues 116 128 169 134 139 154 199 156 548 Tickets 76 86 113 85 90 105 133 101 359 Concessions 19 20 29 22 24 24 36 27 90 Screen ads 13 15 17 19 16 16 20 20 64 Other 8 7 10 9 9 9 11 8 34 Revenue breakdown Tickets 65.3 67.2 66.7 62.9 64.8 68.4 66.7 64.8 65.6 Concessions 16.2 15.7 17.3 16.2 16.9 15.5 18.0 17.4 16.4 Screen ads 11.4 11.3 10.3 14.2 11.6 10.3 9.8 12.5 11.7 Other 7.1 5.8 5.7 6.7 6.7 5.8 5.4 5.3 6.2 Operating profit 14 18 34 5 19 24 55 9 71 OP margin 11.9 14.2 20.0 3.6 13.4 15.6 27.7 5.9 12.9 Net profit 9 9 22-1 12 16 40 6 39 NP margin 7.9 6.8 13.0-1.0 8.7 10.5 20.3 3.9 7.0 YoY growth Revenues -11.6 16.2 9.4 29.5 19.4 20.4 17.8 16.2 Tickets -17.4 16.0 5.9 29.6 18.5 22.5 17.9 19.6 Concessions -6.8 20.7 15.1 35.3 24.6 19.2 22.4 25.3 Screen ads 9.0 17.4 36.6 35.0 21.2 9.5 13.1 2.4 Other 13.6 6.6-2.1 8.2 12.8 20.8 12.2-8.8 Operating profit -27.7 57.8 16.9 4696.0 34.1 32.6 63.2 91.1 Net profit -33.9 11.4 8.5 RR 32.3 85.1 82.8 TTB QoQ growth Revenues 10.4 32.1-20.6 3.1 11.4 29.2-21.7 Tickets 13.6 31.1-25.1 6.1 17.5 26.2-24.0 Concessions 6.9 45.8-25.9 8.3 1.8 50.1-24.1 Screen ads 9.8 20.0 9.8-16.2-0.5 23.4-0.4 Other -9.8 29.7-6.3 3.3-3.5 20.5-23.7 Operating profit 31.1 86.0-85.7 283.7 29.6 128.9-83.2 Net profit -4.6 153.5 TTR TTB 33.6 150.7-84.8 Key factors Nationwide audience 34 34 52 40 41 42 60 46 160 CGV audience 14 15 22 17 17 18 26 20 68 Audience at directly-operated sites 10 11 15 12 12 13 19 14 48 M/S 41.4 43.4 42.2 42.9 43.0 42.0 43.8 43.9 42.5 Seat occupancy rates 31.5 32.7 48.5 37.6 38.8 39.2 58.1 44.5 37.6 (Direct) 33.7 34.7 49.6 39.3 40.3 41.6 61.1 46.1 39.3 (Franchise) 27.2 28.7 46.4 34.4 35.8 37.0 52.0 39.7 34.2 No. of directly-operated sites 46 46 49 51 52 54 56 57 51 No. of franchise sites 29 32 32 32 33 33 33 34 32 No. of screens at directly-operated sites 387 387 406 421 423 439 458 466 421 No. of screens at franchise sites 228 251 252 252 256 256 256 264 252 ATP (average ticket price) 7,391 8,145 7,476 7,076 7,314 8,323 7,154 7,214 7,522 SPP (sales per patron) 1,837 1,899 1,942 1,819 1,912 1,888 1,931 1,944 1,874 Note: Based on non-consolidated K-IFRS Sources: Company data, 2
Table 3. Earnings forecast revisions (Wbn, W, %) Previous Revised % Change 2012F 2013F 2014F 2012F 2013F 2014F 2012F 2013F 2014F Reason for change Revenue 635 676 728 648 680 728 2.2 0.6 0.0 - In 3Q, audiences increased 15.5% Operating profit 85 92 109 107 96 111 26.5 3.7 1.3 - In 3Q, W26bn in one-off gains from the Pretax profit 73 87 98 98 95 105 33.0 9.2 7.5 disposal of assets Net profit 56 65 73 75 71 79 32.7 9.2 7.4 EPS (W) 2,733 3,171 3,553 3,625 3,465 3,819 32.7 9.3 7.5 OP margin 13.3 13.7 15.0 16.5 14.1 15.2 3.2 0.4 0.2 Net margin 8.9 9.7 10.1 11.5 10.5 10.8 2.6 0.8 0.7 Note: Based on non-consolidated K-IFRS Sources: Company data, 3
(079160 KS/Buy/TP: W42,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 548 648 680 728 Current Assets 147 183 220 241 Cost of Sales 252 294 305 323 Cash and Cash Equivalents 57 77 109 122 Gross Profit 296 354 375 405 AR & Other Receivables 60 70 74 79 SG&A Expenses 227 247 279 294 Inventories 2 2 2 2 Operating Profit (Adj) 70 107 96 111 Other Current Assets 29 34 35 38 Operating Profit 71 107 96 111 Non-Current Assets 758 958 1,128 1,307 Non-Operating Profit -15-9 0-6 Investments in Associates 17 75 135 195 Net Financial Income 7 7 4 9 Property, Plant and Equipment 343 332 310 290 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 34 31 27 24 Pretax Profit 55 98 95 105 Total Assets 905 1,142 1,347 1,548 Income Tax 17 23 24 26 Current Liabilities 251 341 351 365 Profit from Continuing Operations 39 75 71 79 AP & Other Payables 116 137 144 154 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 86 146 146 146 Net Profit 39 75 71 79 Other Current Liabilities 49 57 60 64 Controlling Interests 39 75 71 79 Non-Current Liabilities 331 409 541 656 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 297 367 501 616 Total Comprehensive Profit 37 75 71 79 Other Non-Current Liabilities 28 36 34 35 Controlling Interests 37 75 71 79 Total Liabilities 582 750 891 1,021 Non-Controlling Interests 0 0 0 0 Controlling Interests 323 392 456 528 EBITDA 105 136 123 135 Capital Stock 10 10 10 10 FCF (Free Cash Flow) 34 61 93 99 Capital Surplus 67 67 67 67 EBITDA Margin (%) 19.2 20.9 18.1 18.5 Retained Earnings 254 323 387 459 Operating Profit Margin (%) 12.9 16.5 14.1 15.2 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 7.1 11.5 10.5 10.8 Stockholders' Equity 323 392 456 528 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 118 108 94 102 P/E (x) 14.2 9.3 9.8 8.9 Net Profit 39 75 71 79 P/CF (x) 7.4 6.7 7.1 6.8 Non-Cash Income and Expense 83 68 51 56 P/B (x) 1.9 1.9 1.6 1.4 Depreciation 31 22 22 20 EV/EBITDA (x) 8.4 8.4 10.1 10.0 Amortization 4 7 5 4 EPS (W) 1,873 3,625 3,465 3,819 Others -19-9 4 4 CFPS (W) 3,595 5,014 4,777 4,996 Chg in Working Capital 18-12 -5-7 BPS (W) 14,033 17,532 20,827 24,439 Chg in AR & Other Receivables -16-13 -3-5 DPS (W) 300 350 350 400 Chg in Inventories 0 0 0 0 Payout ratio (%) 16.0 9.7 10.1 10.5 Chg in AP & Other Payables 33 21 7 10 Dividend Yield (%) 1.1 1.0 1.0 1.2 Income Tax Paid -21-22 -24-26 Revenue Growth (%) 9.6 18.4 4.9 7.0 Cash Flows from Inv Activities -201-195 -170-164 EBITDA Growth (%) 14.8 29.1-9.5 9.9 Chg in PP&E -54-32 0 0 Operating Profit Growth (%) 18.4 51.5-10.6 15.6 Chg in Intangible Assets -1-1 -1-1 EPS Growth (%) -4.7 93.6-4.4 10.2 Chg in Financial Assets -12-6 0 0 Accounts Receivable Turnover (x) 15.5 13.8 13.0 13.1 Others -134-156 -169-162 Inventory Turnover (x) 312.0 333.5 314.9 318.0 Cash Flows from Fin Activities 123 107 107 76 Accounts Payable Turnover (x) 14.2 13.1 12.3 12.5 Chg in Financial Liabilities 143 32-50 -50 ROA (%) 4.8 7.3 5.7 5.4 Chg in Equity 0 0 0 0 ROE (%) 12.5 20.9 16.9 16.0 Dividends Paid -5-6 -7-7 ROIC (%) 10.8 17.6 16.1 19.4 Others -14-19 -20-31 Liability to Equity Ratio (%) 179.8 191.3 195.4 193.4 Increase (Decrease) in Cash 40 20 31 14 Current Ratio (%) 58.5 53.8 62.7 66.1 Beginning Balance 17 57 77 109 Net Debt to Equity Ratio (%) 101.0 111.3 118.2 121.2 Ending Balance 57 77 109 122 Interest Coverage Ratio (x) 4.7 5.8 4.8 3.5 Source: Company data, estimates 4
Important Disclosures & Disclaimers Disclosures Daewoo Securities Co., Ltd.`s analyst attended the IR meeting held by within recent one month. Expenses related to the meeting were covered by. Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Trading Buy Relative performance of 10% or greater, but with volatility Hold Relative performance of -10% and 10% Sell Relative performance of -10% Overweight Fundamentals are favorable or improving Neutral Fundamentals are steady without any material changes Underweight Fundamentals are unfavorable or worsening (W) 50,000 40,000 30,000 20,000 10,000 0 11/10 5/11 10/11 4/12 10/12 * Ratings and Target Price History (Share price (----), Target price (----), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystês estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. Disclaimers This report is published by Daewoo Securities Co., Ltd. ( Daewoo ), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. 5
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