2H16 Media Content Advertising Industry Outlook

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Media Content/AdvertisingThe power of content appreciators

Content appreciators are reshaping the industry landscape In today’s media content market, consumers are now actively enjoying, appreciating, and even creating content, rather than simply being on the receiving end. The success of content often depends on how well it passes through the social media “filter bubble.” Consumers are even engaging in the pre-production phasevia crowdfunding. In addition, consumers’ desire to immerse themselves in content is bringing forward the era of virtual reality (VR).

As the power of content appreciators grows, industry players are making various efforts to survive, expanding value chains and shifting their focus to new media. In addition, they are diversifying content monetization channels in an effort to offset cost increases, and are aggressively making inroads into digital media to gain stronger growth momentum. Faced with limited growth opportunities, even IT hardware, internet, film, and multiplex theater firms are turning their eyes to content.

Chinese co-productions and policy support to provide tailwinds in 2H We see greater opportunity for media content and advertising firms in 2H. The number of Chinese co-produced films and simultaneous broadcast dramas is expected to increase in 2H16 compared to 2015 and 1H16 levels. On the domestic front, the government is expected to expand its support for the content industry. In particular, the Ministry of Strategy and Finance and the Ministry of Science, ICT and Future Planning (MSIP) are planning to provide a maximum 10% tax credit for cultural content producers (7% for large-sized firms) by revising the Special Tax Treatment Control law.

Meanwhile, rising production costs could weigh on content producers. Among the Korean films scheduled to be released this year, the number of films with production budgets of over W10bn is twice that of last year. In addition, increasing pre-production of dramas could also push up costs. That said, if content players succeed in achieving top-line growth through higher ad and content pricing, as well as additional revenue sources in China and the new media market, such efforts should offset the increase in costs.

Overweight; Top picks are CJ E&M and INNOCEAN Worldwide We maintain our Overweight call on media content/advertising. The increasing mix of Chinese and new media sales is expected to boost the industry’s growth potential. On a positive note, major players are expanding their global presence, backed by stable earnings and strong leadership in the domestic market. We recommend CJ E&M and INNOCEAN Worldwide as our top picks, as we see multiple share catalysts as well as revenue and profit growth. We also believe J Contentree, Showbox, and Nasmedia deserve attention in 2H.

Overweight (Maintain)

2H16 Outlook Report June 1, 2016

Mirae Asset Daewoo Co., Ltd.

[Telecom Service / Media]

Jee-hyun Moon +822-768-3615 [email protected]

Nu-ri Ha +822-768-4130 [email protected]

Korean media sector index long-term trend: Since 2010, growth indicators such as overseas revenue have determined share performances

Source: Thomson Reuters, KOCCA, relative companies data, Mirae Asset Daewoo Research

Media Content/Advertising

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June 1, 2016

Mirae Asset Daewoo Research

C O N T E N T S

Industry trends: Adapting to changes 3 1. The growing power of content appreciators 3 2. Survival of the fittest 7 3. Media industry reaches an inflection point 10

2H: Opportunities and crises 11 1. Joint content production with China to grow full swing 11 2. Policy tailwinds 12 3. Increasing production costs 13

Investment strategy & valuation 15 1. Investment strategy 15 2. Valuation comparison 17

CJ E&M (130960 KQ) 19

INNOCEAN Worldwide (214320 KS) 24

J Contentree (036420 KQ) 27

Showbox (086980 KQ) 30

Nasmedia (089600 KQ) 33


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June 1, 2016


Industry trends: Adapting to changes

1. The growing power of content appreciators

1) “Filter bubbles”

In today’s media content market, consumers have become “content appreciators” who actively enjoy, relish, and even create content, rather than simply being on the receiving end. Thanks to the widespread use of social media and mobile streaming, the power of content appreciators is getting stronger.

These days, we can quickly tell whether a piece of content will be a hit or miss, judging from the initial reactions, reviews, and buzz generated immediately after its release. TV shows such as Descendants of the Sun, King of Mask Singer, and Produce 101—which ranked high on the Content Power Index (which measures online news, searches, and social media buzz of TV shows in addition to viewer ratings)—received a higher number of video views. Films like The Wailing, Captain America: Civil War, and Spirits’ Homecoming, which had some of the most hashtags on Instagram, enjoyed increasing ticket sales as word of mouth spread.

Content appreciators are creating a world of “filter bubbles” through social media. The term filter bubble was coined by internet activist Eli Pariser to describe the unique, circumscribed set of information—created by various personalizing filters in search engine results and social media—on which each user relies. While the concept was developed in order to caution against its potential isolating effects, it is also relevant to the contexts of content ecosystems and marketing. By offering thoughts and opinions on certain content, users can create and enjoy their own little bubbles, while content developers and distributors can take advantage of viral marketing to increase their chances of success.

Figure 1. PC/mobile search frequency of high CPI ranked content Figure 2. Digital videos featuring buzzworthy content get high

views overall

Note: CPI = content power index, which is calculated based on news, searches, buzz, etc.; Rankings based on 5th week of March 2016 Source: CJ E&M, NAVER, Mirae Asset Daewoo Research

Note: Naver Tvcast views based on 4h week of May 2016 Source: NAVER, Mirae Asset Daewoo Research

Produce 101 (2nd)

Infinite Challenge (4th)

King of Mask Singer (5th)

Radio Star (7th)

0

5

10

15

20

0 50 100 150 200 250

CPI rank

Views (mn)Descendantsof the Sun (1st)

0

20

40

60

80

100

120

1/16 2/16 3/16 4/16 5/16

(max=100)

Descendants of the Sun (1st) Produce 101 (2nd)Infinite Challenge (4th) King of Mask Singer (5th)Radio Star (7th)


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June 1, 2016


Figure 3. Number of Instagram hashtags for major 1H films Figure 4. Major blockbusters rebounded in first weekend after release, attracting 1mn theatergoers (cumulative)

Source: Gundolle.com, Mirae Asset Daewoo Research Source: KOFIC, Mirae Asset Daewoo Research

2) Content crowdfunding

Some content appreciators go one step further by getting involved in the pre-production phase. A key example is content crowdfunding, which allows individuals to invest in content projects through social media and dedicated websites.

Since a crowdfunding project is not funded if it fails to meet its fundraising goal within a set period of time, content developers and investors both have strong incentives to promote their projects. The upside is that investors can spend as little as they want, while developers can secure funding and promote their project at the same time.

A classic example of crowdfunding is Yule Bao, an online investment product launched by China’s Alibaba in March 2014. The fund enables consumers to invest in films and TV shows with a minimum of RMB100 and targets an annualized return of 7%. The fund has financed several Chinese dramas, such as Tiny Times and Wolf Totem. In addition to investment returns, investors are given the chance to meet the shows’ stars and visit their sets.

The upcoming Korean film Operation Chromite (to be distributed by CJ E&M this summer) is another good example of content crowdfunding. The studio behind the film, Taewon Entertainment, said it decided to launch a crowdfunding campaign in order to share the significance of the film’s theme, which is based on one of Korea’s most historic events. IBK Securities, which brokered the fund, attracted 288 investors in just seven days, exceeding its original target of W500mn. The fund mainly invests in participating bonds, which generates extra returns if the film pulls in more than 5mn viewers. For investors, the returns alone may be enough reason to root for the film’s success.

Figure 5. Alibaba’s Yule Bao, a film marketing investment platform Figure 6. Major films funded through Yuebao; Annual return

of 7% expected

Source: Taobao.com, Mirae Asset Daewoo Research Source: Taobao.com, Mirae Asset Daewoo Research

0 50,000 100,000 150,000

A Melody To Remember (Jan. 21)

Spirits' Homecoming (Feb. 24)

Batman v Superman (Mar. 24)

Time Renegades (Apr. 13)

Captain America (Apr. 27)

The Wailing (May 12)

(no.)

Number of hashtags

0

200

400

600

800

1,000

1,200

Release Week 1 Week 2 Week 3 Week 4

('000 person) A Melody To Remember (NEW)

Spirits' Homecoming (WAW Pictures)

Batman v Superman: Dawn of Justice(Warner Bros)Time Renegades (CJ E&M)

Captain America: Civil War (Walt Disney)

The Wailing (20th Century Fox)


5

June 1, 2016


Figure 7. CJ E&M is experimenting with crowdfundingOperation Chromite this year Figure 8. Crowdfunding investment structure established by

IBK Securities

Source: IBK Securities Crowdfunding, Mirae Asset Daewoo Research Source: IBK Securities Crowdfunding, Mirae Asset Daewoo Research

3) Virtual reality: The ultimate immersive experience

Many content appreciators want to go beyond simply identifying with a content character and actually become the character themselves. Virtual reality (VR), which gives users an immersive, interactive experience in a 3D environment, provides a means to realize such a desire. Key features of VR technology include the ability to fully replicate real-life environments and manipulate user senses.

The global VR market is expected to grow from W8tr in 2016 to W84tr in 2020, while the global software/content market is forecast to be three times the size of the hardware market by 2020 (based on Trend Focus data). The domestic VR market (hardware and content combined) is anticipated to expand from W1tr in 2016 to W5tr in 2020.

One of the fastest-rising types of VR content is 360-degree video. This year, Samsung and LG rolled out cameras that allow users to take 360-degree photos and videos. Such videos can be viewed on social media and domestic online platforms without a separate head-mounted display (HMD). But most 360-degree videos lag behind in terms of immersion and presence—factors that are considered critical to enjoying a true VR experience. Looking forward, we believe VR content will become segmented into such areas as personal uses (led by 360-degree videos), theme parks, and gaming. Seoul’s first VR café is expected to open in the Gangnam area this June.

Figure 9. VR allows viewers to engage directly with content through much greater immersion than existing 2D or 3D

Source: VR-NERDS, Mirae Asset Daewoo Research

Production

Distributor

Contract on producing

and distribution

Film production

project Investors: Invest through crowdfunding

(Scale) W0.4bn ~ W0.5bn

(Intermediary) IBK Securities

IBK Securities Cultural Content

Investment

(SPC)

Invest

Balanceaccount

Fund

Issue bonds

Pay back participating bonds with accumulated returns until the first profit calculation date

after the end of film screening


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June 1, 2016


Figure 10. VR can be applied to personal uses, theme park experiences, games, etc.

Source: VR Cinema, Wow Insight, SEC Gear VR, Tokyo Sunshine City, Zero Latency VR, The VOID, Mirae Asset Daewoo Research


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June 1, 2016


2. Survival of the fittest

1) Value chain expansion

Charles Darwin wrote: “It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change.” We think the same can be said for the media industry. In our view, media companies that are expanding their value chains and repositioning themselves to adapt to the changing industry environment stand a greater chance of survival.

Major media content groups have propped up their earnings through business diversification. The core businesses of CJ E&M, Walt Disney, and Viacom consist of broadcasting and films. We think an ideal business structure for media groups is for the broadcasting business to serve as a cash cow on the back of strong content and channels, and for the film business to tap into the cash to bet on new projects.

In 1Q16, Walt Disney reported higher revenue and operating profit at its media networks division and double-digit earnings growth at its studio entertainment division (which benefited from the strong performance of its Marvel films). That said, the numbers were slightly short of consensus expectations. On the other hand, CJ E&M’s 1Q16 earnings came in above the consensus, with stronger broadcasting earnings offsetting the weakness of the film division. As for Viacom, operating profit declined YoY in both broadcasting and films due to sluggish growth.

Within its content value chain, CJ E&M has been beefing up its production and new media (web/mobile) operations this year. In May, the company spun off its drama production business into a subsidiary named Studio Dragon. Following its acquisition of online video streaming service Tving from CJ HelloVision, the company has begun selling 360-degree ads through its own over-the-top (OTT) strategy and digital advertising subsidiary MezzoMedia as part of its efforts to diversify the monetization channels of its content.

Table 1. CJ E&M value chain expanding from programming/distribution focus to production (IP), distribution (mobile OTT) Production Programming Distribution Ads

Broadcasting Plan to spin off drama production unit intoStudio Dragon

Cable PP16 channels including tvN

Affiliate cable SO CJ HelloVision (sold) Self-operating

Film Friendly relationship with film producer JK Film

Film investment/distributorCJ Entertainment

Affiliate movie theater CJ CGV

Web/mobile Web content

tvN Go New Journey to the West

PC/mobile OTT Tving (taken over) Third parties (Naver TV Cast, China BATS etc.)

Subsidiary Mezzo Media

Note: Number of cable channels include sixteen domestic ones and four oversea ones Source: Company data, Mirae Asset Daewoo Research

Figure 11. CJ E&M’s and major US media groups’ 1Q16 earnings Figure 12. CJ E&M’s and major US media groups’ share

performances

Note: Based on Jan. to Mar. earnings; Viacom film unit is -100% as it turned to red Source: Respective companies’ data, Mirae Asset Daewoo Research

Note: Viacom stock price volatility increased due to recent conflict regarding management right succession Source: Thomson Reuters, Mirae Asset Daewoo Research

-150

-100

-50

0

50

100

150

CJ E&M Walt Disney Viacom

(%, YoY)

Broadcasting revenue Broadcasting OP

Film revenue Film OP

Broadcasting offsetsluggish film unit

Hit films +broadcast recovery

Broadcasting + film doing poorly simultaneously 70

80

90

100

110

120

1/16 2/16 3/16 4/16 5/16

(1/16=100)CJ E&M Walt Disney Viacom

CJ E&M rose after earnings release;

Meanwhile, US groups fell


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June 1, 2016


2) Ad firms’ adaption to the new media environment

Under growing pressure to respond to such external changes, domestic ad firms are now showing signs they are adapting steadily to the new media environment. Indeed, INNOCEAN Worldwide and Cheil Worldwide this year launched ad campaigns based on VR technologies.

INNOCEAN Worldwide directly produced a 360-degree video advertisement for Hyundai Motor’s (HMC) Ioniq, a new eco-friendly model. In addition, the company is operating the Hyundai Experience Simulator, which allows customers to virtually experience HMC’s N series, which has not yet been commercially released. Meanwhile, Cheil Worldwide is conducting various VR campaigns to promote SEC’s recently launched Samsung Gear VR. One such campaign uses the hashtag #BeFearless to encourage young people to overcome their fears (namely acrophobia) with the help of SEC’s VR gear. The company is also carrying out SEC’s VR-based marketing campaign for the Lillehammer 2016 Youth Olympic Games.

In the broader global market, 11 out of the top 30 global advertising agencies are specializing in digital ads; many digital ad firms have moved up in the rankings since last year. In 2015, the digital units of US ad firms achieved double-digit sales growth, while other units grew by only single-digits or even saw negative growth. Such trends illustrate why ad firms need to adapt to the new media environment to achieve sustained growth.

Figure 13. INNOCEAN Worldwide’s 360-degree video clip on HMC’s Ioniq Figure 14. Cheil Worldwide’s VR campaign for SEC

Source: HMC, Mirae Asset Daewoo Research Source: Cheil Worldwide, Mirae Asset Daewoo Research

Figure 15. As of 2015, 11 out of the top 30 global advertising agencies are specializing in digital ads Figure 16. YoY sales growth of US ad companies by type of

revenue (2015)

Source: Ad Age, Mirae Asset Daewoo Research Note: Excluded digital in media agencies Source: Ad Age, Mirae Asset Daewoo Research

0

2

4

6

8

10

12

Same rank Changed rank Digital-specializedcompanies

Digital-specializedcompanies that

moved up in rank

(no.) -5 0 5 10 15

All

Digital

Healthcare

Promotion

Public relations

Ad agencies

CRM/direct marketing

Media agencies (excl. digital work)

(%)

YoY


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June 1, 2016


3) Increasing content investments by infrastructure/hardware/platform firms

Faced with limited growth opportunities, even IT hardware, infrastructure, and platform firms are turning their eyes to content. In China, Wanda Cinemas (a multiplex theater operator), Tencent (a major platform operator that includes an instant messaging app, QQ), and Huayi Brothers (a film production and cinema company) are expanding investments in content. Even the global IT giant Apple is ramping up content production efforts.

Wanda Cinemas, having horizontally integrated its businesses in China and the US, now appears more set on vertical integration. The firm has already bought several content businesses this year, including US filmmaker Legendary Entertainment. (The acquisition was announced in January.)

In February of this year, Tencent and Huayi Brothers jointly acquired Jiuhao Health (listed in Hong Kong), and renamed it Huayi Tencent Entertainment. The following month, Huayi Tencent officially announced plans to acquire several Korean entertainment and TV drama production firms, including Sim Entertainment (whose name was changed to Huayi Brothers) and HB Entertainment.

In May, Apple was reported to have made a proposal to purchase media giant Time Warner. With revenue contracting in 1Q16 for the first time in 13 years, Apple appears to be seeking new growth drivers, such as content production. Time Warner owns cable TV channels (HBO, CNN, and Turner Broadcasting System), popular content (Game of Thrones), and film studio Warner Bros. In the initial stage of smartphone growth, Apple rapidly gained market share with its music content and service platform, iTunes. And after the introduction of LTE, video viewing on smartphones surged. As 5G services and VR emerge going forward, mobile access will become easier, faster, and more diverse. It remains to be seen whether Apple will be able to regain its market leader position via video content.

Figure 17. Share price of China’s Wanda Cinemas Figure 18. Share prices of China’s Tencent and Huayi Tencent Entertainment

Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research

Figure 19. Share prices of China’s Huayi Brothers and Korea’s Huayi Brothers (Sim Ent.) Figure 20. Share prices of US’ Apple and Time Warner

Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research

40

50

60

70

80

90

100

80

90

100

110

120

130

140

1/15 4/15 7/15 10/15 1/16 4/16

(US$)(US$)Apple (L) Time Warner (R)

5/26/16Media reports Apple's potential

takeover of Time Warner

0

4,000

8,000

12,000

16,000

0

8

16

24

32

1/15 4/15 7/15 10/15 1/16 4/16

(W)(RMB) Huayi Brothers (CH, L)Huayi Brothers (KR, R)

5/11/16Sim Ent. (KR) changed name to Huayi Brothers

3/15/16:Sim Ent. (KR) disclosed change of largest

sharehorder to Huayi & Joy

0

20

40

60

80

100

120

140

1/15 4/15 7/15 10/15 1/16 4/16

(RMB) 1/11/16:Media reports acquisition of filmmaker Legendary Entertainment

2/24/16:Trading halted

1/22/15:Stock listed

0.0

0.5

1.0

1.5

2.0

40

80

120

160

200

1/15 4/15 7/15 10/15 1/16 4/16

(HK$)(HK$) Tencent (L)Huayi Tencent Ent. (R)

3/24/16Media reports Huayi Tencent Ent. to acquire Korean drama producer HB Ent.

2/29/16Changed company name of

Jihao Health(listed in Hong Kongstock market) to Huayi Tencent Ent.


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June 1, 2016


3. Media industry reaches an inflection point

The Korean media industry has reached an inflection point, particularly the advertising and pay-TV segments.

The domestic ad market is dominated by agencies affiliated with chaebol groups. In 2015, the top five in-house agencies accounted for 92% of overall domestic billings (approximately W12tr). But changes are now afoot, as Samsung is in discussions to sell its controlling stake in Cheil Worldwide (which took the largest share of the market—36%—in 2015). In January of this year, talk emerged about a potential M&A with the world’s third-largest ad agency, Publicis. If Cheil Worldwide is incorporated into a global group, it would bring about significant changes to the market; the entry of a global agency would make the market more likely to switch to a competitive bidding structure.

The domestic pay-TV market is composed of roughly 30mn households (including redundant subscriptions). Currently, KT affiliates account for 30% of subscriptions, while CJ affiliates, SK affiliates, and Taekwang affiliates take up around 10% each. However, considering SKT’s plan to acquire CJ HelloVision (officially announced in November 2015), the market might be realigned into a structure dominated by KT and SKT. Notably, the conventional cable SO market has seen no notable M&A deals or restructuring since the digital conversion in broadcasting started; if the SKT-CJ HelloVision deal materializes, this could act as a catalyst for M&A deals.

Figure 21. Ad companies’ M/S by domestic ad billings; Structure could change with Samsung Group’s potential stake sale of top-ranked Cheil Worldwide

Note: Based on domestic ad billings in 2015; Excluded overseas revenue from each company Source: Ad Trend, KOBACO, Mirae Asset Daewoo Research

Figure 22. Domestic pay-TV M/S by subscribers; Market could be dominated by two big players KT and SK Telecom if merger of second- and third-ranked players materializes

Source: Respective companies’ data, KCTA, Mirae Asset Daewoo Research

36%

30%

10%

7%

3%3%

1% 2%

Samsung: Cheil Worldwide

HMC: INNOCEAN Worldwide

LG: HS Ad

Lotte: DaeHong Comms

SK: SK Planet

Omnicom: TBWA

WPP: GroupM Korea

Doosan: Oricom

Hanhwq: Hancom

Other

Possibility of largestshareholder's stake sale

has emerged

1%2%


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June 1, 2016


2H: Opportunities and crises

1. Joint content production with China to grow full swing

For 2H, we foresee a surge in joint movie and drama productions in partnership with China. Thus, long-anticipated business plans in China will finally begin to materialize, allowing initial results to be confirmed. This could increase the volatilities of related stocks. For companies whose content production abilities have been confirmed in the domestic market, successful entry into China should provide an additional boost to earnings growth. As of now, most domestic content producers remain heavily reliant on domestic revenue.

This year, CJ E&M is scheduled to release three co-productions in China (Final Recipe in 2Q, The Peaceful Island in 3Q, and Kang Ho's Childbirth Story in 4Q). Over the long term, the company plans to strike a balance between the number of domestic and overseas releases. Currently, CJ E&M’s film business is lopsided in its focus on the domestic market; this year it is investing in/distributing 15 films and distributing 10 films in Korea. However, the company is preparing to expand its film investment and distribution businesses beyond China to Vietnam, Indonesia, Thailand, and Turkey.

Showbox is scheduled to release Beautiful Accident, a co-production with Huayi Brothers, in China on August 12th. And Witch, NEW’s co-production with Huace Media, is set for release in China the end of this year. Two other co-productions, Bounty Hunters (starring Lee Min-ho) and Tik Tok (starring Lee Jung-jae), will also premiere in China this summer.

Meanwhile, following in the footsteps of Descendants of the Sun, several dramas are being planned for simultaneous broadcast in Korea and China in 2H, including KBS’s Uncontrollably Fond, Moonlight Drawn By Clouds, and Hwarang: The Beginning, as well as SBS’s Scarlet Heart: Ryeo and Saimdang, the Herstory. And CJ E&M is considering broadcasting Entourage simultaneously in Korea and China.

Meanwhile, The Legend of the Blue Sea (a drama starring Jun Ji-hyun and Lee Min-ho, to air on SBS) is unlikely to be simultaneously broadcast in China, but the copyright is highly likely to be sold in China. As it was produced by Culture Depot, a subsidiary of CJ E&M’s drama production arm Studio Dragon, related revenue should be reflected in CJ E&M’s earnings.

Table 2. 2016 release/programming schedule for China-related content Films: Chinese co-productions to be released in China Dramas: Simultaneous airing in Korea and China

1Q KBS-NEW: Descendants of the Sun

2Q CJ E&M: Final RecipeLittle Big Pictures: My Sassy Girl 2

3Q

Showbox-Huayi Brothers: Beautiful AccidentCJ E&M: The Peaceful Island LeTV: Bounty Hunters KRCG: Bad Sister Cita Mountain Pictures: After Love Dutayeon Falls-Hairun Pictures/China Film: Tik Tok

KBS-Samhwa/IHQ: Uncontrollably Fond KBS-KBS Media: Moonlight Drawn by Clouds SBS-Baramibunda/YG/NBCU: Scarlet Heart: Ryeo

4Q CJ E&M: Kang Ho's Childbirth Story NEW: Witch (tentative)

SBS-Group8: Saimdang, the Herstory KBS-Oh Boy Project: Hwarang: The Beginning tvN-Studio Dragon: Entourage

Note: Date of release/broadcast subject to change; It is not certain that all of the listed dramas will be broadcast simultaneously; Companies indicated for films are distributor and co-producer; Those indicated for dramas are broadcast channel and producer Source: Media reports, respective companies’ data, Mirae Asset Daewoo Research


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2. Policy tailwinds

The media market is expected to see several policy tailwinds in 2H. In light of media firms’ heavy dependence on the domestic market and strong regulations on the industry, the government’s easing of regulations to promote the industry should directly boost media firms’ earnings.

Most notably, the government will provide tax credits for content production costs (10% for SMEs and 7% for large firms). The new measure is expected to go into effect in 2H after the Special Tax Treatment Control law is revised in July. CJ E&M, which recently spun off its drama production unit, stands to benefit from the measure.

The government will also ease regulations on advertising, which should positively affect SBS and CJ E&M. In addition, the Ministry of the Interior (MOI) and the Ministry of Science, ICT and Future Planning (MSIP) are jointly pursuing a revision to the Outdoor Advertisements, etc. Control Act to expand the areas where installation of digital signage is permitted. INNOCEAN Worldwide, Cheil Worldwide, and Nasmedia are expected to enjoy benefits.

Table 3. Government measures for promoting the content and advertising industries in 2016

Industry Details Related ministries Announced To take

effect

Content

Industry reform via investments in new industries - Tax credits for content production costs (10% for SMEs and 7% for

large firms) - Content development costs and R&D costs to be eligible for tax credits - New business R&D technology (which will include technology classified

as music- or webtoon-related) also to be eligible for tax credits - Special Tax Treatment Control law to be revised

MOSF, MOTIE, MSIP

April 28 July

Establishment of VR content development ecosystem- Plan to promote VR games, and apply discretionary rating system to VR

games - Support open-source development of VR content creation technologies - Exempt 14 promising VR firms from office rents and provide them with

shooting equipment & system - VR TV programs and films to be granted tax credits

MOSF MSCT, MSIP

May 3 2H

Ad

TV ad regulations to be revised- Virtual and indirect advertisements of items that are forbidden for

advertising during certain hours, including liquor (alcohol content below 17%) and private loans, to be allowed (TV ads of private loan firms to be allowed between 9am and 1pm and between 10pm and 7am on weekdays, and between 10pm and 7am on holidays)

- Enforcement Decree of the Broadcasting Act to be revised

KCC Jan. 27 July 28

- Outdoor Advertisements, etc. Control Act to be revised- Digital conversion of fixed signage to be allowed - Allow installation of digital signage in all areas except exclusive

residential areas and facility protection zones - Allow digital advertising using store windows and walls - Car-mounted digital signage to be allowed on a pilot basis - Budget of W79.8bn to be allocated for establishing ecosystem,

supporting venture firms, promoting R&D, and revising regulations until 2018

MOI, MSIP Jan. 6 July

Source: Related ministries, media reports, Mirae Asset Daewoo Research


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June 1, 2016


3. Increasing production costs

1) Already known risk

One major risk in the media sector is the uptrend in production costs. On this issue investors are divided; some view the growth as a negative, and others as a necessary investment. For now, investors should keep in mind that production cost growth is an already known risk and monitor whether top-line growth is robust enough to offset it.

Of note, the number of Korean film titles with production costs of more than W10bn is estimated at 14 this year (vs. 6 in 2015). As production costs have increased, one notable strategy has been to cast multiple famous actors or actresses in a single film to capitalize on social media filter bubbles, which determine the success of content in the short term. In addition, large-scale location shooting and the extension of sophisticated computer graphic works have become a norm in filmmaking. Major films to be released starting in June include CJ E&M’s Handmaiden, The Map Maker, Operation Chromite, and Asura, NEW’s Bound for Busan, Pandora, and The King, Lotte Entertainment’s The Last Princess, and Warner Bros.’ The Age of Shadows.

This year, there has been an increase in drama pre-productions (i.e., dramas that are entirely filmed before broadcast) to cope with China’s tough screening system, improve the quality of dramas, and ensure the acquisition of time slots from broadcasters. Pre-produced dramas that will air in 2H16 include KBS’s Uncontrollably Fond, Moonlight Drawn by Clouds, and Hwarang: The Beginning; SBS’s Scarlet Heart: Ryeo and The Herstory; and tvN’s The Good Wife and Entourage.

Broadcasters are also increasing in-house production to secure copyrights. In addition, they are spending more to attract drama screenwriters and actors/actresses, so as not to lose talent to Chinese production companies.

Figure 23. This year will see an increase in number of films with large-scale production costs

Source: KOFIC, media reports, respective companies’ data, Mirae Asset Daewoo Research

Figure 24. Remarkable increase in number of pre-produced dramas this year

Note: Only includes dramas for which pre-production (50% or 100%) has been confirmed by media reports Source: Media reports, respective companies’ data, Mirae Asset Daewoo Research

34

5

11

6

14

0

4

8

12

16

2011 2012 2013 2014 2015 2016F

(no.)Number of films with production costs exceeding W10bn

0

2

1

3

7 7

0

2

4

6

8

1H14 2H14 1H15 2H15 1H16 2H16F

(no.)

Number of pre-produced dramas


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June 1, 2016


2) Revenue growth is key

With production costs rising, the winners will be those that can generate revenue in excess of their investments. A case in point is CJ E&M, while SBS is failing in this regard.

For CJ E&M, COGS increased by W9.5bn YoY in 1Q16, while SG&A expenses expanded by W11.2bn YoY. However, revenue rose by W20.4bn, leaving operating profit flat YoY. The TV ad rate hike, higher mobile and video ad revenue, and film copyright revenue offset the cost increase.

For SBS, COGS expanded by W16bn YoY in 1Q16. Although SG&A expenses decreased by W2.1bn, revenue shrank by W3bn. As such, the firm’s operating loss increased YoY.

To offset production cost growth, media firms need to 1) push through rate hikes for ads and content, 2) expand licensing income by securing copyrights, 3) control costs, including SG&A, and 4) create new revenue sources via overseas expansion and new businesses.

In the short term, we believe domestic rate hikes and copyright revenue growth are achievable. Cost control efforts should also be monitored, but are likely to be limited in scale and not sustainable in light of the current business environment. From a long-term perspective, the creation of new revenue sources will be the best way to achieve sustainable growth.

Figure 25. CJ E&M’s 1Q16 earnings: Costs increased but so did revenue, keeping earnings stable

Source: Company data, Mirae Asset Daewoo Research

Figure 26. SBS’ 1Q16 earnings: Costs increased while revenue decreased, leading to bigger loss


+7% +7%

Similar to 1Q15

0

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(Wbn)

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June 1, 2016


Investment strategy & valuation

1. Investment strategy

1) Premium justifiable for stocks achieving both growth and profitability

For media content stocks, long-term growth potential is a major premium valuation factor. However, a premium on growth potential alone in the absence of clear profitability could be controversial; the market is more welcoming to stocks that show both strong growth potential and profitability. The stocks in our coverage universe that meet these criteria are CJ E&M, INNOCEAN Worldwide, J Contentree, Showbox, and Nasmedia.

Share determinants in Korea’s media sector changed in 2010. Before that year, media stocks were seen as domestic consumer stocks and were vulnerable to seasonality and domestic ad market growth. Since 2010, however, media stocks have been considered export stocks (growth stocks), and their performances have hinged largely on overseas revenue growth.

Media-related policies remain an important determinant. With domestic revenue still being the major source of media firms’ earnings, domestic deregulatory measures can provide an immediate boost to stocks. Also, government-level support (e.g., FTAs) is crucial to overseas operations. In the short term, earnings visibility has a big impact on share prices. For example, CJ E&M shares corrected due to cost increases early this year, but rebounded during earnings season when it became clear that earnings had in fact stayed stable.

Figure 27. Note companies with simultaneous growth in revenue and operating profit

Note: Based on 2016 estimates; NEW’s OP change is 100% as it is forecast to turn to black; Source: Mirae Asset Daewoo Research

Figure 28. Valuation premium going to stocks with high growth prospects and earnings recovery

Note: Based on 2016 estimates; Source: Mirae Asset Daewoo Research

CJ E&MINNOCEANWorldwideShowbox

SBS

NEW

Cheil WorldwideSBS Contents Hub

J Contentree Nasmedia

KTH

CJ HelloVision

KT Skylife

-100

-50

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-5 0 5 10 15 20 25 30 35

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CJ E&M

INNOCEANWorldwide

Showbox

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SBS Contents Hub

J Contentree

Nasmedia

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KT Skylife

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16

June 1, 2016


2) Focus on competitive names with small overseas exposure

With the growth in IPOs and back-door listings, an increasing number of media content companies and ad agencies are traded in the domestic stock market. In addition, foreign capital (especially from China) is increasingly flowing into the industry. Of note, Chinese media companies with infrastructure (e.g., theaters, distribution networks, and retail platforms) are coming to Korea to secure content IP, with a focus on producers of video content (e.g., movies, dramas, entertainment shows, animated movies, and visual effects) and entertainment companies with actors and actresses.

Thus, media companies with competitive edges and relatively less exposure to overseas appear highly likely to attract strong foreign capital going forward. Foreign capital could invest in such companies or even acquire them in part or in whole. For now, CJ E&M and Showbox have yet to attract a meaningful amount of Chinese capital, despite their strong content competitiveness. In addition, INNOCEAN Worldwide, J Contentree, and Nasmedia show low foreign ownership despite strong growth prospects.

Figure 29. Change in foreign ownership: 1) Media content/ad universe

Note: Based on May 30th of each year; NEW in 2014 and INNOCEAN Worldwide in 2015 are based on date of IPO; Excluded SBS as restricted from foreign investment Source: Mirae Asset Daewoo Research

Figure 30. Change in foreign ownership: 2) Media content/ad small cap/Not Rated

Note: Based on May 30th of each year; Dexter in 2015 and Huayi Brothers (Sim Ent.) in 2014 are based on date of IPO; Chorokbaem, Dexter, Huayi Brothers, and KEYEAST are experiencing an influx of Chinese capital Source: Mirae Asset Daewoo Research

0

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Cheil WW CJ E&M KT Skylife NEW INNOCEANWW

CJHelloVision

Showbox JContentree

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Hub

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ChorokbaemMedia

Dexter HuayiBrothers

KEYEAST Pan Ent. SAMHWANetworks

fantagio Redrover SIGNAL Ent. IHQ

(%)

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17

June 1, 2016


2. Valuation comparison

1) Media content stocks

The market cap of CJ E&M, the largest domestic media content company, has just reached W3tr. This is negligible compared to China-based Huayi Brothers (W7.5tr), Walt Disney (W193tr), and Time Warner (W70tr). For CJ E&M, raising enterprise value should require not just revenue growth but also improvement in margins and ROE.

Global media content stocks that trade at lofty valuations tend to deliver strong revenue and profits simultaneously. In addition, stocks in China and Korea tend to trade at relatively high valuations, compared to those in advanced markets (e.g., the US and Japan). Valuation premiums typically go to companies that swing to profits or show significant YoY earnings growth. Notably, media groups with a long corporate history tend to pay out dividends. We believe new media companies such as Netflix do not pay out dividends. Although major Chinese media companies and Korea’s CJ E&M pay out dividends, dividend yields are low.

Table 4. Major global media content companies’ earnings forecast (Wbn)

Company name Market cap

Revenue OP Net profit

15 16F 17F 15 16F 17F 15 16F 17F

CJ E&M 2,917 1,347 1,532 1,607 53 64 73 54 60 73 SBS 519 773 848 824 40 14 41 35 17 38 J Contentree 516 350 385 416 31 47 51 11 24 25 Showbox 476 141 154 159 14 17 17 12 13 13 NEW 325 76 82 89 -2 3 6 1 4 6

Huayi Brothers Media 7,509 694 905 1,159 163 259 320 176 202 238 Zhejiang Huace Film & TV 4,912 476 629 786 92 143 192 86 123 162 Beijing Hualu Baina Film & TV 3,073 336 485 633 48 88 114 48 89 118

Fuji Media Holdings 3,411 6,179 7,019 7,050 235 247 259 220 198 207

Walt Disney 193,481 58,524 66,862 69,685 14,692 17,964 18,533 9,350 11,358 11,676 Time Warner 70,393 31,836 34,603 36,634 7,773 8,939 9,619 4,340 5,059 5,449 21st Century Fox 65,476 31,257 32,425 34,731 6,369 7,177 8,034 8,957 3,814 4,545 Netflix 52,609 7,676 10,324 12,966 346 334 986 139 252 733 Viacom 21,100 14,786 15,671 16,102 3,468 4,165 4,342 2,142 2,336 2,473

RTL Group 17,034 7,576 8,249 8,478 1,405 1,576 1,673 991 1,021 1,081 Note: Our universe (first five companies) based on our estimates Source: Bloomberg, Mirae Asset Daewoo Research estimates

Table 5. Major global media content companies’ valuation (x, %)

Company name P/E P/B EV/EBITDA ROE Div. yield

15 16F 17F 15 16F 17F 15 16F 17F 15 16F 16F

CJ E&M 57.4 48.9 39.7 2.0 1.8 1.7 8.3 9.4 9.9 3.6 3.8 0.3 SBS 18.5 31.1 13.8 1.1 0.9 0.9 8.1 10.0 5.9 6.2 2.9 2.6 J Contentree 56.0 21.5 20.6 9.5 6.5 4.9 18.2 11.7 10.6 15.0 35.1 0.0 Showbox 39.6 37.3 37.3 4.0 3.8 3.5 4.0 14.5 13.9 10.6 10.6 0.7 NEW 287.8 73.4 50.7 2.3 2.5 2.4 - 95.0 46.4 0.8 3.5 0.0

Huayi Brothers Media 39.8 34.6 29.6 4.3 4.1 3.7 - 30.4 25.0 12.7 10.2 0.3 Zhejiang Huace Film & TV 50.5 41.7 32.0 4.4 4.4 3.9 - 32.8 24.7 10.5 10.4 0.2 Beijing Hualu Baina Film & TV 60.2 40.0 30.7 4.3 3.4 3.1 - 32.6 22.7 7.5 10.9 0.3

Fuji Media Holdings 13.7 17.0 16.3 0.5 0.5 0.5 7.1 7.9 7.9 3.6 2.7 3.0

Walt Disney 17.8 17.3 16.2 3.9 3.7 3.6 11.4 10.5 10.2 20.2 21.2 1.4 Time Warner 14.8 14.0 12.4 2.5 2.5 2.5 10.2 9.9 9.2 17.0 17.9 2.1 21st Century Fox 17.5 17.6 13.8 3.8 3.9 3.8 10.4 10.7 9.6 14.0 21.2 1.0 Netflix 356.2 213.0 87.0 19.1 18.5 15.2 137.9 86.9 43.3 6.0 6.0 0.0 Viacom 9.9 9.9 9.3 5.0 4.1 3.3 7.6 8.0 7.7 71.9 46.2 3.3

RTL Group 16.2 16.7 15.8 4.3 4.2 3.9 9.9 10.0 9.4 27.3 24.7 3.6

Average 31.7 26.7 22.1 3.7 3.3 3.0 9.5 15.3 12.8 11.1 12.9 1.3 Note: Our universe (first five companies) based on our estimates; Excluded outliers when computing average Source: Bloomberg, Mirae Asset Daewoo Research estimates


18

June 1, 2016


2) Advertising

Advertising agencies are generally trading below media content firms, due to the relatively high cyclical and business risks arising from their heavy reliance on advertisers.

This year, INNOCEAN Worldwide overtook market leader Cheil Worldwide in terms of valuation (and sharply narrowed the market cap gap), as Cheil Worldwide took a hit from uncertainties related to corporate governance changes. Nasmedia is trading higher than even Chinese advertising firms on the back of the strong growth potential of the new media market. Nasmedia’s valuation appears to be showing a stronger correlation with those of internet firms than with those of advertising firms.

Major Chinese ad agencies BlueFocus and Guangdong Advertising are continuing to expand sharply. However, their stocks are trading at significantly lower P/Es than in 2015, possibly because of a slower pace of growth than in the past, and the overall correction of the Chinese stock market.

Among the top four global ad agencies, European firms WPP and Publicis are trading at lower valuations than their US counterparts Omnicom and Interpublic, mainly due to weaker macroeconomic conditions in Europe and lower ROEs.

Table 6. Major global ad companies’ earnings forecast (Wbn)

Company name Market cap

Revenue OP Net profit

15 16F 17F 15 16F 17F 15 16F 17F

Cheil Worldwide 1,869 2,807 3,064 3,237 127 134 144 80 90 98 INNOCEAN Worldwide 1,776 988 1,186 1,304 93 107 117 70 79 85 Nasmedia 395 45 60 78 12 16 20 10 13 17

BlueFocus 3,515 1,498 2,290 3,127 92 172 232 12 133 169 Guangdong Advertising 2,861 1,724 2,158 2,697 147 199 245 99 137 170

Dentsu 17,318 7,053 8,851 9,402 1,281 1,467 1,598 773 927 1,031 Hakuhodo DY Holdings 5,789 11,723 13,562 14,108 434 495 527 275 281 301

WPP PLC 35,704 21,174 23,266 24,579 2,806 3,098 3,480 2,008 2,333 2,497 Omnicom Group 23,362 17,136 18,539 19,334 2,174 2,328 2,457 1,239 1,319 1,400 Publicis Groupe 19,173 12,064 13,021 13,500 1,732 1,965 2,120 1,132 1,375 1,486 Interpublic Group 11,345 8,621 9,321 9,729 987 1,127 1,223 515 632 694 Note: Our universe (first three companies) based on our estimates Source: Bloomberg, Mirae Asset Daewoo Research estimates

Table 7. Major global ad companies’ Valuation (x, %)

Company name P/E P/B EV/EBITDA ROE Div. yield

15 16F 17F 15 16F 17F 15 16F 17F 15 16F 16F

Cheil Worldwide 29.9 20.8 19.2 2.2 1.7 1.6 12.2 8.5 7.7 9.6 11.0 1.8 INNOCEAN Worldwide 18.9 22.6 20.8 2.3 2.7 2.4 8.4 10.2 8.8 13.7 12.4 1.2 Nasmedia 41.6 30.3 23.6 5.9 5.0 4.3 31.2 22.8 17.3 15.0 17.5 1.0

BlueFocus 53.4 25.6 19.3 4.3 3.3 3.0 - 19.0 14.9 6.4 13.6 0.5 Guangdong Advertising 27.3 22.0 17.8 6.2 4.4 3.8 - 15.0 12.3 24.7 22.2 0.4

Dentsu 20.9 18.4 16.6 1.6 1.4 1.3 - 10.5 9.8 8.3 7.8 1.4 Hakuhodo DY Holdings 18.2 19.9 18.5 1.9 1.8 1.7 6.7 8.0 7.7 10.6 9.3 1.7

WPP PLC 17.7 15.1 13.9 2.8 2.5 2.4 12.2 11.0 10.3 15.3 17.0 2.8 Omnicom Group 18.4 17.3 15.9 8.3 7.8 7.6 10.5 10.0 9.5 45.8 43.5 2.7 Publicis Groupe 16.0 14.1 13.1 2.2 2.0 1.8 9.1 9.2 8.7 14.3 14.6 2.5 Interpublic Group 19.5 17.9 16.0 4.9 4.7 4.6 10.3 9.3 8.7 24.0 26.7 2.5

Average 25.6 20.4 17.7 3.9 3.4 3.1 12.6 12.1 10.5 17.1 17.8 1.7 Note: Our universe (first three companies) based on our estimates; Excluded outliers when computing average Source: Bloomberg, Mirae Asset Daewoo Research estimates


19

June 1, 2016


Growth strategy: Diversification of content monetization channels and increase in co-productions

CJ E&M is expanding its value chain, thereby diversifying content monetization channels, as well as increasing co-productions overseas, enabling it to pursue both revenue and margin growth simultaneously.

Content monetization: In addition to its web/mobile streaming service Tving, CJ E&M is seeking additional monetization models of TV content, including digital subscription fees and video ads, via cooperation with MezzoMedia, a new media representative under its umbrella. In an effort to strengthen drama content competitiveness and diversify revenue sources, the company spun off its drama production unit into a wholly owned subsidiary, Studio Dragon, in May. Studio Dragon should mainly provide content to tvN. Meanwhile, The Legend of the Blue Sea, a new drama to be produced by Culture Depot, a subsidiary of Studio Dragon, is to be aired on SBS. Studio Dragon also plans to produce a large-scale drama in cooperation with China’s Huace Media targeting the global market.

Overseas expansion: CJ E&M is increasing the release of content overseas. The company released only one film in China and two films in Vietnam last year. It aims to release eight films overseas this year. Over the long term, the company plans to strike a balance between the number of domestic and overseas releases. Meanwhile, the company is expanding cooperation with overseas partners. It will invest in and distribute films in Thailand and Turkey via a JV and equity investment, respectively. The simultaneous broadcast of dramas in Korea and China in 2H should confirm the company’s TV content competitiveness.

Catalysts: China businesses and domestic growth

In 2H, the Chinese businesses and domestic growth will likely serve as catalysts for CJ E&M’s shares.

China businesses: CJ E&M is expected to benefit from progress in the establishment of infrastructure in the Chinese film market. Following Miss Granny last year, the company is scheduled to release three co-productions (Final Recipe in 2Q, The Peaceful Island in 3Q, and Kang Ho's Childbirth Story in 4Q) in China this year. Due to the nature of the film business (lower revenue and earnings stability compared to the TV business), it remains to be seen whether the Chinese film business will lead to a structural improvement in the company’s earnings.

Domestic growth: CJ E&M boasts stronger growth in ad and content revenue relative to other broadcasters. The possibility of ad rate hikes in 2H and the trend of content copyright and digital video ad revenue should determine the company’s earnings going forward.

Media

(Maintain) Buy

Target Price (12M, W) 110,000

Share Price (05/31/16, W) 75,300

Expected Return 46%

OP (16F, Wbn) 64Consensus OP (16F, Wbn) 68

EPS Growth (16F, %) 9.7Market EPS Growth (16F, %) 16.6P/E (16F, x) 48.9Market P/E (16F, x) 10.6KOSDAQ 698.45

Market Cap (Wbn) 2,917Shares Outstanding (mn) 39Free Float (%) 56.7Foreign Ownership (%) 19.1Beta (12M) 1.0252-Week Low 61,50052-Week High 95,000

(%) 1M 6M 12MAbsolute 11.9 -10.8 13.9Relative 12.1 -12.1 16.0

CJ E&M (130960 KQ)

Trend guide for content appreciators

FY (12) 12/13 12/14 12/15 12/16F 12/17F 12/18FRevenue (Wbn) 1,246 1,233 1,347 1,532 1,607 1,663OP (Wbn) -9 -13 53 64 73 84OP Margin (%) -0.7 -1.1 3.9 4.2 4.5 5.1NP (Wbn) 5 225 54 60 73 84EPS (W) 133 5,796 1,403 1,540 1,895 2,159ROE (%) 0.4 16.4 3.6 3.8 4.5 4.9P/E (x) 229.0 6.6 57.4 48.9 39.7 34.9P/B (x) 1.0 1.0 2.0 1.8 1.7 1.7Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

70

90

110

130

150

5.15 9.15 1.16 5.16

CJ E&M KOSDAQ


20

June 1, 2016


Maintain Buy and TP of W110,000; Top pick in media/ads

We maintain our Buy call on CJ E&M and our target price of W110,000, presenting the stock as our top pick in media/ads. As a trend guide for content appreciators, the company’s global outreach efforts based on dominance in the domestic market are expected to bear fruit going forward.

Earnings outlook

For CJ E&M, 2Q is the peak season for TV ads and 3Q for films. In 4Q, almost all businesses enjoy strong seasonality. Accordingly, the company’s quarterly earnings are anticipated improve steadily from the 1Q levels.

The company had enjoyed base effects from last year’s low TV ad rates in 1H. In 2H, the increase in TV ad rates could moderate. The company is still expected to seek higher average ad rates by raising weekday ad rates, lowering commission rates for ad sales, and increasing ad rates for other channels than tvN. Of note, the airing of US drama remakes and dramas by popular screenwriters in 2H is anticipated to help the company further push up ad rates. In the film unit, many of the most heavily invested films are scheduled for release in summer and at year-end.

Table 8. CJ E&M’s earnings trend and forecast (Wbn, %) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16F 3Q16F 4Q16F 2014 2015 2016F

Revenue 293 299 370 385 314 362 399 457 1,233 1,347 1,532 Broadcasting 178 224 228 281 225 266 262 311 826 910 1064 Film 66 32 93 48 40 49 87 86 211 238 262 Music/performance 49 44 49 57 48 48 50 60 196 200 205 Operating profit 9 18 14 12 9 23 15 18 -13 53 64 Broadcasting 3 20 7 17 5 22 9 20 2 46 55 Film 7 -4 8 -4 4 0 7 -2 -4 6 9 Music/performance 0.3 2.3 -1.2 -0.9 0.0 1.4 -1.2 0.0 -11 1 0 OP margin 3.2 5.9 3.6 3.1 2.8 6.3 3.7 3.8 -1.0 3.9 4.2 Broadcasting 1.4 8.8 3.1 6.1 2.3 8.3 3.3 6.3 0.3 5.1 5.2 Film 9.8 -13.0 8.3 -8.6 9.4 -1.0 8.4 -2.3 -1.9 2.5 3.3 Music/performance 0.6 5.2 -2.4 -1.6 0.0 3.0 -2.4 0.0 -5.6 0.3 0.1 Net profit 90 13 28 -78 13 22 23 3 234 53 60 Net margin (%) 30.8 4.2 7.5 -20.2 4.0 6.0 5.7 0.5 19.0 3.9 3.9 YoY Revenue 10.6 5.5 7.8 12.9 7.0 21.1 7.7 18.8 -1.0 9.3 13.7 Broadcasting 4.4 6.9 11.2 16.0 26.7 18.9 15.1 10.9 7.1 10.1 17.0 Film 32.5 4.3 -0.3 25.8 -38.9 55.2 -6.7 80.6 1.2 12.8 10.1 Music/performance 9.6 0.0 8.8 -7.2 -2.8 7.8 1.0 5.6 -26.5 2.0 2.8 Operating profit TTB TTB TTB 24.7 -4.3 29.2 9.1 45.3 48.8 TTB 21.8 Broadcasting TTB TTB TTB -23.4 104.0 12.5 23.5 15.0 10.0 1995.5 20.1 Film 51.2 TTB 18.5 RR -41.5 -88.1 -5.3 TTB TTR TTB 44.3 Music/performance TTB TTB TTB RR -100.0 -37.9 1.0 RR RR TTB -59.0 Net profit TTB TTB -90.2 RR -86.1 74.7 -18.2 TTB 25866.7 -77.4 12.7 Note: Based on consolidated K-IFRS, Net profit is attributable to controlling and non-controlling interests; For data prior to 2015, the game division and investment unit of the performance division are reflected as discontinued operations and therefore the figures differ from previously published FSS data; Gains on the spin-off of the game division and the partial sale of the Netmarble Games stake were reflected as income from discontinued operations and non-operating income in 2014; Valuation gains on Netmarble Games (1Q15 W93.8bn) and one-off impairment losses on drama IP (4Q15 W104.1bn) are reflected in 2015 non-operating data; TTB, RR, and TTR refer to “turning to black,” “remain red,” and “turning to red” Source: Company data, Mirae Asset Daewoo Research estimates


21

June 1, 2016


Figure 31. Ad unit prices: Weekday rates and rates onchannels other than tvN rose; Commission rate decreased Figure 32. Expected tentpole films this year: The Handmaiden,

Operation Chromite, Asura, Master, etc.

Note: All times are p.m.; Based on unit prices of tvN 15 sec. ads Source: Company data, Mirae Asset Daewoo Research

Source: Company data, KOFIC, Mirae Asset Daewoo Research

Factors to consider in 2H

In CJ E&M’s 2H lineup, we see more serious-themed dramas by renowned screenwriters. Studio Dragon is believed to resemble Netmarble Games in terms of corporate structure, with a number of drama producers, including Hwa & Dam Pictures and Culture Depot, under its umbrella. Going forward, Studio Dragon’s enterprise value could increase in line with the improvement in its content competitiveness.

Table 9. Major events and content lineup for 2016 by quarter (forecast) 1Q 2Q 3Q 4Q

Major events

- Poorest earnings season - 4Q15 earnings released on Feb. 5 - Accounting policy changes related to intangible assets in broadcasting unit

- Signed strategic agreement with China Huace Media to co-produce three to four dramas over three years

- Established JV with Thailand’s Major Cineplex Group

- Entering peak season for broadcast ads - Drama production unit spun off into

subsidiary Studio Dragon (registered May 3)

- 1Q16 earnings released on May 10 - To acquire 12.7% stake in Turkey’s Mars Entertainment on May 26

- Content co-planning and co-production with global production company Endemol Shine

- JV with Thailand’s TrueVisions to be established

- Rebranding of Hong Kong cable channel to “tvN Asia” (from “Channel M”)

- Peak season for films (especially Aug.)

- Expansion in release of global film co-productions

- 2Q16 earnings to be announced in Aug.

- Asian cable channel tvN Movie to be launched

- Preparation for Tving’s foray into global OTT market

- Mnet Smart to enter Japanese digital business

- Strong season for all businesses - 3Q16 earnings to be announced in Nov.

- Aiming to release eight films co-produced with global companies

- Netmarble Games IPO (CJ E&M owns 31% stake)

Major content

- Dramas: Reply 1988; Signal - Entertainment shows: Youth Over Flowers Africa; Produce 101

- Films: Kung Fu Panda 3; Remember O Goddess; Like for Likes

- Games: Released Mystic Kingdom and KON (Knights of Night), updated Seven Nights

- Dramas: Memory; The Pied Piper; Dear My Friends (writer: Noh Hee-kyung; starring Go Hyun-jung, Jo In-sung), Task Force 38 (OCN);

- Entertainment shows: New Journey to the West 2; Show Me the Money 5; BOYS 24, Father and Son

- Films: Time Renegade (starring Lim Soo-jung); Detective Hong Gil-dong (starring Lee Jae-hoon); The Handmaiden (director-Park Chan-uk); Final Recipe (co-production with China)

- Games: Disney Magical Dice (Everybody's Marble Disney); Two Down, Bases Filled 2 KBO; Raven (Chinese version released by NetEase) and EvilBane: Rise of Ravens (global version); Final Shot

- Dramas (expected): The Good Wife (remake of US TV series starring Jeon Do-yeon, Yoo Ji-tae)

- Entertainment shows (expected): Unpretty Rapstar 3; Superstar K 2016

- Films (expected): Operation Chromite (starring Liam Neeson); Asura (starring Jeong Woo-seong); The Map Maker (starring Cha Seung-won); The Peaceful Island (co-production with China)

- Games (expected): Increasing number of overseas games to be released by Netmarble Games

- Dramas (expected): Goblin (upcoming work by writer Kim Eun-sook, starring Gong Yoo); Entourage (remake of US TV series, starring Cho Jin-woong, Seo Kang-joon, etc.)

- Entertainment shows (expected): Voice Korea 3; Around the World in Eighty Days (Na Young-seok PD)

- Films (expected): Brothers (starring Jo Jung-suk); Kim Sun-dal (starring Yoo Seung-ho); Master (starring Lee Byung-hun/Kang Dong-won); Kang Ho's Childbirth Story (co-production with China)

- Games (expected): Aiming to achieve overseas revenue contribution of 50%

Note: Content broadcasting/release dates are tentative; Based on our estimates; Source: Media reports, Daewoo Securities Research


22

June 1, 2016


Figure 33. Corporate structure of production company Studio Dragon, spun off in May, resembles that of Netmarble Games(spun off in the past)



23

June 1, 2016


CJ E&M (130960 KQ/Buy/TP: W110,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F (Wbn) 12/15 12/16F 12/17F 12/18FRevenue 1,347 1,532 1,607 1,663 Current Assets 940 857 796 885Cost of Sales 1,019 1,157 1,213 1,256 Cash and Cash Equivalents 47 53 52 100Gross Profit 328 375 394 407 AR & Other Receivables 431 512 525 543SG&A Expenses 275 311 320 323 Inventories 4 5 5 5Operating Profit (Adj) 53 64 73 84 Other Current Assets 458 287 214 237Operating Profit 53 64 73 84 Non-Current Assets 1,425 1,600 1,755 1,763Non-Operating Profit 6 13 22 24 Investments in Associates 495 588 618 639Net Financial Income -5 -5 -6 -6 Property, Plant and Equipment 77 241 236 232Net Gain from Inv in Associates 129 84 88 88 Intangible Assets 653 474 454 443Pretax Profit 59 77 95 108 Total Assets 2,365 2,457 2,551 2,649Income Tax 6 17 21 24 Current Liabilities 642 728 656 676Profit from Continuing Operations 53 60 73 84 AP & Other Payables 262 311 327 338Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 177 177 77 0Net Profit 53 60 73 84 Other Current Liabilities 203 240 252 338Controlling Interests 54 60 73 84 Non-Current Liabilities 162 116 218 219Non-Controlling Interests -1 0 0 0 Long-Term Financial Liabilities 132 80 180 0Total Comprehensive Profit 52 60 73 84 Other Non-Current Liabilities 30 36 38 219Controlling Interests 54 60 74 84 Total Liabilities 805 845 874 895Non-Controlling Interests -2 0 0 0 Controlling Interests 1,551 1,603 1,669 1,745EBITDA 373 315 306 307 Capital Stock 194 194 194 194FCF (Free Cash Flow) 287 73 251 224 Capital Surplus 973 973 973 973EBITDA Margin (%) 27.7 20.6 19.0 18.5 Retained Earnings 370 422 488 564Operating Profit Margin (%) 3.9 4.2 4.5 5.1 Non-Controlling Interests 9 9 9 9Net Profit Margin (%) 4.0 3.9 4.5 5.1 Stockholders' Equity 1,560 1,612 1,678 1,754

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F 12/15 12/16F 12/17F 12/18FCash Flows from Op Activities 295 251 259 232 P/E (x) 57.4 48.9 39.7 34.9Net Profit 53 60 73 84 P/CF (x) 8.1 11.7 11.9 11.8

Non-Cash Income and Expense 332 189 172 165 P/B (x) 2.0 1.8 1.7 1.7Depreciation 14 14 13 12 EV/EBITDA (x) 8.3 9.4 9.9 9.6Amortization 306 237 220 211 EPS (W) 1,403 1,540 1,895 2,159

Others 12 -62 -61 -58 CFPS (W) 9,935 6,416 6,327 6,407Chg in Working Capital -42 24 41 13 BPS (W) 40,188 41,529 43,224 45,185Chg in AR & Other Receivables -68 -76 -14 -17 DPS (W) 200 200 200 200Chg in Inventories -1 -1 0 0 Payout ratio (%) 14.6 12.9 10.5 9.2

Chg in AP & Other Payables 56 20 6 5 Dividend Yield (%) 0.2 0.3 0.3 0.3Income Tax Paid -56 -17 -21 -24 Revenue Growth (%) 9.2 13.7 4.9 3.5Cash Flows from Inv Activities -189 -176 -312 -242 EBITDA Growth (%) 28.6 -15.5 -2.9 0.3Chg in PP&E -8 -178 -8 -8 Operating Profit Growth (%) - 20.8 14.1 15.1Chg in Intangible Assets -331 -57 -200 -200 EPS Growth (%) -75.8 9.8 23.1 13.9Chg in Financial Assets 158 59 -104 -34 Accounts Receivable Turnover (x) 3.6 3.4 3.3 3.3Others -8 0 0 0 Inventory Turnover (x) 294.2 357.5 337.1 334.8Cash Flows from Fin Activities -94 -60 -8 -8 Accounts Payable Turnover (x) 11.7 9.9 9.3 9.2Chg in Financial Liabilities -93 -52 0 0 ROA (%) 2.2 2.5 2.9 3.2

Chg in Equity 0 0 0 0 ROE (%) 3.6 3.8 4.5 4.9Dividends Paid 0 -8 -8 -8 ROIC (%) 5.3 5.8 7.0 8.6Others -1 0 0 0 Liability to Equity Ratio (%) 51.6 52.4 52.1 51.0Increase (Decrease) in Cash 14 6 -2 49 Current Ratio (%) 146.4 117.6 121.4 131.0Beginning Balance 34 47 53 52 Net Debt to Equity Ratio (%) -3.3 2.9 5.7 0.8Ending Balance 47 53 52 100 Interest Coverage Ratio (x) 3.8 6.9 8.7 10.0Source: Company data, Mirae Asset Daewoo Research estimates


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June 1, 2016


Growth strategy: Full-scale brand marketing and higher business coverage

In 2016, INNOCEAN Worldwide has been handling Hyundai Motor Group’s (HMG) massive new brand marketing campaigns. In addition, the ad agency has been delivering revenue growth via business coverage expansion.

Brand marketing: In 1Q16, HMC’s and Kia’s marketing campaigns appear to have focused more on existing brands than on new ones. At end-2Q, marketing campaigns for newly launched brands, including HMC’s Genesis and Ioniq, should kick into high gear. In early June, an event was held to publicize the Genesis G80 at the 2016 Busan International Motor Show. The Genesis G90 is scheduled to be launched in the US market in July.

Business coverage expansion: The newly established Canvas Worldwide has normalized its business starting in 2Q. As such, gross profit in the Americas will likely increase this year. Of note, INNOCEAN appears to be reviewing various M&A options in Europe, China, and Korea. We think the company will sign an M&A deal sometime this year, with the likely aim to bolster digital and media competitiveness.

Catalysts: Major sporting events and new car launches

Major share price determinants include global sporting events slated for this year, and HMC’s and Kia’s new car launches and sales volume growth.

Sporting events: The UEFA Euro 2016 is scheduled for June. HMG is an official sponsor of the event, and INNOCEAN will handle the group’s marketing campaigns. In August, the Rio 2016 Olympics will be held. Although HMG is not an official sponsor, the group is likely to utilize the event as a marketing opportunity as it needs to increase the Genesis’ overseas brand awareness. (It plans to launch the Genesis G90 in the US in July.)

New model releases: Kia started operation of its Mexico plant in May, and plans to build its fourth and fifth Chinese plants in end-2016 and 2017, respectively. These new factories will manufacture strategic models, for which marketing campaigns will likely be required. In 2017, two additional models are expected to be added to the Genesis lineup and are planned for release in China. Furthermore, HMC is likely to launch the N series in 2018 and expand the number of Genesis and green car models to 6 and 33, respectively, by 2020.

INNOCEAN Worldwide (214320 KS)

Specialist in brand strengthening

FY (12) 12/13 12/14 12/15 12/16F 12/17F 12/18FRevenue (Wbn) 634 745 988 1,186 1,304 1,395OP (Wbn) 82 83 93 107 117 126OP Margin (%) 12.9 11.1 9.4 9.0 9.0 9.0NP (Wbn) 71 82 70 79 85 91EPS (W) 3,932 4,551 3,696 3,932 4,274 4,543ROE (%) 22.6 21.5 13.7 12.4 12.3 11.9P/E (x) - - 18.9 22.6 20.8 19.5P/B (x) - - 2.3 2.7 2.4 2.2Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Media

(Maintain) Buy


Share Price (05/31/16, W) 88,800

Expected Return 22%


EPS Growth (16F, %) 6.4Market EPS Growth (16F, %) 16.6P/E (16F, x) 22.6Market P/E (16F, x) 10.6KOSPI 1,983.40

Market Cap (Wbn) 1,776Shares Outstanding (mn) 20Free Float (%) 56.1Foreign Ownership (%) 10.6Beta (12M) 0.6652-Week Low 51,30052-Week High 88,800

(%) 1M 6M 12MAbsolute 7.6 26.9 0.0Relative 8.2 27.4 0.0

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INNOCEAN Worldwide KOSPI


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June 1, 2016


Raise TP to W108,000; Maintain Buy; Top pick

We maintain our Buy recommendation on INNOCEAN Worldwide and raise our target price to W108,000 (from W98,000). We derived our target price in consideration of 1) the valuations of the company’s Asian and US peers and 2) its cash holdings. We expect earnings at INNOCEAN to improve along with major clients’ brand marketing.

Earnings forecasts and major variables

In 2016, INNOCEAN Worldwide will likely deliver growth thanks to 1) the establishment of Canvas Worldwide in the US and 2) HMG’s increasing new brand/car marketing campaigns and sports marketing activities. However, OP margin improvement will likely be only modest due to one-off expenses arising from the establishment of Canvas Worldwide and 2) high labor costs in the US.

The lock-up periods for issued shares held by financial investors and under the employee stock ownership program have been gradually ending. The lock-up for shares held by financial investors (24.75%) was already lifted in January, and that for the employee stock ownership program will be lifted on July 17th.

Table 10. INNOCEAN Worldwide’s quarterly and annual earnings forecasts (Wbn, %) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16F 3Q16F 4Q16F 2014 2015 2016FRevenue 227 208 241 313 275 291 274 346 745 988 1,186 Gross profit 70 73 78 97 89 96 88 113 258 318 385 Parent 24 30 32 47 27 33 32 48 136 133 141

Consolidated 46 44 46 50 62 63 55 64 122 185 245 Americas 24 24 27 28 39 41 40 44 37 103 164 % of gross profit Parent 34.4 40.8 40.8 48.5 30.0 34.5 37.0 42.9 52.7 41.7 36.5

Consolidated 65.6 59.3 59.2 51.5 70.0 65.5 63.0 57.1 47.3 58.3 63.5 Americas 34.4 32.7 34.8 28.4 43.9 43.0 45.0 39.0 14.4 32.3 42.5 Operating profit 18 20 20 36 20 23 22 41 83 93 107 OP margin 7.9 9.5 8.2 11.4 7.4 8.0 8.0 12.0 11.2 9.4 9.0

Net profit 16 16 17 29 17 19 19 32 84 78 87 Net margin 6.8 7.8 7.2 9.2 6.3 6.4 6.9 9.3 11.3 7.9 7.3YoY Revenue 49.6 12.0 54.3 24.1 21.1 40.0 14.0 10.6 17.5 32.6 20.0Gross profit 39.4 15.9 36.8 10.7 27.7 30.5 13.2 16.2 9.2 23.3 21.3Parent 4.4 -18.5 4.9 2.3 11.4 10.5 2.7 2.9 4.0 -2.4 6.1

Consolidated 69.2 63.7 73.0 20.0 36.3 44.1 20.4 28.8 15.6 52.0 32.2 Americas 450.4 456.7 421.6 17.6 62.9 71.8 46.3 59.7 131.3 177.0 59.8Operating profit 33.0 -3.7 15.9 10.0 13.0 17.8 10.8 16.3 1.6 11.6 14.8Net profit 18.0 -6.6 19.4 -26.3 11.1 15.4 9.3 11.2 18.7 -7.4 11.6Notes: All figures are based on consolidated K-IFRS; Net profit is attributable to controlling and non-controlling interests; US subsidiary was incorporated into consolidated earnings in 4Q14, with related one-off valuation gains of W10.5bn reflected in non-operating profit; Began recognizing US joint venture Canvas Worldwide (51% stake) in consolidated earnings in 1Q16; Canvas recorded 1Q16 gross profit of W9.6bn and an operating loss (including initial cost of W3bn related to its establishment) of W1.9bn; Source: Company data, Mirae Asset Daewoo Research estimates

Figure 34. New vehicles, US JV, sporting events, and digitalbusiness are key variables in 2016 Figure 35. Genesis model and new HMG factories are key

variables in the medium to long term

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research


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June 1, 2016


INNOCEAN Worldwide (214320 KS/Buy/TP: W108,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F (Wbn) 12/15 12/16F 12/17F 12/18FRevenue 988 1,186 1,304 1,395 Current Assets 1,320 1,477 1,640 1,784Cost of Sales 670 801 880 942 Cash and Cash Equivalents 242 284 329 382Gross Profit 318 385 424 453 AR & Other Receivables 712 788 866 926SG&A Expenses 225 278 306 328 Inventories 0 0 0 0Operating Profit (Adj) 93 107 117 126 Other Current Assets 366 405 445 476Operating Profit 93 107 117 126 Non-Current Assets 111 109 108 107Non-Operating Profit 14 16 17 16 Investments in Associates 15 17 18 19Net Financial Income 8 9 10 11 Property, Plant and Equipment 21 17 15 13Net Gain from Inv in Associates 5 0 0 0 Intangible Assets 64 63 62 61Pretax Profit 107 123 134 142 Total Assets 1,430 1,586 1,748 1,891Income Tax 29 36 39 42 Current Liabilities 789 873 960 1,027Profit from Continuing Operations 78 87 95 101 AP & Other Payables 724 801 880 942Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0Net Profit 78 87 95 101 Other Current Liabilities 65 72 80 85Controlling Interests 70 79 85 91 Non-Current Liabilities 18 20 22 23Non-Controlling Interests 8 9 9 10 Long-Term Financial Liabilities 0 0 0 0Total Comprehensive Profit 77 87 95 101 Other Non-Current Liabilities 18 20 22 23Controlling Interests 68 79 86 91 Total Liabilities 807 893 982 1,050Non-Controlling Interests 9 9 9 10 Controlling Interests 605 666 729 794EBITDA 99 111 120 128 Capital Stock 10 10 10 10FCF (Free Cash Flow) 54 100 108 110 Capital Surplus 133 133 133 133EBITDA Margin (%) 10.0 9.4 9.2 9.2 Retained Earnings 473 534 597 662Operating Profit Margin (%) 9.4 9.0 9.0 9.0 Non-Controlling Interests 19 27 37 47Net Profit Margin (%) 7.1 6.7 6.5 6.5 Stockholders' Equity 624 693 766 841



Others 17 27 30 31 CFPS (W) 5,329 5,969 6,378 6,700Chg in Working Capital -11 8 9 6 BPS (W) 30,246 33,277 36,451 39,694Chg in AR & Other Receivables -67 -74 -76 -59 DPS (W) 900 1,100 1,300 1,500Chg in Inventories 0 0 0 0 Payout ratio (%) 23.1 25.2 27.4 29.7

Chg in AP & Other Payables 47 75 77 59 Dividend Yield (%) 1.3 1.2 1.5 1.7Income Tax Paid -30 -36 -39 -42 Revenue Growth (%) 32.6 20.0 9.9 7.0Cash Flows from Inv Activities -167 -38 -39 -30 EBITDA Growth (%) 11.2 12.1 8.1 6.7Chg in PP&E -14 0 0 0 Operating Profit Growth (%) 12.0 15.1 9.3 7.7Chg in Intangible Assets -1 0 0 0 EPS Growth (%) -18.8 6.4 8.7 6.3Chg in Financial Assets -146 -38 -39 -30 Accounts Receivable Turnover (x) 1.5 1.6 1.6 1.6Others -6 0 0 0 Inventory Turnover (x) 0.0 0.0 0.0 0.0Cash Flows from Fin Activities 121 -18 -22 -26 Accounts Payable Turnover (x) 1.0 1.1 1.1 1.1Chg in Financial Liabilities 0 0 0 0 ROA (%) 6.0 5.8 5.7 5.5

Chg in Equity 134 0 0 0 ROE (%) 13.7 12.4 12.3 11.9Dividends Paid -13 -18 -22 -26 ROIC (%) 380.7 315.8 617.2 1,945.6Others 0 0 0 0 Liability to Equity Ratio (%) 129.4 128.8 128.2 124.9Increase (Decrease) in Cash 25 43 45 52 Current Ratio (%) 167.2 169.2 170.8 173.7Beginning Balance 217 242 284 329 Net Debt to Equity Ratio (%) -94.3 -96.3 -98.0 -99.0Ending Balance 242 284 329 382 Interest Coverage Ratio (x) 1,367.4 460.8 458.9 453.3Source: Company data, Mirae Asset Daewoo Research estimates


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June 1, 2016


Growth strategy: Increasing direct operation of Megabox; Accumulated know-how of broadcasting business

We see growth drivers from both the movie and broadcasting operations.

Movies: J Contentree is reinforcing direct operation of Megabox by converting some franchises into company-owned sites in 1Q. Also, the company plans to increase sites starting in 2Q; J Contentree opened two 1,000-seat sites in May and plans to begin three sites in 2H. In particular, the company is slated to open a large multiplex site with more than 10 screens in busy areas in partnership with a Shinsegae shopping complex. In addition, Megabox’s distribution business (Plus M) is faring well. Plus M distributed one Korean movie and one French movie in 2Q and plans to distribute three Korean movies in 2H.

Broadcasting: With the reputation of JTBC channel improving, content competitiveness has enhanced, presenting opportunities to the broadcasting unit. For now, content distribution is expanding, aided by growing distribution of JTBC program VODs, as well as exports of content and formats to China. As for production, Drama House is mostly producing major dramas for JTBC channel, including the currently airing Mirror of the Witch (average viewership at 3% level).

Catalysts: Normalization of earnings; Higher movie ticket prices

We believe J Contentree will receive boosts from the normalization of earnings and anticipated movie ticket price hikes.

Normalization of earnings: J Contentree incurred substantial one-off expenses in 2015; these included higher personnel expenses and broadcasting accident-related expenses in 1Q, and consulting expenses related to acquisition of Megabox in 2H. As some business units closed before conversion into a holding company structure, revenue decreased. However, we expect earnings to improve YoY in 2016, aided by stabilized business structure, new Megabox sites, and growing broadcasting distribution revenue.

Higher movie ticket prices: This year, major competitors such as CJ CGV and Lotte Cinema introduced new pricing policies such as price differentiation depending on seats and dates (weekdays or weekends). Given the historical trend, we expect Megabox to follow suit.

Retain Buy call with TP of W6,200

We reiterate our Buy rating with a target price of W6,200. We are positive about growing direct operations of Megabox, robust distribution of JTBC program content, and resulting earnings improvement. After revamping its business structure, J Contentree should this year embark on its growth strategy full swing amid stable operations.

J Contentree (036420 KQ)

Growing visibility

FY (12) 12/13 12/14 12/15 12/16F 12/17F 12/18FRevenue (Wbn) 380 369 350 385 416 433OP (Wbn) 38 36 31 47 51 53OP Margin (%) 10.0 9.8 8.9 12.2 12.3 12.2NP (Wbn) -10 0 11 24 25 27EPS (W) -139 -1 100 210 220 233ROE (%) -11.1 -0.1 15.0 35.1 28.9 23.6P/E (x) - - 56.0 21.5 20.6 19.4P/B (x) 2.8 2.3 9.5 6.5 4.9 3.9Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Media

(Maintain) Buy


Share Price (05/31/16, W) 4,520

Expected Return 37%



Market Cap (Wbn) 516Shares Outstanding (mn) 114Free Float (%) 66.5Foreign Ownership (%) 3.9Beta (12M) 1.1752-Week Low 3,57552-Week High 6,190


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J Contentree KOSDAQ


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June 1, 2016


Table 11. J Contentree earnings trend and forecast (Wbn, %) 2012 2013 2014 2015 2016FRevenue 393 401 394 350 385 Film 203 219 232 232 269 Broadcast 80 104 98 83 84 Magazine 65 56 52 45 43 Other 60 40 24 1 - Operating profit 43 37 35 31 47 Film 35 38 38 26 40 Broadcast 5 8 -3 5 8 Magazine 5.2 -0.1 0.3 -0.2 -2.1 Other -1.3 -2.3 -1.5 -0.2 0.0 OP margin 10.8 9.3 8.8 8.9 12.2Net profit 24 4 15 20 27 Net margin 6.2 0.9 3.7 5.6 6.9YoY Revenue 2.0 -1.7 -11.3 10.1OP -12.1 -7.0 -9.8 48.7Net profit -84.8 291.9 35.4 36.1Notes: All figures are based on consolidated K-IFRS; Net profit is attributable to controlling and non-controlling interests; Discontinued QTV, Jcon Broadcasting, and other businesses in 2015 Source: Company data, Mirae Asset Daewoo Research estimates

Table 12. J Contentree’s expected timeline for reinforcing direct operation of Megabox Timeline Megabox Plus M’s distributed films New directly operated sites 1Q Sherlock (British film) Seoul Sangbong branch (seven screens)

Dongju: The Portrait of a Poet (starring Kang Ha-neul/Park Jung-min)

London Has Fallen (US/UK co-production)

2Q Come See Me (starring Kang Ye-won/Lee Sang-yoon) Busan Busan Univ. branch (seven screens)

Mon Roi (French film) Uijeongbu Milak branch (six screens) 3Q Take Off 2 (starring Soo Ae/Oh Dal-soo) Ilsan Yojin Y City branch (five screens)

Kai (Korean animation) Hanam Shinsegae branch (eleven screens)4Q Missing (starring Um Ji-won/Gong Hyo-jin) Dongdaegu Shinsegae branch Note: Timeline subject to change; Seoul Sangbong branch to be converted from franchise, others to be newly added Source: Company data, Mirae Asset Daewoo Research estimates

Figure 36. Directly operated Megabox sites: Busan Univ. and Uijeongbu Milak branch sites opened in May Figure 37. 2H16 lineup for Megabox Plus M direct distribution

Source: Company data, Mirae Asset Daewoo Research Source: Megabox Plus M, KOFIC, Mirae Asset Daewoo Research


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June 1, 2016


J Contentree (036420 KQ/Buy/TP: W6,200)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F (Wbn) 12/15 12/16F 12/17F 12/18FRevenue 350 385 416 433 Current Assets 98 105 112 116Cost of Sales 163 179 194 201 Cash and Cash Equivalents 33 33 34 35Gross Profit 187 206 222 232 AR & Other Receivables 38 41 45 47SG&A Expenses 156 159 171 179 Inventories 14 16 17 18Operating Profit (Adj) 31 47 51 53 Other Current Assets 13 15 16 16Operating Profit 31 47 51 53 Non-Current Assets 358 369 380 377Non-Operating Profit -1 -8 -8 -8 Investments in Associates 11 12 13 14Net Financial Income -5 -5 -5 -5 Property, Plant and Equipment 137 145 153 151Net Gain from Inv in Associates 2 0 0 0 Intangible Assets 77 72 67 63Pretax Profit 30 39 43 45 Total Assets 456 474 492 494Income Tax 10 12 15 16 Current Liabilities 313 314 301 272Profit from Continuing Operations 20 27 28 29 AP & Other Payables 38 41 45 47Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 222 214 194 0Net Profit 20 27 28 29 Other Current Liabilities 53 59 62 225Controlling Interests 11 24 25 27 Non-Current Liabilities 65 68 70 72Non-Controlling Interests 8 3 3 3 Long-Term Financial Liabilities 37 37 37 0Total Comprehensive Profit 31 27 28 29 Other Non-Current Liabilities 28 31 33 72Controlling Interests 23 3 3 3 Total Liabilities 378 382 372 344Non-Controlling Interests 8 24 25 27 Controlling Interests 62 75 99 126EBITDA 48 64 68 70 Capital Stock 57 57 57 57FCF (Free Cash Flow) 7 29 30 24 Capital Surplus -51 -51 -51 -51EBITDA Margin (%) 13.7 16.6 16.3 16.2 Retained Earnings 49 73 98 125Operating Profit Margin (%) 8.9 12.2 12.3 12.2 Non-Controlling Interests 16 18 21 24Net Profit Margin (%) 3.1 6.2 6.0 6.2 Stockholders' Equity 78 93 120 150


Non-Cash Income and Expense 38 30 33 34 P/B (x) 9.5 6.5 4.9 3.9Depreciation 12 12 12 12 EV/EBITDA (x) 18.2 11.7 10.6 10.2Amortization 5 5 5 5 EPS (W) 100 210 220 233

Others 21 13 16 17 CFPS (W) 508 497 535 557Chg in Working Capital -22 6 5 -12 BPS (W) 592 695 915 1,147Chg in AR & Other Receivables 8 -3 -3 -2 DPS (W) 0 0 0 0Chg in Inventories -5 -1 -1 -1 Payout ratio (%) 0.0 0.0 0.0 0.0

Chg in AP & Other Payables -11 1 1 1 Dividend Yield (%) 0.0 0.0 0.0 0.0Income Tax Paid -8 -12 -15 -16 Revenue Growth (%) -5.1 10.0 8.1 4.1Cash Flows from Inv Activities -15 -28 -27 -14 EBITDA Growth (%) -17.2 33.3 6.3 2.9Chg in PP&E -16 -20 -20 -10 Operating Profit Growth (%) -13.9 51.6 8.5 3.9Chg in Intangible Assets -4 0 0 0 EPS Growth (%) - 110.0 4.8 5.9Chg in Financial Assets 7 -8 -7 -4 Accounts Receivable Turnover (x) 8.2 10.6 10.5 10.4Others -2 0 0 0 Inventory Turnover (x) 32.4 25.8 25.5 25.1Cash Flows from Fin Activities -26 -8 -21 -18 Accounts Payable Turnover (x) 10.5 16.3 16.1 15.9Chg in Financial Liabilities - - - - ROA (%) 4.2 5.7 5.8 6.0

Chg in Equity -75 0 0 0 ROE (%) 15.0 35.1 28.9 23.6Dividends Paid -5 0 0 0 ROIC (%) 8.7 13.4 13.8 13.9Others - - - - Liability to Equity Ratio (%) 482.9 412.1 308.4 229.2Increase (Decrease) in Cash -18 0 1 1 Current Ratio (%) 31.4 33.4 37.2 42.8Beginning Balance 51 33 33 34 Net Debt to Equity Ratio (%) 283.9 230.6 158.8 114.2Ending Balance 33 33 34 35 Interest Coverage Ratio (x) 3.2 4.8 5.3 5.4Source: Company data, Mirae Asset Daewoo Research estimates


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June 1, 2016


Growth strategy: Stabilizing domestic business and growing overseas presence

This year, Showbox is stepping up efforts to solidify its overseas foothold on the back of stable domestic earnings.

Stabilizing domestic business: After posting record-high revenue and operating profit last year, Showbox is once again reporting solid earnings this year. Indeed, following the success of A Violent Prosecutor in 1Q, the firm has already booked revenue and operating profit equivalent to 31% and 50% of last year’s, respectively, moving far ahead of its rival film distributors.

Overseas expansion: In the Chinese film market, Showbox engages in production as well as distribution. Last year, the firm inked a deal with Huayi Brothers to co-produce at least six movies (in the Chinese language) over the following three years, with the first to be released in 3Q this year. As for profit sharing, 10% will be first allocated to Showbox China, and then Showbox (parent) will receive a share in the remaining 90% in proportion to its investments.

Last year, Showbox also signed a contract with Blumhouse and Ivanhoe of the US to co-produce at least six Korean language movies (thriller/horror) and remakes over the next five years. In relation to this, the firm partnered with internet portal NAVER and publisher Hainaim to host mystery film screenwriting contests in 1H16.

Catalysts: Performance of co-produced film in China, and mid/long-term tentpole strategies

In 2H16, Showbox’s share price catalyst will be the box office performance of the co-produced film in China. On the domestic front, proactively securing tentpoles for distribution over the medium to long term, and thus evenly allocating earnings throughout the year, should continue to raise investors’ expectations.

Co-production with China: Beautiful Accident is scheduled to be released in China on August 12th (genre: family movie). As August is a high-demand season, Huayi Brothers is expected to launch a major marketing campaign. The main cast consists of popular Chinese stars including Guey Lun-mei and Chen Kun.

The mid/long-term tentpoles are: The Tunnel (September), Vanishing Time: A Boy Who Returned (2H16), Taxi Driver, and Special Citizen (both 2017).

Maintain Buy and TP of W11,000

We reaffirm our Buy rating and a target price of W11,000 on Showbox, in light of its overseas expansion (including China) and stable domestic earnings.

Showbox (086980 KQ)

Solid business on both the domestic and overseas fronts

FY (12) 12/13 12/14 12/15 12/16F 12/17F 12/18FRevenue (Wbn) 107 72 141 154 159 162OP (Wbn) 5 2 14 17 17 17OP Margin (%) 4.7 2.8 9.9 11.0 10.7 10.5NP (Wbn) 2 -2 12 13 13 13EPS (W) 38 -27 187 204 204 209ROE (%) 2.3 -1.6 10.6 10.6 9.8 9.3P/E (x) 84.3 - 39.6 37.3 37.3 36.4P/B (x) 1.9 2.8 4.0 3.8 3.5 3.3Note: All figures are based on non-consolidated K-IFRS Source: Company data, Mirae Asset Daewoo Research estimates

Media

(Maintain) Buy


Share Price (05/31/16, W) 7,610

Expected Return 45%




(%) 1M 6M 12MAbsolute -5.9 -3.5 3.4Relative -5.8 -4.9 5.3

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Showbox KOSDAQ


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Table 13. Showbox earnings trend and forecast (Wbn, %) 2012 2013 2014 2015 2016FRevenue 88 107 72 141 154 Domestic – Film screening 77 91 54 122 120 Domestic – IP 8 9 14 15 18 Exports 2 4 3 5 14 Other 1 3 1 1 1 Operating profit 10 5 2 14 17 OP margin 11.0 4.7 2.8 9.9 11.0Net profit -5 2 -2 12 13 Net margin -5.6 2.2 -2.4 8.3 8.3 YoY Revenue 21.5 -32.6 96.4 8.7 Domestic – Film screening 17.9 -40.7 126.1 -1.4 Domestic – IP 9.4 54.7 2.4 25.8 Exports 123.2 -29.6 66.9 200.0 Other 283.4 -58.8 -52.5 141.4Operating profit -44.1 -66.5 696.7 14.8Net profit TTB TTR TTB 9.2Major assumptions Number of admissions (‘000 persons) 24,739 29,169 16,070 36,940 36,131

Major titles - The Thieves

- Nameless Gangster: Rules of the Time

- The Face Reader - Mr. Go

- Secretly, Greatly

- Kundo: Age of the Rampant

- The Divine Move

- Assassination - The Throne

- The Insiders

- A Violent Prosecutor- The Tunnel

- Beautiful AccidentNote: Based on non-consolidated K-IFRS; Source: Company data, KOFIC, Mirae Asset Daewoo Research estimates

Table 14. Showbox’s expected 2016-2017 film lineup Date of release Title Director Main cast Jan. 14 In the Mood for Love Jo Kyu-jang Moon Chae-won, Yu Yeon-seok Feb. 3 A Violent Prosecutor Lee Il-hyung Hwang Jung-min, Kang Dong-won Feb. 25 A Man and Woman Lee Yoon-gi Jeon Do-yeon, Gong Yu May 19 The Third Way of Love (Chinese film, agent for domestic distribution) Lee Jae-han Song Seung-heon, Liu Yifei Jun. 30 Goodbye Single Kim Tae-gon Kim Hye-soo, Ma Dong-seok, Kim Hyun-soo In Jul. Key of Life Lee Gye-Byeok Yu Hae-jin, Lee Joon, Jo Yoon-hee In Aug. A Murderer's Guide to Memorization Won Shin-yeon Kyung-gu Sol, Kim Nam-gil Aug. 12 Beautiful Accident (Co-produced with China, to be released in China) Ho Wi Ding Guey Lun-mei, Chen Kun, Wang Jingchun In Sep. The Tunnel Kim Sung-hoon Ha Jung-woo, Bae Doo-na, Oh Dal-soo In Oct. Revival Kwak Kyung-taek Kim Rae-won, Sung Dong-il In Nov. Vanishing time Eom Tae-hwa Kang Dong-won, Sin Eun-soo Tentative The Prison Na Hyun Han Suk-kyu, Kim Rae-won, Lee Gyeung-young

2017 Taxi Driver Jang Hoon Song Kang-Ho, Yu Hae-jin, Ryu Jun-yeol 2017 Special Citizen Park In-je Choi Min-sik, Kwak Do-won, Shim Eun-kyung 2017 The Fifth Column Won Shin-yeon Song Kang-Ho 2017 Fabrication Park Jong-keun Sol Kyung-gu Note: Dates of release and final distribution decisions are subject to change; Aside from The Third Way of Love (distribution) and Beautiful Accident (co-production), all titles are expected to be investment/distribution; Source: Company data, KOFIC, Mirae Asset Daewoo Research estimates

Figure 38. 2H16 main lineup: Beautiful Accident (coproduced with China), The Tunnel, and Vanishing Time (both in Korea)

Source: Company data, Huayi Brothers, KOFIC, Mirae Asset Daewoo Research


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Showbox (086980 KQ/Buy/TP: W11,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F (Wbn) 12/15 12/16F 12/17F 12/18FRevenue 141 154 159 162 Current Assets 166 182 193 205Cost of Sales 117 127 132 135 Cash and Cash Equivalents 51 64 75 84Gross Profit 24 27 27 27 AR & Other Receivables 17 19 19 20SG&A Expenses 10 10 10 11 Inventories 0 0 0 0Operating Profit (Adj) 14 17 17 17 Other Current Assets 98 99 99 101Operating Profit 14 17 17 17 Non-Current Assets 48 51 52 53Non-Operating Profit -1 0 0 0 Investments in Associates 16 18 18 19Net Financial Income 1 0 0 0 Property, Plant and Equipment 2 2 2 1Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 0 1 1 1Pretax Profit 13 17 17 17 Total Assets 214 233 246 258Income Tax 1 4 4 4 Current Liabilities 98 107 110 113Profit from Continuing Operations 12 13 13 13 AP & Other Payables 46 50 52 53Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0Net Profit 12 13 13 13 Other Current Liabilities 52 57 58 60Controlling Interests 12 13 13 13 Non-Current Liabilities 0 0 0 0Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0Total Comprehensive Profit 12 13 13 13 Other Non-Current Liabilities 0 0 0 0Controlling Interests 12 13 13 13 Total Liabilities 98 107 110 113Non-Controlling Interests 0 0 0 0 Controlling Interests 116 126 135 145EBITDA 90 24 24 25 Capital Stock 31 31 31 31FCF (Free Cash Flow) 84 32 27 26 Capital Surplus 36 36 36 36EBITDA Margin (%) 63.8 15.6 15.1 15.4 Retained Earnings 49 59 68 78Operating Profit Margin (%) 9.9 11.0 10.7 10.5 Non-Controlling Interests 0 0 0 0Net Profit Margin (%) 8.5 8.4 8.2 8.0 Stockholders' Equity 116 126 135 145


Non-Cash Income and Expense 80 12 12 12 P/B (x) 4.0 3.8 3.5 3.3Depreciation 0 0 0 0 EV/EBITDA (x) 4.0 14.5 13.9 13.0Amortization 75 8 8 8 EPS (W) 187 204 204 209

Others 5 4 4 4 CFPS (W) 1,472 388 388 395Chg in Working Capital -7 11 7 6 BPS (W) 1,858 2,012 2,166 2,325Chg in AR & Other Receivables -10 -1 -1 0 DPS (W) 50 50 50 50Chg in Inventories 0 0 0 0 Payout ratio (%) 26.7 24.4 24.4 23.8

Chg in AP & Other Payables 39 3 1 1 Dividend Yield (%) 0.7 0.7 0.7 0.7Income Tax Paid 0 -4 -4 -4 Revenue Growth (%) 95.8 9.2 3.2 1.9Cash Flows from Inv Activities -52 -14 -13 -14 EBITDA Growth (%) 76.5 -73.3 0.0 4.2Chg in PP&E -2 0 0 0 Operating Profit Growth (%) 600.0 21.4 0.0 0.0Chg in Intangible Assets 0 -8 -8 -8 EPS Growth (%) - 9.1 0.0 2.5Chg in Financial Assets -52 -6 -5 -6 Accounts Receivable Turnover (x) 13.6 9.2 8.9 8.9Others 2 0 0 0 Inventory Turnover (x) 0.0 0.0 0.0 0.0Cash Flows from Fin Activities 0 -3 -3 -3 Accounts Payable Turnover (x) 5.4 3.0 3.0 3.0Chg in Financial Liabilities - - - - ROA (%) 6.6 5.7 5.3 5.2

Chg in Equity 0 0 0 0 ROE (%) 10.6 10.6 9.8 9.3Dividends Paid 0 -3 -3 -3 ROIC (%) 95.5 -48.8 -36.7 -32.4Others - - - - Liability to Equity Ratio (%) 84.8 85.1 81.5 77.7Increase (Decrease) in Cash 34 13 10 9 Current Ratio (%) 169.6 170.4 175.9 182.0Beginning Balance 17 51 64 75 Net Debt to Equity Ratio (%) -91.8 -99.1 -103.1 -106.1Ending Balance 51 64 75 84 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0Source: Company data, Mirae Asset Daewoo Research estimates


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Growth strategy: Growing mobile video and outdoor ads

Nasmedia is a media rep with wide digital coverage, incorporating online/mobile display and video ads, IPTV VOD ads, and outdoor digital signage. The media environment is favorable this year.

Mobile ads: With domestic LTE penetration exceeding 70%, mobile video playing is common, leading to related ad market growth. Of note, the company has switched to a direct contract with Smart Media Rep (SMR), which handles the distribution of video clips (for which major broadcasters own the copyrights) on major domestic websites. This switch will likely increase the percentage of revenue recognition out of mobile video ad orders. In addition, mobile ad slots and sales volume at major internet sites, including NAVER, are increasing, positively affecting Nasmedia’s business.

Outdoor ads: Early this year, Nasmedia announced that it concluded a five-year contract with Seoul Metropolitan Rapid Transit Corporation (SMRT) for advertising in subway stations and trains for lines 6 and 7. Previously, Nasmedia subcontracted advertising for the subway lines from KT. The conversion to a direct contract with SMRT (with a revenue model of purchasing the media first and selling the ads later) will likely increase outdoor ad revenue. Ad revenue from KT Wiz’s baseball grounds in Suwon is also expected to expand, as 1) Nasmedia secured longer time slots than last year and 2) the baseball grounds have been gaining better recognition. In addition, the government’s move to ease digital outdoor ad regulations by revising related laws is likely to have a favorable effect on the company’s business.

Catalysts: Steady growth and M&As

Nasmedia’s share performance will likely hinge on whether the company can continue to deliver rapid growth as a beneficiary of the new media market. In addition, M&As should provide an additional boost to the stock.

Continuation of growth: In terms of advertisers, the business environment is positive, as competition is intensifying in areas such as mobile games, e-commerce, films, and O2O services, which rely heavily on mobile ads. In addition, ad orders from parent company KT will likely increase gradually.

M&As: It has recently been reported that Nasmedia is considering acquiring N Search Marketing (NSM). NSM is a search-ad-oriented media rep, with revenue estimated at 60% of Nasmedia’s revenue. If Nasmedia can acquire NSM at a reasonable price, the company will be able to expand its display-oriented business scope to include search ads, thus integrating display and search ad advertisers.

Nasmedia (089600 KQ)

Litmus test for the new media market

FY (12) 12/13 12/14 12/15 12/16F 12/17F 12/18FRevenue (Wbn) 25 30 45 60 78 94OP (Wbn) 6 9 12 16 20 26OP Margin (%) 24.0 30.0 26.7 26.7 25.6 27.7NP (Wbn) 6 8 10 13 17 21EPS (W) 681 965 1,202 1,581 2,029 2,514ROE (%) 11.2 13.4 15.0 17.5 19.4 20.6P/E (x) 16.6 24.7 41.6 30.3 23.6 19.0P/B (x) 1.7 3.1 5.9 5.0 4.3 3.6Note: All figures are based on non-consolidated K-IFRS Source: Company data, Mirae Asset Daewoo Research estimates

Media

(Maintain) Buy


Share Price (05/31/16, W) 47,850

Expected Return 48%





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Reiterate Buy and TP of W71,000

We keep our Buy rating and target price of W71,000 on Nasmedia. We expect the company’s rapid growth to attract keen attention in light of its positioning toward new media and advertisers that mount massive marketing campaigns.

Table 15. Nasmedia earnings trend and forecast (Wbn, %) 2012 2013 2014 2015 2016FRevenue 23 25 30 45 60 Online/mobile ads 19 17 21 32 49 IPTV ads 2.0 3.2 3.6 6.1 4.3 Outdoor digital ads 2.4 4.9 5.2 7.0 7.0 Proportion of revenue Online/mobile ads 81.1 67.4 70.3 71.0 81.3 IPTV ads 8.5 12.8 12.1 13.5 7.1 Outdoor digital ads 10.2 19.7 17.4 15.5 11.5Operating profit 8 6 9 12 16 OP margin (%) 32.4 24.0 30.0 26.7 26.7Net profit 6 6 8 10 13 Net margin (%) 27.5 22.7 26.7 21.8 21.6YoY Revenue 8.3 5.5 20.5 52.5 32.5 Online/mobile ads 1.3 -12.3 25.7 54.0 51.7 IPTV ads 38.8 58.6 14.5 69.7 -30.0 Outdoor digital ads 98.9 103.8 6.5 35.3 -1.0Operating profit -2.8 -20.4 42.0 36.0 34.1Net profit 7.5 -13.0 41.7 24.9 31.1Notes: All figures are based on non-consolidated K-IFRS Source: Company data, Mirae Asset Daewoo Research estimates

Figure 39. Example of video ad: Marketing is targeted by age/gender (in this case, women aged 18 to 44), and viewing experience is tailored to past content consumption

Source: Relative companies data, Mirae Asset Daewoo Research

Figure 40. Financial status comparison with N Search Marketing (search ads and total mobile ads), which Nasmedia is considering acquiring

Note: Based on non-consolidated K-IFRS in 2015; Source: Mirae Asset Daewoo Research

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Nasmedia (089600 KQ/Buy/TP: W71,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/15 12/16F 12/17F 12/18F (Wbn) 12/15 12/16F 12/17F 12/18FRevenue 45 60 78 94 Current Assets 125 126 143 164Cost of Sales 0 0 0 0 Cash and Cash Equivalents 13 4 10 19Gross Profit 45 60 78 94 AR & Other Receivables 88 96 106 115SG&A Expenses 34 45 57 69 Inventories 0 0 0 0Operating Profit (Adj) 12 16 20 26 Other Current Assets 24 26 27 30Operating Profit 12 16 20 26 Non-Current Assets 17 22 23 23Non-Operating Profit 1 1 2 1 Investments in Associates 0 0 0 0Net Financial Income 1 1 1 1 Property, Plant and Equipment 12 11 12 12Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 1 2 2 2Pretax Profit 13 17 22 27 Total Assets 142 148 165 186Income Tax 3 4 5 6 Current Liabilities 70 65 69 73Profit from Continuing Operations 10 13 17 21 AP & Other Payables 67 61 64 66Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0Net Profit 10 13 17 21 Other Current Liabilities 3 4 5 7Controlling Interests 10 13 17 21 Non-Current Liabilities 2 3 4 5Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0Total Comprehensive Profit 9 13 17 21 Other Non-Current Liabilities 2 3 4 5Controlling Interests 9 13 17 21 Total Liabilities 72 68 73 78Non-Controlling Interests 0 0 0 0 Controlling Interests 70 80 93 109EBITDA 12 16 21 26 Capital Stock 4 4 4 4FCF (Free Cash Flow) 6 0 11 16 Capital Surplus 22 22 22 22EBITDA Margin (%) 26.7 26.7 26.9 27.7 Retained Earnings 43 53 66 82Operating Profit Margin (%) 26.7 26.7 25.6 27.7 Non-Controlling Interests 0 0 0 0Net Profit Margin (%) 22.2 21.7 21.8 22.3 Stockholders' Equity 70 80 93 109



Others 5 3 4 6 CFPS (W) 1,869 1,995 2,571 3,195Chg in Working Capital 4 -13 -5 -5 BPS (W) 8,432 9,653 11,221 13,165Chg in AR & Other Receivables -31 -5 -5 -5 DPS (W) 360 460 570 700Chg in Inventories 0 0 0 0 Payout ratio (%) 29.9 29.1 28.1 27.8

Chg in AP & Other Payables 35 -6 3 3 Dividend Yield (%) 0.7 1.0 1.2 1.5Income Tax Paid -3 -4 -5 -6 Revenue Growth (%) 50.0 33.3 30.0 20.5Cash Flows from Inv Activities -6 -7 -2 -3 EBITDA Growth (%) 33.3 33.3 31.3 23.8Chg in PP&E -12 0 -1 0 Operating Profit Growth (%) 33.3 33.3 25.0 30.0Chg in Intangible Assets 0 -1 0 0 EPS Growth (%) 24.6 31.5 28.3 23.9Chg in Financial Assets 6 -1 -1 -3 Accounts Receivable Turnover (x) 3.9 3.6 3.5 3.5Others 0 -5 0 0 Inventory Turnover (x) 0.0 0.0 0.0 0.0Cash Flows from Fin Activities -2 -3 -4 -5 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0Chg in Financial Liabilities - - - - ROA (%) 8.3 9.0 10.7 11.8

Chg in Equity 0 0 0 0 ROE (%) 15.0 17.5 19.4 20.6Dividends Paid -2 -3 -4 -5 ROIC (%) 26.5 26.9 27.3 31.1Others - - - - Liability to Equity Ratio (%) 103.8 85.5 78.8 71.7Increase (Decrease) in Cash 10 -9 6 9 Current Ratio (%) 178.3 192.7 206.1 223.5Beginning Balance 4 13 4 10 Net Debt to Equity Ratio (%) -50.5 -33.9 -36.7 -41.7Ending Balance 13 4 10 19 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0Source: Company data, Mirae Asset Daewoo Research estimates


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APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target PriceCJ E&M(130960) 08/11/2015 Buy 110,000 08/18/2015 Buy 7,000 07/26/2015 Buy 100,000 07/26/2015 Buy 6,000 05/11/2015 Buy 80,000 05/28/2015 Trading Buy 4,700 03/29/2015 Buy 70,000 11/26/2014 Buy 4,700 02/06/2015 Buy 51,000 Showbox(086980) 09/30/2015 Buy 11,000 11/26/2014 Buy 48,000 07/26/2015 Trading Buy 10,000 No Coverage Nasmedia(089600) 01/13/2016 Buy 71,000INNOCEAN Worldwide(214320) 06/01/2016 Buy 108,000 11/24/2015 Buy 58,000 04/28/2016 Buy 98,000 08/13/2015 Buy 73,000 01/29/2016 Buy 96,000 05/28/2015 Buy 52,000 11/24/2015 Buy 86,000 05/17/2015 Buy 44,000J Contentree(036420) 05/17/2016 Buy 6,200 04/24/2015 Buy 40,000 03/23/2016 Buy 6,000 11/26/2014 Buy 33,000

Equity Ratings Distribution Buy Trading Buy Hold Sell

68.29% 17.56% 14.15% 0.00%

* Based on recommendations in the last 12-months (as of March 31, 2016)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1%

or more of the subject company's shares outstanding.

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10%

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 Mirae Asset Daewoo Co., Ltd., 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 analyst’s 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.

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Jun 14 Jun 15 May 16

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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. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s 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 Mirae Asset Daewoo, 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 Mirae Asset Daewoo except as otherwise stated herein. Disclaimers This report is published by Mirae Asset 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 Mirae Asset 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. Mirae Asset 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 Mirae Asset 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 Mirae Asset Daewoo. Mirae Asset 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. Mirae Asset 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. Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.


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Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul 150-716 Korea

Two International Finance CentreSuites 2005-2012 8 Finance Street, Central Hong Kong, China

320 Park Avenue 31st Floor New York, NY 10022 United States

Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000

Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte., Ltd. Tokyo Representative Office 41st Floor, Tower 42 25 Old Broad St. London EC2N 1HQ United Kingdom

Six Battery Road #11-01 Singapore, 049909

7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan

Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511

Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China

Room 38T31, 38F SWFC 100 Century Avenue Pudong New Area, Shanghai 200120 China

Suite 2103, Saigon Trade Center 37 Ton Duc Thang St, Dist. 1, Ho Chi Minh City, Vietnam

Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia

2401B, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 100022 China

#406, Blue Sky Tower, Peace Avenue 17 1 Khoroo, Sukhbaatar District Ulaanbaatar 14240 Mongolia

Equity Tower Building Lt.50 Sudirman Central Business District Jl. Jendral Sudirman Kav. 52-53, Jakarta Selatan Indonesia 12190

Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140

2H16 Media Content Advertising Industry Outlook

Data & Analytics

Transcript of 2H16 Media Content Advertising Industry Outlook