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Korea Consumer Discretionary
Investment case: Box office revenue in China has been rising by over
50% a month this year, and the share price of Wanda Cinema Line
(Wanda) (002739 CH, not rated), China’s biggest movie theatre chain, is up
almost 12-fold since its A-share listing in Shanghai in January. Wanda is
trading currently at a 2016E PER of 62.2x, based on Bloomberg-consensus
forecasts. We see CJ CGV, one of the biggest movie theatre chains in
Korea, and with an expanding China footprint, as the sole Korean
beneficiary of the growth in China’s cinema market. Also, we think the stock
will appeal to international investors seeking exposure to the China growth
story. In our view, CJ CGV is relatively undervalued given its market
position in Korea and Vietnam, as well as the scope for continued growth in
China. Hence, we initiate coverage with a Buy (1) call.
Catalysts: In terms of revenue growth, CJ CGV is outpacing the China
movie market as a whole in 2015, driven by its aggressive site expansion.
We project CJ CGV to achieve a positive full-year operating profit in China
for the first time in 2016, despite its ongoing site expansion there.
Elsewhere, the domestic market serves as CJ CGV’s cash cow, while
another growing market for the company, Vietnam, should contribute more
earnings next year, on our forecasts.
Valuation: We initiate coverage of CJ CGV with a Buy (1) rating and 12-
month target price of KRW150,000. We use an SOTP methodology to
value the company’s Korea, China and Vietnam businesses, with a
resulting target PER for 2016E of 42.1x. We believe the stock has room for
a further rerating, given its domestic cash-cow business and overseas
earnings-growth drivers. Our target value for the China division and China
JV together is KRW2,250.6bn (China division: KRW1,720.1bn, China JV:
KRW530.6bn), which is around 12% of Wanda’s market cap. While CJ
CGV is weaker in terms of absolute revenue in China than Wanda, it
should outpace Wanda on earnings growth for 2015 and 2016; and we
think it makes for a sound base of comparison.
Risks: The biggest risk to our call is CJ CGV’s profitability being eroded
due to excessive spending on overseas expansion and severe competition
in China. We believe this risk is limited because: 1) after doing business in
China for over 10 years, the company has a proven ability to control costs,
and 2) its revenue growth in overseas markets such as China and Vietnam
should be steep (roughly 40% YoY and 15% YoY, respectively, for next
year, on our forecasts) and profitability in both markets is improving which
should lessen the possibility of profitability erosion.
2 December 2015
CJ CGV
Initiation: dominant in Korea, promising in China
Biggest Korean beneficiary of growth in the China movie market
China division should move into the black in 2016
Initiating with Buy (1) call and potential upside of 20.0%
Source: FactSet, Daiwa forecasts
CJ CGV (079160 KS)
Target price: KRW150,000
Share price (2 Dec): KRW125,000 | Up/downside: +20.0%
Kevin Jin(82) 2 787 9168
80
120
160
200
240
50,000
71,250
92,500
113,750
135,000
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Share price performance
CJ CGV (LHS) Relative to KOSPI (RHS)
(KRW) (%)
12-month range 51,800-131,000
Market cap (USDbn) 2.28
3m avg daily turnover (USDm) 11.33
Shares outstanding (m) 21
Major shareholder CJ (39.0%)
Financial summary (KRW)
Year to 31 Dec 15E 16E 17E
Revenue (bn) 1,196 1,348 1,537
Operating profit (bn) 73 97 124
Net profit (bn) 57 75 97
Core EPS (fully-diluted) 2,707 3,564 4,562
EPS change (%) 243.8 31.7 28.0
Daiwa vs Cons. EPS (%) 0.1 11.1 7.9
PER (x) 46.2 35.1 27.4
Dividend yield (%) 0.0 0.0 0.0
DPS 0 0 0
PBR (x) 5.9 5.1 4.3
EV/EBITDA (x) 20.0 16.8 13.8
ROE (%) 13.8 15.6 16.9
2
CJ CGV (079160 KS): 2 December 2015
Table of contents
China finally a land of opportunity .......................................................................... 6
An emerging growth driver for CJ CGV ..............................................................................6
Domestic market a cash cow ................................................................................... 9
CJ CGV is No.1 in Korea, with a market share of more than 40% ......................................9
Vietnam also seeing strong box-office growth .....................................................10
CJ CGV has more than a 50% market share in Vietnam .................................................. 10
Earnings outlook .....................................................................................................11
Stable earnings at home; turnaround expected in China; growth forecast for Vietnam ..... 11
Initiating with a Buy (1) call and 12-month TP of KRW150,000 ............................13
Only 12% of Wanda’s market cap .................................................................................... 13
Risks to our call ............................................................................................................... 16
Company background ...................................................................................................... 16
Appendix ..................................................................................................................18
3
CJ CGV (079160 KS): 2 December 2015
How do we justify our view?
Growth outlook Valuation Earnings revisions
Growth outlook CJ CGV: earnings forecasts
We forecast CJ CGV’s revenue to rise by 13% YoY to
KRW1,348bn, its operating profit by 33.8% YoY to
KRW97.3bn (an operating margin of 7.2%), and EPS
by 31.7% YoY for 2016. The growth should be driven
mainly by a turnaround for the China division and robust
earnings growth for Vietnam, while the domestic market
serves as a cash cow. CJ CGV is planning to expand its
number of theatres in China from 64 now to 95 in 2016,
and its Vietnam theatres from 30 to 35 next year. It plans to
maintain its expansion strategy going forward. Also, we
believe its other divisions, such as 4DPlex, will start to
contribute meaningful earnings from 2017.
Source: Company, Daiwa forecasts
Valuation Comparison with Wanda Cinema Line
With the China movie market growing rapidly and Wanda’s
share price having surged since debuting in January 2015,
we contend that CJ CGV is the sole Korean beneficiary of
China’s market growth and major alternative to Wanda for
international investors. We use an SOTP methodology to
value CJ CGV’s Korea, China and Vietnam businesses,
with a resulting 2016E PER of 42.1x. Considering the
stock’s average 12-month-forward PER over the past 4
years is 43.6x, we believe our target multiple of 42.1x is not
too aggressive. Our high-looking PER reflects our view that
the China business will move into the black in 2016 (the
China division and China JV’s PERs are about 457.9x and
62.2x, respectively, for 2016E). We expect these numbers
to decrease rapidly as margins climb to a normalised level.
(USDm) Wanda CJ CGV CJ CGV CJ CGV
Cinema Line
China Division China JV
Market Cap 17,851 2,275 873 610
Revenue Growth 2015E 52% 14% 126% 39%
Revenue Growth 2016E 52% 15% 51% 35%
OP Growth 2015E 62% 40% RR 122%
OP Growth 2016E 57% 34% TB 58%
OPM 2015E 20% 6% -4% 19%
OPM 2016E 20% 7% 3% 22%
EPS Growth 2015E 36% 244%
EPS Growth 2016E 50% 32%
Sites in China 1H15 191 47 34 13
Sites in China 2016E 260 95 77 18
PSR(x) 2015E 14.3 2.2 8.1 8.9
PSR(x) 2016E 9.4 1.9 5.4 6.6
PER(x) 2015E 93.5 46.2 76.8
PER(x) 2016E 62.2 35.0 62.2
Source: Bloomberg, CJ CGV, Daiwa forecasts
Note: RR is remaining red; TB is turning black
Earnings revisions CJ CGV: earnings revision trends
Our 2015-17E operating profit forecasts for CJ CGV are in
the range of the Fnguide market consensus forecasts
(1.7%, 2.0% and -0.7%). However, we see scope to revise
up our revenue and operating-profit forecasts in the future
as there is a possibility that growth in the China movie
market will exceed market expectations next year. Our
2016 forecast calls for China’s box office revenue to rise by
45% YoY; if it rises instead by 60% YoY, our 2016E EPS for
CJ CGV would be 4.8% higher than it is currently.
Source: Fnguide, Daiwa forecasts
779 916
1,039
1,196 1,348
1,537
55 52 52 73 97 124 55 12 16 57 75 97
7%
6%
5%
6%
7%
8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
300
600
900
1,200
1,500
1,800
2012 2013 2014 2015E 2016E 2017E
Sales OP NP OPM (RHS)
(KRWbn)
72.7
97.3
123.8
71.5
95.4
124.7
0
20
40
60
80
100
120
140
2015E 2016E 2017E
Daiwa OP Consensus OP
(KRWbn)
4
CJ CGV (079160 KS): 2 December 2015
Financial summary
Key assumptions
Profit and loss (KRWbn)
Cash flow (KRWbn)
Source: FactSet, Daiwa forecasts
Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E
Domestic audience(mn) 148 160 195 213 215 219 225 229
CJCGV audience(mn) 44 48 60 72 78 80 83 85
Average Ticket Price(KRW) 0 0 7,439 7,226 7,629 7,711 7,865 7,944
Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E
Domestic 503 548 665 773 865 906 968 1,008
China 0 0 17 22 55 124 187 306
Other Revenue 47 81 98 121 120 166 193 223
Total Revenue 550 629 779 916 1,039 1,196 1,348 1,537
Other income 0 0 0 0 0 0 0 0
COGS (263) (304) (367) (448) (527) (592) (679) (786)
SG&A (223) (280) (357) (416) (460) (531) (571) (627)
Other op.expenses 0 0 0 0 0 0 0 0
Operating profit 63 45 55 52 52 73 97 124
Net-interest inc./(exp.) (12) (8) (13) (17) (17) (15) (16) (19)
Assoc/forex/extraord./others (5) (4) 36 (19) (1) 22 22 26
Pre-tax profit 46 33 78 15 35 80 103 131
Tax (14) (18) (23) (3) (19) (22) (27) (35)
Min. int./pref. div./others 0 0 0 0 0 0 0 0
Net profit (reported) 33 18 54 13 17 57 75 97
Net profit (adjusted) 32 18 54 13 17 57 75 97
EPS (reported)(KRW) 1,617 896 2,627 607 787 2,707 3,564 4,562
EPS (adjusted)(KRW) 1,569 896 2,627 607 787 2,707 3,564 4,562
EPS (adjusted fully-diluted)(KRW) 1,569 896 2,627 607 787 2,707 3,564 4,562
DPS (KRW) 0 0 0 0 0 0 0 0
EBIT 63 45 55 52 52 73 97 124
EBITDA 105 95 111 119 135 152 186 229
Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E
Profit before tax 46 33 78 15 35 80 103 131
Depreciation and amortisation 42 50 56 67 82 100 113 131
Tax paid (14) (18) (23) (3) (19) (22) (27) (35)
Change in working capital (4) 25 2 (33) 22 5 (5) (7)
Other operational CF items 9 (22) 2 14 26 12 1 (1)
Cash flow from operations 79 68 116 59 147 174 185 218
Capex (68) (79) (81) (160) (146) (150) (170) (160)
Net (acquisitions)/disposals (25) (65) 115 (50) (43) (19) (48) (47)
Other investing CF items 0 0 0 0 0 0 0 0
Cash flow from investing (93) (144) 33 (209) (189) (169) (218) (207)
Change in debt 22 147 (43) 46 66 59 147 72
Net share issues/(repurchases) 0 2 0 26 0 0 0 0
Dividends paid 0 0 0 0 0 0 0 0
Other financing CF items (5) (8) (9) (19) (7) 5 5 5
Cash flow from financing 16 140 (52) 53 59 64 152 77
Forex effect/others 0 2 (1) (0) 6 (1) (1) (1)
Change in cash 2 65 96 (97) 23 69 118 87
Free cash flow 11 (12) 34 (100) 1 24 15 58
5
CJ CGV (079160 KS): 2 December 2015
Financial summary continued …
Balance sheet (KRWbn)
Key ratios (%)
Source: FactSet, Daiwa forecasts
As at 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E
Cash & short-term investment 19 88 194 99 119 154 217 265
Inventory 2 6 3 12 11 13 12 12
Accounts receivable 38 70 71 104 141 140 151 159
Other current assets 5 37 19 25 35 35 35 30
Total current assets 64 201 288 239 305 342 415 466
Fixed assets 304 404 410 508 588 700 851 985
Goodwill & intangibles 21 98 101 107 101 99 101 105
Other non-current assets 261 230 209 245 261 251 260 250
Total assets 650 933 1,008 1,099 1,255 1,392 1,627 1,806
Short-term debt 44 95 86 214 161 150 160 150
Accounts payable 87 137 158 153 190 179 185 190
Other current liabilities 49 54 71 87 123 131 140 145
Total current liabilities 179 286 314 455 474 460 485 485
Long-term debt 201 297 260 184 313 385 515 595
Other non-current liabilities 6 43 86 82 77 75 82 84
Total liabilities 386 626 660 721 864 920 1,082 1,164
Share capital 10 10 10 11 11 11 11 11
Reserves/R.E./others 260 306 346 372 382 437 510 608
Shareholders' equity 260 306 346 372 382 447 521 618
Minority interests 5 2 2 6 9 24 24 24
Total equity & liabilities 650 933 1,008 1,099 1,255 1,392 1,627 1,806
EV 2,875 2,951 2,799 2,950 3,009 3,051 3,128 3,148
Net debt/(cash) 225 304 151 299 355 381 458 480
BVPS (KRW) 12,596 14,832 16,762 17,591 18,048 21,142 24,612 29,221
Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E
Sales (YoY) 789.8 14.3 24.0 17.5 13.5 15.1 12.7 14.0
EBITDA (YoY) 784.3 (9.8) 17.7 6.5 13.4 13.3 22.3 22.8
Operating profit (YoY) 581.8 (29.0) 22.9 (6.6) 1.1 39.6 33.8 27.2
Net profit (YoY) 623.5 (42.9) 193.1 (76.6) 31.3 243.8 31.7 28.0
Core EPS (fully-diluted) (YoY) 464.2 (42.9) 193.1 (76.9) 29.7 243.8 31.7 28.0
Gross-profit margin 52.1 51.7 52.9 51.1 49.3 50.5 49.6 48.9
EBITDA margin 19.1 15.0 14.3 13.0 12.9 12.7 13.8 14.9
Operating-profit margin 11.5 7.1 7.1 5.6 5.0 6.1 7.2 8.1
Net profit margin 5.9 2.9 6.9 1.4 1.6 4.8 5.6 6.3
ROAE 20.0 6.5 16.6 3.5 4.4 13.8 15.6 16.9
ROAA 8.8 2.3 5.6 1.2 1.4 4.3 5.0 5.6
ROCE n.a. 7.4 7.9 7.0 6.3 7.8 8.7 9.5
ROIC n.a. 3.7 7.0 7.0 3.4 6.6 7.7 8.5
Net debt to equity 86.7 99.3 43.7 80.3 92.9 85.2 87.9 77.6
Effective tax rate 29.5 54.6 29.8 19.6 53.7 27.9 26.5 27.0
Accounts receivable (days) 14.8 31.5 33.0 34.7 42.9 42.8 39.4 36.8
Current ratio (x) 0.4 0.7 0.9 0.5 0.6 0.7 0.9 1.0
Net interest cover (x) 5.2 6.0 4.2 3.0 3.1 4.8 5.9 6.5
Net dividend payout 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Free cash flow yield 0.4 n.a. 1.3 n.a. 0.0 0.9 0.6 2.2
Company profile
The biggest movie theatre chain in Korea. The company also has movie theatres in China, Vietnam,
Indonesia, America, etc. As of 3Q15, the company derived 77% of its revenue from Korea, 11% from
China, and 5% from Vietnam.
6
CJ CGV (079160 KS): 2 December 2015
China finally a land of opportunity
An emerging growth driver for CJ CGV
We forecast CJ CGV to move into the black in China in 2016 — the first time in 10 years
China’s movie market has finally started to deliver robust revenue growth, and as a result
we believe that CJ CGV is finally experiencing a favourable business environment in the
country. China’s movie industry recorded around USD1bn in box office revenue in 2009,
but by 2014 this number had surged to USD4.8bn, representing a CAGR of 30%. We
forecast China’s movie market revenue to increase by 51% YoY to USD7.2bn in 2015 (the
market already delivered 50% revenue growth from January to October this year), and to
continue at this pace throughout next year.
The largest movie market in the world today is the US, which posted revenue of
USD10.4bn in 2014, followed by the China market. But by 2017, we project the China
market to outstrip the US, on the back of:
1) A surge in demand for entertainment along with further economic growth: the
number of movies watched per person in a cinema in China was only 0.61 in 2014 (up
from 0.45 in 2013), compared with 4.0 in the US, 4.2 in Korea and 1.3 in Japan. As
such, we see ample room for this number to rise as China’s economy expands further.
2) Expansion of the customer base stemming from quality improvements in
domestic Chinese movies: in our view, age groups that formerly never went to the
cinema have started going, likely because the quality of domestically made movies
continues to improve.
3) Favourable government policies: the China government is planning for the cultural
industry to become a pillar of the national economy, and to that end it has
implemented a number of industry-friendly policies such as offering tax incentives and
subsidies to the domestic film industry.
China: box office trends and forecasts China: monthly movie market revenue growth in 2015
Source: Entgroup, Daiwa Research
Source: Entgroup, Daiwa Research
1.6 2.1 2.7
3.5
4.8
7.2
10.4
60.3%
31.3%28.6% 29.6%
37.1%
49.7%
45.0%
0%
10%
20%
30%
40%
50%
60%
70%
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015 2016E
Box Office YoY(RHS)
(USDbn)
35%
25%
75%
126%
43%
20%
50%
37%
82%
52%
0%
20%
40%
60%
80%
100%
120%
140%
01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15 10/15
China movie market
forecast to top the US
market by 2017
7
CJ CGV (079160 KS): 2 December 2015
China: movie audience trends Global movie market: comparison
China: number of theatres and screens China: number of movies viewed per person
Source: Entgroup, Daiwa Research
Source: Entgroup, Daiwa Research
CJ CGV revenue growth in China seen to outstrip that of the China market
CJ CGV’s box office revenue is outstripping that of the broader China market, driven by the
operator’s aggressive site expansion strategy. The company’s China division posted
144.8% YoY revenue growth for 2014, while overall box office revenue in China rose by
37% YoY. We forecast revenue for CJ CGV’s China division to jump by 126.3% YoY this
year while the China market advances by 51% YoY. We believe the company has a
competitive edge in terms of its superior facilities and services, such as 4D screens,
motion chairs, and sophisticated interiors.
CJ CGV’s China operations posted positive operating profits for the first time in 2Q15 (ie,
net profits from subsidiaries and the JV in China combined). In 3Q15, its subsidiaries alone
achieved a positive operating profit for the first time. As sites running at a loss gradually
turn around and those in positive territory go on to expand their revenue bases, we project
CJ CGV’s China division to achieve a positive full-year operating profit for the first time
ever in 2016, even allowing for the costs incurred in its continuous site expansion next
year. CJ CGV is currently ranked No.7 in China, with a 2.3% market share in 1H15, and it
targets to be the No.3 player by 2017.
182 237
345
462
612
830
1,130
0
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 2014 2015F
(m)
10.4
4.7
2 1.5 1.5 1.7 1.5 1.3
27.7%
12.5%
5.3%4.0% 4.0% 4.5% 4.3% 3.5%
0%
5%
10%
15%
20%
25%
30%
0
2
4
6
8
10
12
USA China Japan Korea India UK France Germany
B/O Revenues Proportion(RHS)
(USDbn)
2,000 2,800 3,680 4,583 5,813 6,256
9,286
13,118
18,398
24,317
0
5,000
10,000
15,000
20,000
25,000
30,000
2010 2011 2012 2013 2014
# of Theaters # of Screens
0.09
0.2
0.31
0.61
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
We forecast CJ CGV to
see double the China
market’s revenue growth
this year
8
CJ CGV (079160 KS): 2 December 2015
CJ CGV: China division earnings CJ CGV: revenue growth comparison with China box office and CJ CGV’s China division revenue
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
It has been almost 10 years since CJ CGV entered the China market. The first cinema it
set up in China was in Shanghai in 2006, through the establishment of a JV with Shanghai
Film Group. CJ CGV had more than 50 sites in China in 3Q15 and plans to expand this
number to 64 by year-end, and to 95 by end-2016.
According to Entgroup, there were 47 urban theatre chains and 252 rural theatre chains in
China as of 2014. We anticipate that urban theatre chains in China will eventually go
through integration and M&A, and there will only be a limited number of theatre chains left
in the market, just as in the Korean market today. In our view, CJ CGV is highly likely to be
one of the few survivors in China in the future.
CJ CGV: theatre sites in China CJ CGV: market position in China
TARGET M/S 6.5% IN 2017E
Rank1 Rank2 Rank3 Rank4 Rank5 Rank6 Rank7 Rank10
2014
WANDA JINYI DADI CFG HENGDIAN XINGMEI
SFG UME CGV
-14.30% -5.50% -4.60% -4.00% -3.40% -2.70% -2.40% -2.00%
2015E
WANDA JINYI CFG DADI HENGDIAN UME CGV
-15.00% -6.40% -5.40% -4.50% -3.70% -3.20% -3.20%
2016E
WANDA JINYI CFG CGV DADI
-15.30% -6.70% -6.00% -4.90% -4.50%
2017E
WANDA JINYI CGV CFG DADI
-15.40% -7.00% -6.50% -6.30% -4.50%
Source: Company, Daiwa forecasts
Source: Company, Daiwa Research Note: CFG: China Film Group, UME: UME International Cineplex, SFG: Shanghai Film Group
16.5 22.454.7
123.9
187.2
305.7
-15.0 -19.0 -11.4 -3.6
5.4 19.9-90.9% -85.0%
-20.8%
-2.9%2.9% 6.5%
(100%)
(80%)
(60%)
(40%)
(20%)
0%
20%
(50)
0
50
100
150
200
250
300
350
Sales OP OPM
(USDm)
31.9%38.3%
51.1%45.0%
35.5%
144.8%
126.3%
51.1%
0%
20%
40%
60%
80%
100%
120%
140%
160%
2013 2014 2015E 2016E
China BO YoY CJ CGV Revenues YoY
27
40
64
95
0
20
40
60
80
100
2013 2014 2015E 2016E
9
CJ CGV (079160 KS): 2 December 2015
Domestic market a cash cow
CJ CGV is No.1 in Korea, with a market share of more than 40%
As we see it, while CJ CGV is poised to benefit from the robust growth in box office
revenue in the China market, it also has a cash-cow business in its domestic market. CJ
CGV has a dominant position in Korea, with a domestic market share of over 40%.
The Korean movie market is maturing. The size of the market totalled USD1.6bn in 2014,
positioning it in line with the UK and Germany. Korea has an annual movie-going audience
of about 210m, and the average movie-goer goes to the cinema 4.2 times a year (almost
on a par with other developed markets). However, we still expect slight revenue growth
going forward, mainly because ticket prices are still relatively low.
Reflecting an increase in the proportion of premium tickets (3D/4D and IMAX) sold, CJ
CGV’s average ticket price in Korea rose from KRW7,629 (USD6.6) in 2014 to KRW7,885
(USD6.8) in 1H15. We forecast revenue generated by the broader Korean movie market to
grow by a low single-digit percentage YoY in 2016, given: 1) the average ticket price is
gradually increasing as the proportion of premium screens (ie, IMAX and 4D) is expanding,
and 2) we expect a low base effect from the MERS outbreak in 2015.
We forecast CJ CGV to record operating profits of KRW74.8bn (+3.0% YoY) and
KRW77.8bn (+7.7% YoY) for its Korea business in 2015 and 2016, respectively.
Korea: box office trends Global movie market comparison (2014)
Market
(USDbn) Annual viewers
(per person) No. of screens
US 10.4 4.0 47,800
China 4.8 0.6 24,317
Japan 2 1.3 3,364
India 1.7 1.5 11,081
Korea 1.6 4.2 2,281
Source: KOFIC, Daiwa Source: Company, Daiwa
CJ CGV: domestic operating profit trends and forecasts
CJ CGV: domestic market share and average ticket price
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
1,157 1,236
1,455 1,551
1,664
6.8% 6.8%
17.7%
6.6% 7.3%
0%
5%
10%
15%
20%
0
500
1,000
1,500
2,000
2010 2011 2012 2013 2014
KBO sales YoY (RHS)
(KRWbn)
68.1 71.4
74.8 77.8 83.2
8.8% 8.3% 8.3% 8.0% 8.3%
-5.7%
4.8% 4.7% 4.0%7.0%
-10%
0%
10%
20%
30%
40%
50%
0
10
20
30
40
50
60
70
80
90
2013 2014 2015E 2016E 2017E
OP OPM (RHS) YoY (RHS)
(KRWbn)
7,226
7,629 7,711
7,865 7,944
33.7%
36.2%36.3%
36.6%37.2%
30%
32%
34%
36%
38%
6,800
7,000
7,200
7,400
7,600
7,800
8,000
2013 2014 2015E 2016E 2017E
ATP MS (RHS)
(KRW)
We expect Korean movie
ticket sales to see low-
single-digit YoY growth
in 2016
10
CJ CGV (079160 KS): 2 December 2015
Vietnam also seeing strong box-office growth
CJ CGV has more than a 50% market share in Vietnam
The Vietnam movie market is another rapidly growing market where CJ CGV has a
dominant share of more than 50%. The size of the Vietnam movie market is around only
USD90m currently, but CJ CGV expects the market to reach USD200m by 2020 (a CAGR
of 15%), backed by increasing audience numbers and higher average ticket prices.
From the most recent figure of 25 sites in Vietnam, CJ CGV plans to have further 5 sites by
the end of this year. We forecast the company to record an operating profit for the Vietnam
business of KRW10.4bn (+36.8% YoY) and KRW15.8bn (+51.5% YoY) for 2015 and 2016,
respectively.
CJ CGV: Vietnam movie market trends and forecasts CJ CGV: sites in Vietnam (as at 3Q15)
Source: Company, KOTRA, Daiwa forecasts Source: Company, Daiwa
CJ CGV: operating profit trends for Vietnam CJ CGV: audience and average ticket price (ATP) trends in Vietnam
Source: Company, Daiwa forecasts Source: Company, Daiwa
7
3040
55
80
100
200
0
50
100
150
200
250
2008 2011 2012 2013 2014 2015E 2020E
(USDm)
8.2 7.6 10.4 15.8 19.5
14.1%10.9% 11.3%
13.0% 13.7%17.1%
-7.3%
36.8%
51.5%
24.0%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
0
5
10
15
20
25
2013 2014 2015 2016E 2017E
OP OPM YoY (RHS)
(KRWbn)
4,331
4,650
5,166
4,694 9.8
12.4
15.3
21.0
0
5
10
15
20
25
3,600
4,000
4,400
4,800
5,200
5,600
2011 2012 2013 2014
ATP Audience (RHS)
(m)(KRW)
CJ CGV now operates 25
sites in Vietnam
11
CJ CGV (079160 KS): 2 December 2015
Earnings outlook
Stable earnings at home; turnaround expected in China; growth forecast for Vietnam
We forecast CJ CGV to record overall revenue of KRW1,195.8bn (+15.1% YoY), an
operating profit of KRW72.7bn (+39.6% YoY) and an operating margin of 6.1% for 2015.
For the domestic market, we look for audience growth of 1.9% YoY and expect CJ CGV to
see 2.4% YoY audience growth on the back of a slight market-share gain, from 36.2% for
2014 to 36.3% for 2015E.
Also, we forecast CJ CGV’s average ticket price in Korea to rise by 1.1% YoY to
KRW7,711 for 2015, from KRW7,629, given the increasing proportion of premium screens.
On our forecasts, CJ CGV will post 39.6% YoY operating profit growth for 2015, as losses
from China narrow. We look for the China division’s operating loss to narrow from
-KRW12.5bn in 2014 to -KRW3.6bn in 2015, backed by strong box office revenue growth
(51.1% YoY) and expansion in the number of venues in China (40 sites in 2014 to 64 by
end-2015).
Meanwhile, the Vietnam division, while relatively small in terms of revenue volume, is also
seeing robust revenue growth. We forecast an operating profit of KRW10.4bn (up 38%
YoY) for 2015, due to stable market revenue growth and the addition of around 9 new
theatres.
Separately, we expect the company’s other divisions, such as 4DPlex, Indonesia and the
US to show YoY earnings improvements. The combined operating loss of these divisions
was -KRW14.4bn for 2014, and we expect this to narrow to -KRW8.8bn for 2015, driven by
expansion of the 4DPlex division.
For 2016, we forecast revenue of KRW1,347.7bn (up 12.7% YoY) and an operating profit
of KRW97.3bn (up 33.8% YoY, operating margin of 7.2%). Our forecast calls for EPS to
grow by 31.7% YoY, with a potential turnaround in CJ CGV China’s earnings being a major
driver of the operating-profit improvement for 2016E. Elsewhere, we forecast the operating
profit for the Vietnam division to grow by 51.5% YoY next year. However, operating profit
for the domestic arm is likely to increase by a more modest 4% YoY, as the Korea market
continues to mature.
We forecast overall audience growth for CJ CGV in Korea of 3.8% YoY and a 2.0% YoY
rise in the average ticket price in 2016. CJ CGV is planning to expand its number of sites in
China from 64 to 95 by end-2016, and in Vietnam from 25 sites (as at 3Q15) to 35 by end-
2016. Meanwhile, we expect the operating losses for its other divisions to narrow as more
movie theatres adopt 4D screens from 4DPlex.
For 2016, we forecast revenue growth for the broader China movie market of 45% YoY and
for CJ CGV’s China division to record a first-ever operating profit of KRW5.4bn. If China
market box office revenue were to grow by 60% YoY, however, we estimate CJ CGV’s
China division would post an operating profit of KRW7.5bn, and its EPS growth would be
4.8% higher than our current forecast.
We forecast CJ CGV’s
overall revenue to reach
KRW1,196bn for 2015,
driven by the China
division
A 2016 operating profit
improvement hinges on
China
12
CJ CGV (079160 KS): 2 December 2015
CJ CGV: number of sites at a glance
Korea (3Q15) Korea (3Q14) China (3Q15) China (3Q14) Vietnam (3Q15) Vietnam (3Q14)
Sites Direct 83
Franchise 45 Direct 79
Franchise 44 Direct 38
JV 14 Direct 25
JV 13 26 16
Screens 969 942 415 249 168 110
4DX 24 15 3
IMAX 17 21 1
Market share 48.8% 48.5% 2.3% 2.0% +50% +50%
Average ticket price (KRW)
7,483
7,542
7,247
7,049
5,136
4,897
Source: Company, Daiwa
CJ CGV: earnings trends and forecasts
(KRWbn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15E 2014 2015E 2016E 2017E
Revenue 247.0 225.4 307.8 259.1 257.5 278.4 358.1 301.8 1,039.3 1,195.8 1,347.7 1,536.5
YoY 9.9% 7.0% 15.3% 21.4% 4.3% 23.5% 16.3% 16.5% 13.5% 15.1% 12.7% 14.0%
Domestic 210.3 180.0 266.3 207.9 204.0 202.1 276.9 222.7 864.5 905.7 967.6 1,007.6
Box Office 141.5 119.6 183.9 136.4 134.4 133.3 189.9 145.4 581.4 602.9 646.9 672.7
Concession 36.1 29.4 46.6 35.0 35.6 33.2 50.0 38.0 147.1 156.9 167.4 175.8
Ads 16.9 19.5 22.8 21.5 19.9 21.6 24.6 23.3 80.8 89.4 93.9 96.7
Others 15.8 11.5 13.0 14.9 14.1 14.1 12.4 16.0 55.3 56.6 59.4 62.4
China 11.7 12.6 14.0 16.4 24.0 29.9 39.9 30.1 60.4 123.9 187.2 305.7
Vietnam 15.7 17.5 16.1 20.8 18.5 27.5 24.0 31.0 69.8 101.0 121.2 143.0
Others 9.3 15.3 11.4 14.0 11.0 18.8 17.3 18.0 44.6 65.2 71.7 80.3
Operating Profit 9.6 3.2 33.9 5.4 14.5 8.6 39.0 10.6 52.1 72.7 97.3 123.8
YoY -54.0% -71.4% 52.6% TB 50.8% 167.3% 15.0% 98.3% 1.1% 39.6% 33.8% 27.2%
OPM 3.9% 1.4% 11.0% 2.1% 5.6% 3.1% 10.9% 3.5% 5.0% 6.1% 7.2% 8.1%
Domestic 17.5 7.3 38.2 8.4 20.1 6.8 37.8 10.0 71.4 74.8 77.8 83.2
China -2.1 -1.1 -0.3 -2.8 -1.1 -1.8 0.2 -0.9 -12.5 -3.6 5.4 19.9
Vietnam 1.5 1.6 1.6 3.0 2.1 4.6 1.2 2.5 7.5 10.4 15.8 19.5
Others -4.4 -2.4 -5.5 -3.3 -6.6 -1.0 -0.2 -1.0 -14.4 -8.8 -1.6 3.5
Non OP -3.4 -2.6 -1.0 -10.6 0.2 7.9 2.4 -4.8 -17.5 5.6 5.3 7.1
Interest -4.0 -4.1 -4.4 -4.4 -4.0 -3.7 -3.7 -3.7 -16.9 -15.1 -16.4 -19.1
Equity Method 0.7 0.7 1.4 1.6 1.4 1.7 3.8 3.2 4.2 10.1 12.8 19.0
Others -0.0 0.8 2.0 -7.8 2.8 10.0 2.2 -4.3 -4.9 10.6 8.9 7.2
Net Profit 3.7 0.1 23.8 -11.0 9.3 11.3 34.4 2.2 16.7 57.3 75.4 96.5
YoY -65.4% TB 44.2% TR 149.5% - 44.2% TB 31.3% 243.8% 31.7% 28.0%
NPM 1.5% 0.0% 7.7% -4.3% 3.6% 4.1% 9.6% 0.7% 1.6% 4.8% 5.6% 6.3%
Domestic Audience (m) [Korea] 54.5 41.9 69.2 49.4 50.5 44.6 73.1 50.9 215.0 219.1 225.5 228.9
YoY -1.7% -2.5% 3.0% 3.7% -7.4% 6.3% 5.6% 3.0% 0.8% 1.9% 2.9% 1.5%
Dom CGV Branches 72 75 79 78 80 81 83 83 78 83 84 85
CGV Branch Audience.(m) 19 15 25 18 18 16 26 19 78 80 83 85
YoY 10.7% 3.8% 7.5% 10.9% -6.7% 7.9% 4.4% 4.6% 8.3% 2.4% 3.8% 3.0%
CGV Branch M/S 35.4% 36.4% 36.0% 37.0% 35.7% 37.0% 35.5% 37.6% 36.2% 36.3% 36.6% 37.2%
Avg. Ticket Price(Won) 7,468 7,938 7,542 7,569 7,567 8,203 7,483 7,592 7,629 7,711 7,865 7,944
YoY 3.3% 7.9% 8.2% 3.0% 1.3% 3.3% -0.8% 0.3% 6.0% 1.1% 2.0% 1.0%
China Sites(+JV) 27 28 31 40 43 47 53 64 40 64 95 120
Vietnam Sites 14 16 16 21 24 25 26 30 21 30 35 45
Source: Company, Daiwa forecasts
CJ CGV: China JV earnings
Source: Company, Daiwa forecasts
48.7 56.9
78.9
106.6
147.1
2.9 6.7 14.8
23.4 35.3
4.0 6.5 13.8 17.1
27.9 6.0%
11.7%
18.8%
22.0%24.0%
0%
5%
10%
15%
20%
25%
30%
0
20
40
60
80
100
120
140
160
2013 2014 2015E 2016E 2017E
Sales OP NP OPM (RHS)
(KRWbn)
13
CJ CGV (079160 KS): 2 December 2015
Initiating with a Buy (1) call and 12-month TP of KRW150,000
Sole beneficiary of China market growth and alternative to Wanda Cinema Line in Korea We initiate coverage of CJ CGV with a Buy (1) rating and 12-month target price of
KRW150,000. In our view, the company stands to be the main Korean beneficiary of the
rapid growth in the movie market in China.
We derive our target price for CJ CGV using SOTP methodology. The resulting target price
of KRW150,000 is equivalent to a 2016E PER of 42.6x. Given the stock’s average 12-
month-forward PER (ex one-offs) over the past 4 years is 43.6x, we believe our implied
42.1x PER is not too aggressive. Indeed, the high-looking target PER is due partly to our
expectation that the China business will move into the black in 2016, giving the China
division and China JV PERs of 457.9x and 62.2x for 2016E. These numbers should fall
rapidly in subsequent years if, as we expect, margins climb to a normalised level.
Only 12% of Wanda’s market cap
To derive our target market cap for CJ CGV’s China division and CJ CGV’s China JV, we
take Wanda as our reference point, the leading China-listed movie theatre chain, which
derives 80% of its earnings from pure cinema operations. Our target value for the China
division and China JV together is KRW2,250.6bn (China division: KRW1,720.1bn, China
JV: KRW530.6bn), which is equivalent to 12% of Wanda’s market cap.
Wanda Cinema Line is the leading player in the China market, with a market share of 15%
according to various media reports. The company owns 191 sites with 1,694 screens as of
1H15, and plans to expand to 260 sites with 2,300 screens by the end of 2016. On the
other hand, CJ CGV is the No.7 player in China, with a market share of around 2%. As of
1H15, it had 47 sites with 415 screens in China.
Wanda is trading at premium PERs of 93.5x for 2015E and 62.2x for 2016E, backed by its
solid operating margins (19% for 2015E, 20% for 2016E, on Bloomberg consensus
forecasts) and high EPS growth (36% YoY for 2015E, 50% YoY for 2016E according to
Bloomberg consensus forecasts).
CJ CGV does not compare with Wanda in terms of absolute revenue (2015E Wanda:
USD1,276m, CJ CGV China+JV: USD176m). Nevertheless, we believe CJ CGV’s China
component is worth more than 12% of Wanda’s market cap, given our forecasts for
significant revenue growth and margin improvement that exceed those for Wanda in the
same period (based on Bloomberg consensus forecasts).
CJ CGV is backed by its
domestic cash-cow
operation and overseas
growth drivers
Our forecasts indicate
CJ CGV will outpace
Wanda on earnings
growth this year and
next
14
CJ CGV (079160 KS): 2 December 2015
Performance comparison: CJ CGV and Wanda Cinema Line
(USDm) Wanda
Cinema Line CJ CGV CJ CGV
China Division CJ CGV
China JV
Market Cap 17,851.4 2,275.2 872.7 610.2
Revenue 2015E 1,250.6 1,195.8 107.7 68.6
Revenue 2016E 1,895.7 1,347.7 162.8 92.7
Revenue Growth 2015E 52% 15% 126% 39%
Revenue Growth 2016E 52% 13% 51% 35%
OP 2015E 245.6 72.7 (4.6) 12.9
OP 2016E 386.2 97.3 4.7 20.4
OP Growth 2015E 62% 40% RR 122%
OP Growth 2016E 57% 34% TB 58%
OPM 2015E 20% 6% -4% 19%
OPM 2016E 20% 7% 3% 22%
EPS Growth 2015E 36% 244%
EPS Growth 2016E 50% 32%
Sites in China 1H15 191 47 34 13
Sites in China 2016E 260 95 77 18
PSR(x) 2015E 14.3 2.2 8.1 8.9
PSR(x) 2016E 9.4 1.9 5.4 6.6
PER(x) 2015E 93.5 46.2 76.8
PER(x) 2016E 62.2 35.0 62.2
PBR(x) 2015E 21.7 5.9
PBR(x) 2016E 15.6 5.1
Source: Bloomberg, Daiwa Research Note: RR is remaining red; TB is turning black
For CJ CGV’s China division, we derive a target market cap of KRW1,720.1bn, based on
the difference in absolute revenue between the 2 companies. Given our view that CJ CGV
China is set to enter the black in 2016, we believe that comparing revenue growth and
PSR are appropriate ways to value the operation. Wanda’s 2016E revenue (Bloomberg
consensus forecast) is about 12x that of our forecast for CJ CGV China (USD1,943m vs
USD163m). Therefore, our target market cap for CJ CGV China is 1/12 (8.4%) that of
Wanda, which is equivalent to applying a 9.4x PSR multiple to CJ CGV China’s 2016E
revenue. Considering that our forecast for CJ CGV China’s revenue growth in 2015 and
2016 outstrips the market’s forecast for revenue growth at Wanda over the same period,
we believe that applying 8.4% of Wanda’s market cap to derive our target market cap for
CJ CGV China is not excessive.
For the China JV, our target market cap is KRW530.6bn. On Bloomberg consensus
forecasts, Wanda is trading at a 62.2x PER for 2016E. Hence, we apply the same multiple
to the CJ CGV China JV’s net income for 2016E. The resulting target market cap for the
China JV is just 2.6% that of Wanda. Since we believe the JV’s operating margin and
earnings growth will exceed those of Wanda in 2015 and 2016, we think it is reasonable to
argue that the JV merits the same kind of premium that Wanda currently enjoys. While our
forecasts for the China JV’s absolute revenue are small compared with Wanda’s (4.8% and
5.2% of Wanda’s revenue and operating profit for 2016E, using the consensus forecasts
for Wanda), our target market cap for the JV is only 2.6% of Wanda’s.
Meanwhile, for the Korea and Vietnam divisions, we apply PERs of 20.1x to our respective
net profit forecasts for 2016E, in line with the average PER of movie theatre chains globally
(ex Wanda). We believe this is a conservative assumption, given the steep market growth
in these countries currently, as well as CJ CGV’s dominant market share in Vietnam.
However, to be conservative, we apply zero value to other divisions, such as 4DPlex and
the theatres in Indonesia, America, Myanmar and elsewhere. Still, we forecast a rapid
earnings turnaround for the other divisions beginning in 2016.
Comparing Daiwa and
consensus forecasts, CJ
CGV China looks set to
outpace Wanda on
revenue growth …
… while the China JV
should exceed Wanda on
operating margin and
earnings growth in
2015E and 2016E
We value the Korea and
Vietnam operations
based on the average
PER of movie theatre
chains globally
15
CJ CGV (079160 KS): 2 December 2015
CJ CGV: sum-of-the-parts valuation
Division (KRWbn) Note
a) Korea
Net Income 16E 58.0
Target PER(x) 20.1 Average PER 2016E of global movie theatre chains except for Wanda
Target Value 1,165.8
b) China Division
Sales 16E 187.2 CGV China's expected revenue is 8.4% of Wanda's in 16E.
Implied PSR(x) 9.4 So our target value is also 8.4% of Wanda's marketcap
Target Value 1,762.7 CGV China's revenue growth outstrips Wanda's in 2015 and 2016
c) China JV
Net Income 16E 8.5
Target PER(x) 62.2 PER of Wanda Cinema 2016E applied.
Target Value 530.6 CGV's OPM and OP growth outstrip Wanda's but limited in expansion
d) Vietnam
Net Income 16E 11.0
Target PER(x) 20.1 Average PER 2016E of global movie theatre chains except for Wanda
Target Value 221.7
e) Other Divisions
Target Value - Applied 0 value to other divisions
f) Net debt
Net debt 2016E 457.9
Target market cap: a)+b)+c)+d)+e)-f) 3,223
Shares outstanding(m) 21.2
Target price(KRW) 152,304 (Rounded off to KRW150,000)
Upside Potential 20.0%
Implied PER to 16F(x) 42.1
Source: CJ CGV, Daiwa Research
We believe CJ CGV merits a higher valuation, given it has a cash-cow business in its
home market and growth drivers in the overseas markets. With the China movie market
growing rapidly and Wanda’s share price having surged since its A-share listing at the start
of the year, we expect CJ CGV to be the sole Korea-listed beneficiary of this market’s
growth, and represents an appealing alternative to Wanda, particularly for international
investors.
CJ CGV: 12-month-forward PER band (ex one-offs in 2010-14) CJ CGV: 12-month-forward PBR band
Source: Daiwa Research Source: Daiwa Research
Wanda Cinema Line: share-price trend
Source: Bloomberg, Daiwa Research
0
50,000
100,000
150,000
200,000
250,000
2010-12 2012-04 2013-08 2014-12 2016-04 2017-08
Adj. Prc. 66.0X 54.8X
43.5X 32.3X 21.0X
0
50,000
100,000
150,000
200,000
250,000
2010-12 2011-12 2012-12 2013-12 2014-12 2015-12 2016-12 2017-12
Adj. Prc. 6.7X 5.4X
4.1X 2.8X 1.5X
0
5
10
15
20
25
27/02/15 31/03/15 30/04/15 29/05/15 31/07/15 31/08/15 30/09/15 30/10/15 30/11/15
(USD)
16
CJ CGV (079160 KS): 2 December 2015
Global peer group
Company
Ticker Mkt cap TP Sales OP NP PSR P/E (x) 3-year EPS P/BV (x) ROE (%) EV/EBITDA (x)
(Bloomberg) (USDm) (Local curr) FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 CAGR (%) FY15 FY16 FY15 FY16 FY15 FY16
Coverage
CJ CGV 041510 KQ 2,275 150,000 1,195.8 1,347.7 72.7 97.3 57.3 75.4 2.2 1.9 46.2 35.1 97.2 5.9 5.1 13.8 15.6 20.0 16.8
Movie theatre chains
Regal Entertainment RGC US 2,945 NA 3,133.2 3,177.3 342.0 366.4 165.4 171.4 0.9 0.9 17.4 16.7 0.5 na na -18.5 -20.0 8.4 7.9
Cinemark Holdings CNK US 4,071 NA 2,871.7 2,963.3 441.8 464.9 223.3 246.3 1.4 1.4 18.0 16.5 14.1 3.5 3.1 20.0 19.2 8.2 7.7
AMC Entertainment AMC US 2,478 NA 2,967.4 3,103.9 251.8 281.8 105.5 134.9 0.8 0.8 23.7 18.6 29.2 1.6 1.5 6.7 7.3 8.3 7.4
Cineplex CGX CN 2,366 NA 1,015.4 1,100.4 113.7 141.6 72.7 93.0 2.4 2.2 32.5 25.0 26.6 4.3 4.2 15.7 21.0 14.4 12.3
Carmike Cinemas CKEC US 539 NA 790.2 834.2 57.1 70.8 9.3 19.6 0.7 0.7 51.4 27.1 -295.4 1.9 1.8 0.9 6.7 7.4 6.8
Cineworld Group CINE LN 2,220 NA 1,079.8 1,165.3 164.5 176.2 115.0 126.3 2.1 1.9 19.5 17.9 11.7 2.7 2.5 13.9 14.2 11.3 10.3
Marcus Corporation MCS US 558 NA 485.3 509.6 51.2 58.2 25.0 30.6 1.2 1.1 21.8 19.3 8.0 1.6 1.5 7.7 8.4 na 8.1
Wanda Cinema Line 002739 CH 17,854 NA 1,250.6 1,895.7 245.6 386.2 192.0 295.4 14.3 9.4 93.5 61.9 40.1 21.7 15.6 27.2 27.4 59.4 36.8
Average
3.0 2.3 34.7 25.4 27.5 5.3 4.3 16.8 12.2
Source: Bloomberg forecasts for all stocks except CJ CGV, Daiwa forecasts for CJ CGV
Market cap of movie theatre companies globally
Source: Bloomberg, Daiwa research
Risks to our call
Arguably the biggest risk to our Buy call and forecasts is that CJ CGV’s profitability
declines as a result of excessive spending on overseas expansion. A secondary risk would
be greater-than-expected competition in China.
While the company has been involved in the China market for more than 10 years, and its
revenue growth in overseas markets is relatively high (50% YoY in China and 15% in
Vietnam, on our forecasts), mis-steps in external markets could pose a downside risk to
our forecasts and weigh on sentiment towards the shares.
Company background
Established in 1995 and listed on the KOSPI in 2004, CJ CGV is one of the largest movie
theatre chains in Korea. It currently owns 83 direct sites and 45 franchises in Korea, as
well as 39 direct sites and 14 JV sites in China, and 26 direct sites in Vietnam. The
company also has sites in Indonesia, Myanmar and the US.
Takings from the direct sites come in as CJ CGV’s revenue, while fees from the 45
franchises in Korea are classed as “others”. Earnings from the JV sites in China are
treated on an equity-method basis.
0
50
100
150
200
250
300
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep
-15
Oct
-15
CGV Regal Entertainment Cinemark Holdings Cineplex
Carmike Cinemas Cineworld Group Marcus Corporation AMC Entertainment
(2013=100)
17
CJ CGV (079160 KS): 2 December 2015
Currently, the company is the leading player in Korea and Vietnam, with market shares of
nearly 50% in both markets. As of 3Q15, the company derived 77% of its revenue from
Korea, 11% from China, and 5% from Vietnam.
CJ CGV’s subsidiary, 4DPlex, manufactures and installs 4DX and Screen X systems. 4DX
is a theatre system featuring environmental effects such as motion chairs, air blasts, water
shots and scents, while Screen X supports 3D features. Both systems allow theatres to
charge higher ticket prices compared with conventional theatre set-ups.
4DPlex recently signed a MOU with Wanda in China to provide such systems. Wanda
already operates 4DX and Screen X systems in China, and it plans to have up to 100 such
installations in the future.
CJ CGV: global sites
Source: CJ CGV, Daiwa research
CJ CGV 4DPlex: 4DX Screen CJ CGV 4DPlex: Screen X
Source: Company, Daiwa research Source: Company, Daiwa research
18
CJ CGV (079160 KS): 2 December 2015
Appendix
Korea: movie audience trends Korea: average ticket price (ATP)
Source: Korea Film Council, Daiwa research Source: Korea Film Council, Daiwa research
CJ CGV: audience trends (direct branches) CJ CGV: ATP and market-share trends (direct branches)
Source: Korea Film Council, Daiwa research Source: Korea Film Council, Daiwa research
CJ CGV: Sphere X CJ CGV: Tempur Cinema
Source: Company, Daiwa research Source: Company, Daiwa research
148.3 159.7
194.9 213.3 215.0 219.1
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015E
(m)
7,466
7,271
7,738
7,901
6,000
6,500
7,000
7,500
8,000
2012 2013 2014 2015E
(KRW)
44 48
60
72 78 80
0
10
20
30
40
50
60
70
80
90
2010 2011 2012 2013 2014 2015E
(m)
7,439
7,226
7,629 7,715
7,865
30.6%
33.7%
36.2% 36.3%
36.6%
26%
28%
30%
32%
34%
36%
38%
6,800
7,000
7,200
7,400
7,600
7,800
8,000
2012 2013 2014 2015E 2016EATP MS (RHS)
(KRW)
19
CJ CGV (079160 KS): 2 December 2015
Daiwa’s Asia Pacific Research Directory
HONG KONG
Takashi FUJIKURA (852) 2848 4051 [email protected]
Regional Research Head
Kosuke MIZUNO (852) 2848 4949 / (852) 2773 8273
Regional Research Co-head
John HETHERINGTON (852) 2773 8787 [email protected]
Regional Deputy Head of Asia Pacific Research
Rohan DALZIELL (852) 2848 4938 [email protected]
Regional Head of Product Management
Kevin LAI (852) 2848 4926 [email protected]
Chief Economist for Asia ex-Japan; Macro Economics (Regional)
Junjie TANG (852) 2773 8736 [email protected]
Macro Economics (China)
Jonas KAN (852) 2848 4439 [email protected]
Head of Hong Kong and China Property
Cynthia CHAN (852) 2773 8243 [email protected]
Property (China)
Leon QI (852) 2532 4381 [email protected]
Banking (Hong Kong/China); Broker (China); Insurance (China)
Anson CHAN (852) 2532 4350 [email protected]
Consumer (Hong Kong/China)
Jamie SOO (852) 2773 8529 [email protected]
Gaming and Leisure (Hong Kong/China)
Dennis IP (852) 2848 4068 [email protected]
Power; Utilities; Renewables and Environment (Hong Kong/China)
John CHOI (852) 2773 8730 [email protected]
Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap
Kelvin LAU (852) 2848 4467 [email protected]
Head of Automobiles; Transportation and Industrial (Hong Kong/China)
Brian LAM (852) 2532 4341 [email protected]
Transportation – Railway; Construction and Engineering (China)
Jibo MA (852) 2848 4489 [email protected]
Head of Custom Products Group
Thomas HO (852) 2773 8716 [email protected]
Custom Products Group
PHILIPPINES
Bianca SOLEMA (63) 2 737 3023 [email protected]
Utilities and Energy
SOUTH KOREA
Sung Yop CHUNG (82) 2 787 9157 [email protected]
Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel
Mike OH (82) 2 787 9179 [email protected]
Banking; Capital Goods (Construction and Machinery)
Iris PARK (82) 2 787 9165 [email protected]
Consumer/Retail
SK KIM (82) 2 787 9173 [email protected]
IT/Electronics – Semiconductor/Display and Tech Hardware
Thomas Y KWON (82) 2 787 9181 [email protected]
Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game
Kevin JIN (82) 2 787 9168 [email protected]
Small/Mid Cap
TAIWAN
Rick HSU (886) 2 8758 6261 [email protected]
Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional)
Christie CHIEN (886) 2 8758 6257 [email protected]
Banking; Insurance (Taiwan); Macro Economics (Regional)
Steven TSENG (886) 2 8758 6252 [email protected]
IT/Technology Hardware (PC Hardware)
Christine WANG (886) 2 8758 6249 [email protected]
IT/Technology Hardware (Automation); Pharmaceuticals and Healthcare; Consumer
Kylie HUANG (886) 2 8758 6248 [email protected]
IT/Technology Hardware (Handsets and Components)
Helen CHIEN (886) 2 8758 6254 [email protected]
Small/Mid Cap
INDIA
Punit SRIVASTAVA (91) 22 6622 1013 [email protected]
Head of India Research; Strategy; Banking/Finance
Saurabh MEHTA (91) 22 6622 1009 [email protected]
Capital Goods; Utilities
SINGAPORE
Ramakrishna MARUVADA (65) 6499 6543 [email protected]
Head of Singapore Research; Telecommunications (China/ASEAN/India)
Royston TAN (65) 6321 3086 [email protected]
Oil and Gas; Capital Goods
David LUM (65) 6329 2102 [email protected]
Property and REITs
Shane GOH (65) 64996546 [email protected]
Small/Mid Cap (Singapore)
Jame OSMAN (65) 6321 3092 [email protected]
Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer (Singapore)
20
CJ CGV (079160 KS): 2 December 2015
Daiwa’s Offices
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21
CJ CGV (079160 KS): 2 December 2015
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Name of Analyst : Kevin Jin
Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to: 1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets. Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report: 1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity. Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release. The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report. "1": the security could outperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. "2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated. "4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. “Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated. “Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated. Additional information may be available upon request.
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22
CJ CGV (079160 KS): 2 December 2015
Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.
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Investment Banking Relationships
For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. DCMA Market Making
For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Research Analyst Conflicts
For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification
For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report.
"1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.
23
CJ CGV (079160 KS): 2 December 2015
Disclosure of investment ratings
Rating Percentage of total
Buy* 63.8%
Hold** 22.2%
Sell*** 14.0%
Source: Daiwa
Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 September 2015. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings. Additional information may be available upon request.
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.
In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.
In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.
For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.
There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.
There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.
Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association