20160420-三星证券-Korean_Wave_not_a_passing_fancy_50页_4mb

Sector Update Summary

Core Content

This document provides an analysis of the Korean media/entertainment sector, focusing on the sustainability of the Korean Wave (Hallyu) and the investment potential of major companies in the industry. It highlights the differences between Korea and Japan in terms of market structure and content quality, and outlines the current valuation and investment strategy for key players in the sector.

Main Points

• Korean Wave (Hallyu): The ongoing popularity of Korean content is attributed to high-quality content and the global expansion efforts of content providers. Unlike Japan, where the entertainment industry is dominated by a few players, Korea has a competitive market that enhances content quality.
• Content is King: The ability to produce competitive content is a key driver of value in the media/entertainment industry. Content providers are favored over platform operators due to their unique value proposition and the increasing integration of entertainment and media.
• Investment Recommendations:
  • CJ E&M is upgraded to BUY★★★ due to its solid fundamentals and potential from its broadcasting and movie businesses.
  • YG Entertainment (YGE) is recommended at BUY★★★, with expectations of faster earnings recovery than market forecasts.
  • Loen Entertainment, SM Entertainment (SME), FNC Entertainment (FNCE), and JContentree are all initiated at BUY.
• Overseas Momentum: Korean content firms are expanding their reach beyond Asia, especially into China. This includes direct recognition of profits from concerts and the growth of OTT platforms.
• Key Companies Overview:
  • CJ E&M: Valuation based on its stake in Netmarble Games, with a target price of KRW96,000.
  • YG Entertainment: Parent-based operating profit increased significantly, with a target price of KRW60,000.
  • SM Entertainment: Strong lineup and potential for growth in China, with a target price of KRW53,000.
  • FNC Entertainment: Balancing markets in Japan and China, with a target price of KRW19,000.
  • Loen Entertainment: Expected to see accelerated earnings from digital music ASP hikes.
  • JContentree: Likely to see improved earnings due to reduced acquisition costs and content co-productions.

Key Information

Valuation and Investment Strategy

• CJ E&M:

  • Target price: KRW96,000 (45.7% upside).
  • Operating value: KRW2,176b.
  • Current equity value: KRW65,900.
  • Shares: 38,732,000.

• YG Entertainment:

  • Target price: KRW60,000 (54.6% upside).
  • Parent-based operating profit: KRW23.3b (up from KRW17.9b in 2014).
  • Current equity value: KRW38,800.

• SM Entertainment:

  • Target price: KRW53,000.
  • Parent-based operating profit: KRW52.6b in 2015.
  • Current equity value: KRW42,700.

• FNC Entertainment:

  • Target price: KRW19,000 (19.1% upside).
  • Current equity value: KRW15,950.

• Loen Entertainment:

  • Target price: KRW88,000 (22.4% upside).
  • Current equity value: KRW71,900.

Peer Valuations

Market Trends

• K-pop Expansion: The fan base has expanded from Japan to China and other Asian countries, with potential for further global reach.
• Digital Music: The growth of digital music ASPs is expected to boost earnings for Loen Entertainment.
• Streaming Platforms: The rise of OTT platforms like Netflix and iQiyi is changing the media landscape and providing new revenue models.
• Concert Profits: Direct recognition of profits from concerts in China is expected to improve earnings momentum.

Conclusion

The Korean media/entertainment industry is showing strong growth and global appeal, driven by high-quality content and strategic expansion. Companies like CJ E&M, YG Entertainment, and SM Entertainment are highlighted as top investment picks due to their strong fundamentals and growth potential. The document also compares Korea's industry with Japan's, noting the unique factors that contribute to the longevity of Hallyu, such as diverse revenue models and a more competitive market structure.