20171019-三星证券-Loen_Entertainment_6页_511kb

Summary of Loen Entertainment (016170) - Samsung Securities Report

Core Content

This report provides an analysis of Loen Entertainment, a leading music streaming and content distribution company in South Korea, with a focus on its financial performance, market position, and future outlook. The analysts maintain a BUY rating and have raised the 12-month target price to KRW120,000, up from KRW100,000, based on revised EPS forecasts and a 30x 2018 P/E multiple. The current price is KRW92,000, with a market cap of KRW2.3t/USD2.0b.

Key Financial Highlights

• Revenue Growth: Expected to grow steadily from KRW451b in 2016 to KRW723b in 2019.
• Net Profit (adj): Projected to increase from KRW62b in 2016 to KRW110b in 2019.
• EPS (adj): Forecasted to rise from KRW2,477 in 2016 to KRW4,346 in 2019.
• Operating Profit Growth: Expected to grow from KRW80b in 2016 to KRW143b in 2019.
• EBITDA Margin: Remains stable at around 22.3% in 2019.
• P/E Ratio: Drops from 37.1 in 2016 to 21.2 in 2019, reflecting improved profitability.
• P/B Ratio: Falls from 7.9 in 2016 to 4.7 in 2019.
• EV/EBITDA: Decreases from 20.6 in 2016 to 11.7 in 2019, indicating a more attractive valuation.

Main Points

• Earnings Momentum: The company is expected to gain significant earnings momentum, with a 35.9% year-over-year increase in operating profit for 3Q 2017, driven by 150,000 net subscriber additions and increased promotional activities.
• Market Position: Loen's MelOn is the top music streaming and downloading service in Korea, and its position is expected to benefit from the expansion of the voice UI market.
• Strategic Partnerships: Synergies with Kakao (since 4Q16) and the integration of MelOn into SK Telecom's T map x Nugu and Hyundai's MirrorLink technologies are positive factors.
• Subscriber Growth: Subscriber base is expected to grow from 4,520,000 in 2017 to 5,410,000 in 2019, with ARPU increasing from KRW7,442 to KRW8,332.
• Sales Growth: Sales are projected to rise from KRW403b in 2017 to KRW541b in 2019.
• Dividend Yield: Expected to increase from 1.1% in 2017 to 1.4% in 2019.
• Valuation: The company's EV/EBITDA ratio is projected to decrease, reflecting improved financial performance.

Key Risks and Considerations

• Overhang Risk: There is a risk of Kakao unloading its stake, which could increase the free float but may also cause short-term volatility.
• Market Competition: While other voice UI platforms may attempt to enter the music streaming market, Loen is likely to remain the dominant player due to its strong position with MelOn.

Key Figures

• Current Price: KRW92,000
• Target Price: KRW120,000 (up 20%)
• Market Cap: KRW2.3t/USD2.0b
• 2017E EPS: KRW3,094
• 2018E EPS: KRW3,886
• 2017E Revenue: KRW564b
• 2018E Revenue: KRW651b
• 2019E Revenue: KRW723b
• 2017E Net Profit (adj): KRW78b
• 2018E Net Profit (adj): KRW98b
• 2019E Net Profit (adj): KRW110b

Summary Financial Data

Rating Changes

• Recommendation: Consistently BUY over the past two years.
• Target Price: Increased from KRW100,000 to KRW120,000.
• Performance Gap: The average gap between target price and actual share price has fluctuated, with a recent increase to KRW120,000.

Conclusion

Loen Entertainment is well-positioned to benefit from the expansion of the voice UI market and continued growth in music streaming services. Its strong market share, increasing subscriber base, and rising EPS forecasts support the BUY recommendation and the increased target price. Despite potential overhang risks, the analysts remain confident in the company's earnings momentum and growth potential.