CJ ENM CO., Ltd. (A035760) Earnings Call Transcript & Summary

Good afternoon. This is Kay Choi from CJ ENM's IR team. I sincerely thank the shareholders and analysts for their attendance. We will now begin the Q2 2021 earnings release session of CJ ENM. Please note that the financial and management results presented today have yet to undergo an independent auditor's review and could be subject to changes upon such review. Today, here with us are CEO, Ho-Seong Kang; and Deputy President, Kok Kiang Lim and Head of Different Business Divisions and units. Let me introduce the participants to you. We have here Mr. Chun Kyu Park, our CFO; Hu Gyeong Lee, EVP; and Mr. Cho Young-ki, Content IP Head; and from IP distribution. From Content Solution, we have Mr. Seong-Hak Lee; and from commerce, Hee-Jae Kim. Pictures and drama is represented by Ms. Jin-Hee Choi; and music by Mr. Yang, Ji-Eul. From Studio Dragon, we have CEOs CK Kang and Young Kyu Kim. CEO from TV, we have [indiscernible]. First, CEO Ho-Seong Kang will present on major achievement and strategy.

Good afternoon. This is Ho-Seong Kang, CEO of CJ ENM. The company continued to grow its profit in the second quarter by enhancing content competitiveness and accelerating the digital shift. Our media business recorded the best operating profit back to back, leading the company's growth. Growth was prominent in traditional TV business as well as new businesses such as digital ads and OTT. TV ad in the first half of the year recorded a rapid growth of 27.6%. Digital revenue grew 45% in the year revenue growth. The strategy to expand premium IP and strengthened co-branding proves very effective as did the strengthening of [ BMP ]-based media solutions with strong growth of live commerce and branded content. Digital business also added much to our top and bottom line growth. With more original content and stronger sports lineup, TV continue to see subscriber number increase, leading our digital distribution strategy. Paying TV subscribers in Q2 continued to grow strong at 43.6% Q-o-Q. That will be 86.3% on a yearly basis, indicators for traffic also looks healthy. In the second half of this year, the company will continue to grow the subscriber basis and position TV as the representative concept for Korea. CJ ENM Will continue our first half record operating profit numbers in the second half as well. We will focus on profitability of all our businesses and fortify digital transformation innovation and outstanding competitiveness. Therefore, as was disclosed, the company has revised our management guidance. Revenue target at KRW 3.8 trillion remains the same, but our guidance for operating target number has been revised up by 20% to KRW 300 billion, testifying our focus on enhanced profitability. We will continue to do our best in the second half to overachieve our goals. I deeply thank the shareholders and analysts for your time. Thank you.

Now we will move on here the presentation for our second quarter 2021 results.

Good afternoon. This is Sang, Mook Hwang from CJ ENM. The consolidated revenue for Q2 recorded KRW 907.9 billion, which is at 8.4% growth Y-o-Y. Operating profit at KRW 85.8 billion grew 16.9%. Revenue for entertainment recorded KRW 550.6 billion, and operating profit KRW 55.9 billion. Commerce revenue was at KRW 357.4 billion with operating profit of KRW 29.9 billion. The company will continue strengthening content and cost competitiveness as well as our digital business in the second half. We will maintain our media profitability with TV ad and digital sales. Commerce business will be fortified with private brands and mobile platform. The company will add more diversity to picture theater releases and distribution strategy and Music will aim for growth with expanded lineup of new artists. Page 5, Media. Media deal recorded KRW 456.4 trillion in revenue and KRW 57.7 billion in operating profit, which is the best result ever with good performance of content and strength in media solution, TV ads rapidly grew at 30.1%, supporting profitability. Content sales also contributed much. Added original content led to subsequent TV subscriber increase. This and the private branded content sales led to digital sales growth of 54.6%. The company will enhance each channel's content competitiveness and anticipation and build a stronger library for TVING. The platform will carry TVING scripted and nonscripted format. And that will also see added channel competitiveness with new programs such as T-commerce, [indiscernible] and Girls Planet 999. TVING will continue to expand its subscriber bases with already popular entertainment formats, good and also with library expansion of dramas and sports program. Page 6, Commerce. Commerce in the second quarter recorded a revenue of KRW 357.4 billion with KRW 29.9 billion in operating profit. GMV of T-commerce for categories such as home appliance and beauty decreased, but the stronger drive on mobile. Digital GMV grew steadily. Sales of private brands also increased accounting for 14.2% of our GMV. However, due to Mobile platform strengthening measures and one of SG&A expenses related to the launch of [indiscernible] this led to the decrease of OP at KRW 29.9 billion. The business will increase its fashion, beauty and leading product portfolio and a living commerce -- live commerce. 35 to 54-year-old new customers will be targeted in our expansion plan. And with stronger digital product offering and marketing, Mobile platform will see added competitiveness. Page 7, Pictures. Pictures business recovered in the second quarter with revenue of KRW 28.8 billion. COVID-19 continues and the business is diversifying its distribution strategy, including simultaneous releases at CSS and OTT platform. With the business tried a new distribution strategy of the simultaneous releases at CSS and TV. Despite the pandemic situation, hard hit recorded and accumulated attendance number of 950,000. However, with full-fledged box office recovery being delayed, the business recorded an operating loss of KRW 4 billion. The business will respond more effectively to CCS situation in the second half and accordingly establish our lineup. At the same time, we will continue our distribution diversification strategy of TV and simultaneous releases. [indiscernible] we address market changes by adding diversity to TV's mid-form drama production, genre and formats. Page 8, Music. Music revenue at KRW 65.4 billion grew 53.8% Y-o-Y. In-house RJ JO1 and ENHYPHEN also [indiscernible] and library single sales led the top line growth. Despite upfront production cost spending for Produce 101 Japan 2, operating profit recorded KRW 2.1 billion commanding stability of library focused album and single businesses. The business will ready itself for global expansion with more new artists reviews and stronger labels in the second half. I&I is planning a review in Japan and the new Girls Planet 999 is being ready for a launch. Business synergies with OST and [indiscernible] content will be enhanced. The business will add more competitiveness to enhance our [indiscernible] and IP. Now we will give the presentation to Chul-Gu Kang.

Good afternoon. This is Chul-Gu Kang from Studio Dragon. I will brief you on our management results for Q2 2021. With [indiscernible] decreasing by 4, our revenue recorded KRW 106 billion, which is a 34.3% decrease Y-o-Y. However, we were able to minimize the influence with premium IT and overseas sales. With increased revenue, OP recorded KRW 13.8 billion, which is an 18.2% decrease Y-o-Y. Despite the decrease in lineup, new type of ASP rose. We have expanded our business model to get other profit from IP original drama and our OP margin improved 2.6 percentage points Y-o-Y at 13%. The number of lineups will be normalized in the second half. Studio Dragon will introduce diverse dramas using western movies and novel premium IT. Digital business including energy and metaphors will be expanded to enhance our IP value. New OTT platforms will be introduced. And with more original dramas, we will continue to update our global influence. Now we will be entertaining your questions. Due to time limitation, we will entertain 3 questions from each questioner. And we hope to -- that you may [indiscernible].

[Operator Instructions] The first question will be given by Park, Sung-Ho from Yuanta Securities.

Yes, I will give you the translation of the question first. The question goes to Studio Dragon. In the first half of this year, the small to mid production companies and created well with the global OTTs players. However, Studio Dragon, well it's the #1 player in Korea, but relatively speaking, I did not see much from new Studio Dragon comparable to smaller-scale production companies. And in your presentation deck, I see your future plans to expand more business relationships with OTT. But could you give us more color on that?

Yes. This is Studio Dragon addressing your question. We have a good outstanding relationship with global OTTs such as Netflix and IT. And with Netflix, we do still have some contract time left, because we did receive renewal requests from them, and we're preparing ourselves for this new contract. And we are discussing closely together with major OTT players Amazon and Netflix. And I believe we will be able to give you more information on this process. And well, you have to say that we are working on the production of 8 types of movies global OTTs. There are 2 we are currently in the production stage. And the produce type will be aired in the second half of the year or maybe the early part of year 2021, maybe in the first quarter. And we're preparing several types of pre-launch as well. For Sweet Home, we are readying ourselves with -- by combining season 20 together. So we're in the process of making the Sweet Home available to the OTT player. And perhaps you might have set our activities global OTT rather limited in our activities global only being visible. But we have all these works currently ongoing and which we will be introduced to you in the near future.

The following question is from Kim Hoi Jae from Daishin Securities.

Yes. My first question goes to CJ ENM, you have treasury shares, and you have all invested assets. Do you have in the near future plans to securitize it and use it for reinvestment purpose short-term maybe being in the second half. And now my second question to is on adjusted guidance. As you have the number up from KRW 250 billion to KRW 300 billion. Well, with your already accumulated number of KRW 180 billion in the first half, well, it may seem that in the second half, you are being more as could you please elaborate on this? And my other question goes to Studio Dragon. Well, in the second half of last year, you see a lot of type of sales to abroad. And do you have such plans for library sales in the second half of this year? And if so, where would those credits go to and so how much with what terms and conditions?

[indiscernible] answer to the first part of your question. Well, on treasury stock buyback program when the merged and 5% of that by bought-back of treasury stock. Well, they were used in our neighbors deal. And for the remaining 5%, we are thinking of using it for stock option to our employees, and we're in deposits of compensation packages or compensation structures for our employees. And as our invested assets, including our investment in [indiscernible]. Well, we -- as you're well aware, we have liquidated minority portions or minorites holdings in companies. However, for the larger scale assets that we have on hand, we will be thinking further on how to utilize it in our future deals and so forth. So we will still have to wait and see. And now on to your guidance part of the question, where we're still being conservative when it comes to our guidance announcement. The new management direction is to actually give you a more conservative number front end to beat the goal and overachieve that. And well, at the earlier part of this year, we have given you a guidance number of KRW 250 billion for operating profit. Well, the number was given very conservatively, reflecting that we have yet established structure for how to exceed our auditing practices and our practices and our amortization and depreciation practices. So much for the I suspect in our simulation to come up with KRW 250 billion number. And now we have revised up our guidance number, have been tightly over on the structural issues. And as was mentioned during the presentation, our revenue target or revenue guidance, we will be maintaining at KRW 3.8 trillion. It's close to KRW 4 trillion number. It's such a large figure. Well, a 5% difference to this huge number would not really make a meaningful difference to our top line guidance. So that is why we maintain our guidance level for our revenue number. And I believe that you could have high expectations for our second half results as well. Now we will give you the answer for Studio Dragon. Now on to your question other types of sales So overall, we see sales or order types account for 25% to 30%. And I believe even with the expanded sales, this proportion will be maintained going forward. And we do expect to see the proportion being maintained in the third quarter and the fourth quarter as well if we see an expansion. It's because of the 3 reasons. The first, on the global media market competition is quite fierce in the global media market, especially in Southeast Asia. However, having said that, the type is yet to be And this adds as a very positive factor for us. Second reason behind is the popularity of pesos in the Japanese market, cash very still very popular about among the Japanese And has recently aired documentary on cash lending on and also on other 3 environments business is also very And therefore do have a very good expectations for all the titles in that market as well. And thirdly, nothing has been finalized yet, but China is showing interest in purchasing title, and we hope to release you with more competitive information in the near future. Do you have any follow questions?

Currently, there are no participants with questions. [Operator Instructions] The following question is by Kim, Hoi Jae from Daishin Securities.