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

Good morning and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the fiscal year 2024 first quarter earning results by CJ ENM. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2024 first quarter earning results by CJ ENM.

[Interpreted] Yes. This is Kay Choi, Head of IR at CJ ENM. I would like to express my deep appreciation to all shareholders and analysts joining us today at our earnings call despite your busy schedule. We will now begin our first quarter 2024 earnings conference call for CJ ENM. Please be advised that the financial results and business performance presented today are unaudited and may be subject to change upon review by an independent auditor. Today, we are joined by our CFO, Mr. Deuk-su Hwang and the heads of the respective divisions; Mr. [ Ketan Hong ], Head of Media; Mr. Kyoungboum Ko, Head of Film; Mr. Hyeong Gwan Shin, Head of Music; Mr. [ Pakson Hundepar ], Head of Commerce; Mr. [ Shan Cho ], Head of our Global Business; Mr. Jae-hyun Kim -- excuse me, Ms. Jae-hyun Kim, CEO of Studio Dragon; Ms. Ju-hui Choi, CEO of TV; and Mr. [ Yong Suha ], CEO of CJNM Studios. We will begin with a presentation by the CFO on our business plan and objectives.

[Interpreted] This is the CFO of CJ ENM. Deuk-su Hwang. In the first quarter, we focused on enhancing viewership and traffic, improving the competitiveness of our platform, and strengthening our brand strategy and digital commerce. The contents and commerce markets still face challenging conditions today, but we have put in place a tighter business strategy, aiming to improve profitability in our core business competencies while building out solid performance in both the domestic and global markets. We improved the competitiveness of our media platform, building on the strong audience viewership demonstrated by our drama and non-scripted contents, with CJNM's cable TV viewership share recording 29.7% as of April and tvN ranking #1 in target viewership share at 14.4%. Tving also saw continued traffic and subscriber inflows with paid subscribers increasing by 13.4% Q-on-Q and MAU exceeding the $7 million mark as of April. For our music business, we have been focused on debuting new artists and expanding global engagement. Zerobaseone debuted successfully in Japan and Lapone Entertainment's new girl group ME:i also made a successful debut with other groups, I&I and JO1 also active on the circuit after releasing new albums. As of April, first week album sales in Japan recorded 818,000 copies as we continue to deliver global success in our music business. On the commerce side, we have been working to strengthen the competitiveness of our brands across the beauty, fashion and living categories while continuing to record digital GMV growth as we restructure our channel and platform operations. First quarter digital revenue was up [ 16.3% ] Y-o-Y with mobile live commerce GMV, in particular, growing significantly, up by as much as 48.8% Y-o-Y as we reinforce the competitiveness of our platform centered around MLC. Market conditions this year continue to see fast change and intense competition. However, we will stay focused on our core competencies across our respective business lines and continue to deliver improved earnings and successful [ outcomes ]. I'd like to express my thanks to our shareholders and analysts. And with that, I will conclude my remarks. Next, we'll move on to our financial results. Please be reminded that CJ ENM's quarterly and full year financial statements are consolidated results based on K-IFRS. Operating profit for the respective businesses are inclusive of internal transactions. We'll now report on our company-wide business performance for Q1 2024.

[Interpreted] Yes. This [ Jeong-Ah Kim ], Head of Finance. First quarter consolidated revenue was KRW 1,154.1 billion, up 21.6% Y-o-Y and we turned around to profit with operating profit of KRW 12.3 billion. The entertainment business recorded revenue of KRW 806.3 billion and operating loss of KRW 13.9 billion. Commerce revenue was KRW 347.8 billion, with operating profit of KRW 26.2 billion. Increased content delivery from fifth season and an increase in Tving subscribers were key drivers of top line growth, while profitability improved, thanks to solid performance from fashion brands and from the competitiveness of our platform. In the second quarter, we will continue our focus on premium content to reinforce audience ratings while boosting Tving traffic and subscriber growth. For music, we have the planned debut of new Japanese girl group, ME:i and [ ISSUE ] and will be increasing engagements and concert performances by our boy group ZEROBASEONE and JO1. For commerce, we'll be strengthening mobile live commerce centered around our core customer segments, with the aim of increasing our digital GMV. Please refer to the materials for further details details by respective business. And we will move on to hear from CEO of Studio Dragon.

[Interpreted] Yes. This is Jae-hyun Kim, CEO of Studio Dragon. Let me now take you through our key business highlights for the first quarter. Despite challenging media market conditions which prevailed in Q1, we stayed focused on improving our outcomes through a business strategy, focused on in-house production, prebuy and volume deals plus, which we introduced as our strategy during the prior quarter. And as a result, we were able to boost profitability and demonstrate organic growth. Revenue in Q1 was KRW 192.1 billion, down 9% Y-o-Y despite a lineup decline, big hits including Queen of Tears and Captivating the King, drove top line growth. Operating profit was KRW 21.5 billion, down 0.4% Y-o-Y. With Marry My Husband and Queen of Tears, we achieved a high hit ratio both in and outside of Korea, with overseas sales performing solidly with operating margins at 11.2%. We will continue this commitment to deliver improved margins in the second quarter based on our 2024 growth strategy. Studio Dragon has already proven the effectiveness of our new strategy through our performance in the first quarter. And although Q2 is also expected to present challenging conditions, we will carry on as we have in the first quarter to enhance the quality of individual titles while focusing on expanding our overseas presence to once again demonstrate our differentiated fundamentals that are distinct and unique to Studio Dragon only. Thank you.

[Interpreted] Thank you. We will now move on to the Q&A and we ask that you ask no more than 3 questions per person due to the time constraint focusing on major issues.

[Interpreted] [Operator Instructions] The first question will be given by [ Shining Zhang ] from DB Investment.

[Interpreted] Yes, I have 2 questions. First, you did take us through the top line results for CJ ENM's Tving results. But can you elaborate and share more performance metrics showing what the current trends look like, especially after adoption of the ad-supported plan? Second question is for Studio Dragon. Congratulations on good results. However, there are some concerns in terms of how we should shape our outlook for second quarter. So given the current situation, the advertising and OTT market, there may be some constraints at play. So what would be your strategy going forward?

[Interpreted] So let me take you through our revenue and operating profit for fifth season first and then move on-- explain further about the advertising plan for Tving. In the first quarter, fifth season recorded revenue of KRW 170.5 billion, and operating loss of KRW 16.6 billion. For Tving revenue was KRW 88.4 billion and operating loss was KRW 38.5 billion.

[Interpreted] Yes. So regarding the ad plan for Tving, as our CFO, Mr. Hwang explained earlier, we have seen tremendous traffic upside with traffic now at KRW 7 million or so as of April. So just in a matter of 3, 4 months, traffic, which was in the mid KRW 5 million range as of the end of 2023, has grown by nearly 30%. And also, we have been seeing a steep rise in our [ AVOD ] subscriber base as well. They now account for about 20% of our total subscriber base. and continue to be a major source of new users. In terms of advertising revenue, we have also seen significant growth in line with these trends. On a Q-on-Q basis, it has grown by about 3x. And in the second quarter, as we have more promotion from KBO, we expect on a Q-on-Q basis, our advertising revenue to see close to 10x growth from the prior quarter. Subscriber base again has been growing significantly, driven in large part by the conversion of KBO streaming to pay services as of May. Again, this has triggered a steep rise in user base and will allow us to deliver even better results at the end of this year.

[Interpreted] And moving on to our answer for Studio Dragon.

[Interpreted] Yes. So thank you for your question. Looking out post second quarter, I think in terms of the number of title lineups, despite the overall decline, we have already demonstrated the effectiveness of our focus on the individual quality of the titles. That in turn has led to overall improvement in profitability, which has already been demonstrated and this is why we will continue with this line of focus. And also, we have continued to communicate that we want to continue to take part in co-production projects abroad, say in the U.S. and Japan to accelerate the outcome. So although I cannot name specific names at the moment, we are in talks with a major platform in the U.S. to set up 4 lineup titles together. And hopefully, we will see more traction on 2 of those works within this year. And we are looking to broaden outside of the existing business model that previously was very important to our drama studio to find additional value expansion through our IP portfolio.

[Interpreted] [Operator Instructions] The following question is by Shining Zhang from DB Investment.