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1Q23 review: Navigating turbulent waters

1Q23 review

Revenue of W187bn (+38% YoY) and operating loss of W30bn (remaining in the red YoY)

• Contentree JoongAng’s 1Q23 revenue came in slightly above our estimate (W173bn) and the consensus (W178bn).

• Continued weakness in macro conditions weighed on the advertising market. In addition, Studio LuluLala’s (SLL) revenue plunged 15% YoY (-42% QoQ) to W93.6bn. However, Plus M’s top line surged due to a revenue recognition method change (net basis → gross basis), driving growth in Contentree JoongAng’s consolidated revenue.

• Notably, the aforementioned revenue recognition change also pushed COGS higher.

• In addition, SG&A expenses increased due in large part to: 1) a decline in the mix of high-margin advertising revenue; 2) an unfavorable comparison stemming from theater rent discounts in 1Q22; and 3) wage increases.


2Q23/2H23 outlooks

Megabox/Plus M revenue to jump 49% YoY to W89bn in 2Q23

• In 2Q22, The Roundup attracted 12.69mn viewers, well over the break-even point of roughly 1.8mn, and made a meaningful contribution to Contentree JoongAng’s earnings.

• The film’s sequel, The Roundup: No Way Out (May 31, 2023)?produced and distributed by B.A. Entertainment and Megabox JoongAng?is anticipated to bring in huge profits given its lofty box office expectations.

• Playtime Group’s stable quarterly revenue (W15bn level) and profit delivery should help blunt company-wide earnings volatility to some extent.


Valuation

Retain Buy rating and TP of W33,000

• The ad market will likely continue contracting, and the burden of subsidiary studios’ amortization expenses should persist through year-end. While margins are unlikely to recover this year, expectations remain intact for this year’s strong film lineup (record-high nine movies vs. two in 2022) and highly-anticipated titles (from 2Q23).







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