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CJ CGV

(079160 KS)

Taking on the Vietnamese market

Overview of Vietnam business

Entertainment

CJ CGV entered the Vietnamese market in 2011 with the acquisition of the countrys
largest multiplex chain, Megastar. In early 2014, the company completed rebranding all
of its local theaters to CGV. The Vietnam business recorded a loss in 2H11 right after
the acquisition, but quickly swung to a profit in 1Q12 and has seen steady growth in
both admissions and revenue since then.

Company Update
April 20, 2015

Buy

(Maintain)
Target Price (12M, W)

80,000

Share Price (04/17/15, W)

72,500
10%

Expected Return

OP (15F, Wbn)

87

Consensus OP (15F, Wbn)

82

EPS Growth (15F, %)

106.9

Market EPS Growth (15F, %)


P/E (15F, x)

37.2
22.3

Market P/E (15F, x)


KOSPI

11.1
2,143.50

Market Cap (Wbn)


Shares Outstanding (mn)

1,534
21

Free Float (%)


Foreign Ownership (%)

60.9
16.5

Beta (12M)

Why CGV is likely to dominate the Vietnamese market in the long term
We recently visited CJ CGVs theater sites in Vietnam and came away with a more
positive outlook on the countrys market potential as well as the companys prospects.
1) CJ CGV has established a presence in major commercial areas early on thanks to its
timely market entry and aggressive expansion. The company has secured 15- to 20-year
leases for many of its theaters and is planning to do the same for its upcoming sites.
2) The company also enjoys a dominant position in film content as the countrys
exclusive distributor for four of the six largest Hollywood studios. We think these
arrangements will remain in place until the Vietnamese film market begins to mature.
3) The company boasts a solid reputation in the country. CJ CGVs theaters in Vietnam
are differentiated by their consistent interior designs, convenient facilities, diverse
concession offerings, and specialized theaters. Many shopping mall developers are
showing a strong preference for CGV theaters because of the brands well-established
image.

0.19

52-Week Low
52-Week High

43,200
72,600

(%)
Absolute

1M
22.1

6M
50.4

12M
46.8

Relative

15.6

33.4

36.4

170

In Vietnam, CJ CGV enjoys a competitive advantage over rivals in terms of theater


numbers and locations. The company has been ramping up the number of theater sites,
taking advantage of the countrys foreigner-friendly business environment and strong
financing capabilities. Given Vietnams under-penetrated market (based on number of
movie viewings per capita), we see plenty of room for growth, supported by economic
expansion and infrastructure development. Furthermore, we believe CJ CGVs shopping
mall-oriented location strategy makes it better positioned to expand market share.

CJ CGV

KOSPI

Value of China and Vietnam theater operations to be priced in


We expect 2015 to be a critical year for CJ CGV, with all eyes focused on the
profitability of the China business. If the company fails to break even in China this year,
this would bode ill for future profitability given the companys expansion schedule.
Conversely, if the business turns profitable, this may signal the beginning of a prolonged
period of China earnings momentum, similar to what domestic cosmetics firms are
enjoying today. The Vietnamese market, though smaller, could begin to deliver margin
expansion once the initial investment phase is over and growth settles in.

150
130
110
90
70
4.14

8.14

12.14

4.15

In April, there have been a number of days during which CJ CGVs admissions in China
outpaced its admissions in Korea (due to weak seasonality in the domestic market). We
believe investors are starting to reflect the value of overseas operations. In our view, CJ
CGV offers a compelling long-term growth story, supported by a combination of steady
domestic growth and strong potential overseas. We maintain our Buy rating and target
price of W80,000.

Daewoo Securities Co.,


Co., Ltd.

FY (Dec.)
Revenue (Wbn)

[Internet/Game/Entertainment]

OP (Wbn)
OP margin (%)

Chang-kwean Kim
+822-768-4321
changkwean.kim@dwsec.com
Jeong-yeob Park
+822-768-4124
jay.park@dwsec.com

NP (Wbn)
EPS (W)
ROE (%)
P/E (x)
P/B (x)

12/12
665

12/13
773

12/14
865

12/15F
909

12/16F
945

12/17F
990

72
10.8

68
8.8

71
8.2

87
9.6

99
10.5

112
11.3

73
3,528

43
2,062

33
1,572

69
3,253

78
3,678

87
4,128

20.4

10.3

7.2

13.7

13.7

13.6

9.1
1.7

21.1
2.0

34.3
2.4

22.3
2.9

19.7
2.5

17.6
2.2

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests
Source: Company data, KDB Daewoo Securities Research estimates
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the
the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

April 20, 2015

CJ CGV

Figure 1. Market cap of Vincom (Vietnam


(Vietnams leading real estate development group)
group) vs. market cap
of Vietnam stock index
(Wtr)
60

(%)
14

Vietnam stock index (L)


Vincom (L)
Vietnam stock index/Vincom (R)

50

12
10

40

8
30
6
20

10

2
0

0
07

08

09

10

11

12

13

14

15

Source: Bloomberg, KDB Daewoo Securities Research

Figure 2. Number of theater sites in Vietnam:


Vietnam: CJ CGV vs. total Vietnamese market
(no. of sites)
100

80

(%)
60

CJ CGV sites (L)


Theater sites in Vietnam (L)
Share of CJ CGV (R)

55
50

60
45
40
40
20

35

30
2010

2011

2012

2013

2014

2015F

2016F

2017F

2018F

2019F

Source: Company data, KDB Daewoo Securities Research

Figure 3. Estimated per capita annual movie theater attendance by country


(times)
5
Estimated per capita annual theater attendance

2
Avg. of Malaysia, Philippines, and Thailand
1

0
Vietnam

Malaysia

Philippines

Thailand

China

India

Japan

South Korea

Singapore

Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research

April 20, 2015

CJ CGV

Figure 4. Shares
hares of Vietnam
Vietnams cinema operators in terms of
number of sites
BHD
6%

Figure 5. Average screens per site


(screens)
12

NCC 2%

Galaxy
9%

10
8

Platinum
10%

CJ CGV
43%

6
4
2

Lotte
30%

0
CJ CGV

Notes: Shares of top six cinema operators


Source: Company data, KDB Daewoo Securities Research

Lotte

Platinum

Galaxy

BHD

NCC

Source: Company data, KDB Daewoo Securities Research

Figure 6. Earnings of major cinema operators in Vietnam


(US$mn)
60

Revenue (L)
OP margin (R)

(%)
14.0
12.0

50

10.0

40

8.0
30
6.0
20

4.0

10

2.0
0.0

0
CJ CGV

Lotte

Platinum

Galaxy

BHD

NCC

Source: Company data, KDB Daewoo Securities Research

Figure 7. Timeline of CJ CGV site openings in China


(sites)
40

Figure 8. Earnings of CJ CGV sites in China


(Wbn)
70

Sites operated by consolidated subsidiaries


JV sites

2012
2013
2014

50

30

30

Three years after establishment of Hong Kong CGI


Holdings, sites operated by CJ CGV consolidated
subsidiaries began operation

20

10

10

-10

Revenue (JV)

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research

1Q13

1Q14

Revenue
(consolidated)

Operating profit (JV) Operating profit


(consolidated)

Source: Company data, KDB Daewoo Securities Research

April 20, 2015

CJ CGV

CJ CGV (079160 KS/Buy/TP: W80,000)


Comprehensive Income Statement (Summarized)
(Wbn)

Statement of Financial Condition (Summarized)

12/14 12/15F 12/16F 12/17F

(Wbn)

Revenue

865

909

945

990

Current Assets

Cost of Sales
Gross Profit

424
441

457
452

470
475

493
497

Cash and Cash Equivalents


AR & Other Receivables

SG&A Expenses

12/14

12/15F

12/16F

189

199

306

12/17F
415

62
97

69
99

170
103

273
108

369

365

375

385

Inventories

Operating Profit (Adj)


Operating Profit

71
71

87
87

99
99

112
112

Other Current Assets


Non--Current Assets
Non

27
961

27
934

29
910

30
899

NonNon-Operating Profit
Net Financial Income
Net Gain from Inv in Associates

-19
-15
0

4
-12
0

6
-7
0

11
-3
0

Investments in Associates

382

402

418

438

Property, Plant and Equipment


Intangible Assets

412
23

370
16

333
11

302
9

Pretax Profit

52

91

105

123

Income Tax
Profit from Continuing Operations

18
33

22
69

27
78

35
87

Profit from Discontinued Operations


Net Profit
Controlling Interests
Non-Controlling Interests
Total Comprehensive Profit
Controlling Interests
Non-Controlling Interests
EBITDA
FCF (Free Cash Flow)
EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)

33
33

69
69

78
78

87
87

Non-Cash Income and Expense


Depreciation
Amortization
Others
Chg in Working Capital
Chg in AR & Other Receivables
Chg in Inventories
Chg in AP & Other Payables
Income Tax Paid
Cash Flows from Inv Activities
Chg in PP&E
Chg in Intangible Assets

1,150

1,133

1,217

1,313

Current Liabilities
AP & Other Payables

350
147

267
154

278
160

291
168

Short-Term Financial Liabilities

102

Other Current Liabilities


Non--Current Liabilities
Non

101
327

106
331

111
334

116
338

Long-Term Financial Liabilities

255

255

255

255

31
31

69
69

78
78

87
87

Other Non-Current Liabilities


Total Liabilities

72
677

76
598

79
612

83
629

0
133

0
137

0
140

0
146

Controlling Interests
Capital Stock

473
11

534
11

605
11

685
11

76

132

127

132

Capital Surplus

89

89

89

89

15.4
8.2

15.1
9.6

14.8
10.5

14.7
11.3

Retained Earnings
Non--Controlling Interests
Non

378
0

439
0

510
0

589
0

3.8

7.6

8.3

8.8

Stockholders' Equity

473

534

605

685

12/14
34.3
7.4

12/15F
22.3
10.1

12/16F
19.7
10.1

12/17F
17.6
9.7

2.4
10.7

2.9
12.5

2.5
11.5

2.2
10.4

Cash Flows (Summarized)


(Wbn)
Cash Flows from Op Activities
Net Profit

Total Assets

Forecasts/Valuations (Summarized)
12/14 12/15F 12/16F 12/17F
146
132
127
132
33
69
78
87
121
49

83
42

75
36

71
32

P/E (x)
P/CF (x)
P/B (x)
EV/EBITDA (x)

13

EPS (W)

1,572

3,253

3,678

4,128

59
10

33
13

35
8

36
11

CFPS (W)
BPS (W)

7,300
22,344

7,197
25,247

7,201
28,575

7,479
32,353

-13

-4

-3

-4

DPS (W)

350

350

350

350

-1
15

0
4

0
3

0
4

Payout ratio (%)


Dividend Yield (%)

22.3
0.6

10.8
0.5

9.5
0.5

8.5
0.5

-9

-22

-27

-35

Revenue Growth (%)

11.9

5.1

4.0

4.8

-152
-69

-3
0

-2
0

-3
0

EBITDA Growth (%)


Operating Profit Growth (%)

10.8
4.4

3.0
22.5

2.2
13.8

4.3
13.1

EPS Growth (%)

-23.8

106.9

13.1

12.2

28
-111

-3
0

-2
0

-3
0

Accounts Receivable Turnover (x)


Inventory Turnover (x)

12.5
297.0

11.8
265.9

11.7
264.4

11.7
265.4

Cash Flows from Fin Activities

22

-103

-7

-7

Accounts Payable Turnover (x)

6.5

6.2

6.1

6.1

Chg in Financial Liabilities


Chg in Equity

33
0

-96
0

0
0

0
0

ROA (%)
ROE (%)

3.0
7.2

6.0
13.7

6.6
13.7

6.9
13.6

Dividends Paid

-7

-7

-7

-7

ROIC (%)

31.1

Others

-4

Liability to Equity Ratio (%)

Increase (Decrease) in Cash

16

102

102

Beginning Balance
Ending Balance

46
62

62
69

69
170

170
273

Chg in Financial Assets


Others

11.6

18.6

24.4

143.3

112.0

101.2

91.8

Current Ratio (%)

54.0

74.4

110.1

142.5

Net Debt to Equity Ratio (%)


Interest Coverage Ratio (x)

60.5
4.1

34.5
5.6

13.6
7.5

-3.0
8.4

Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research

April 20, 2015

CJ CGV

APPENDIX 1
Important Disclosures & Disclaimers
2-Year Rating and Target Price History

Company (Code)

Date

Rating

CJ CGV(079160)

02/05/2015

Buy

Target Price
80,000

11/14/2014

Buy

59,000

08/07/2014

Buy

56,000

05/11/2014

Buy

57,000

08/11/2013

Buy

63,000

05/12/2013

Buy

70,000

02/26/2013

Buy

48,000

(W)

80,000
60,000
40,000
20,000
0
Apr 13

Stock Ratings

Industry Ratings

Buy

: Relative performance of 20% or greater

CJ CGV

100,000

Apr 14

Apr 15

Overweight

: Fundamentals are favorable or improving

Trading Buy : Relative performance of 10% or greater, but with volatility

Neutral

: Fundamentals are steady without any material changes

Hold

: Relative performance of -10% and 10%

Underweight : Fundamentals are unfavorable or worsening

Sell

: Relative performance of -10%

Ratings and Target Price History (Share price (), Target price (), Not covered (), Buy (), Trading Buy (), Hold (), Sell ())
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material
development.
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analysts estimate of
future earnings.
* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic
conditions.
Disclosures
Daewoo Securities Co., Ltd.`s analyst attended the IR meeting held by CJ CGV within recent one month. Expenses related to the meeting were covered by CJ
CGV
Analyst Certification
The research analysts who prepared this report (the Analysts) are registered with the Korea Financial Investment Association and are subject to Korean
securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions
expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this
report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analysts
area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified
herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been
promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific
recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by
overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and
private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of
the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers
This report is published by Daewoo Securities Co., Ltd. (Daewoo), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange.
Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been
independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or
correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English
translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this
report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This
report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any
securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of
the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any
laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof.
Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or
form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers,
employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a
purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or
agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment
banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to
in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to
future performance. Future returns are not guaranteed, and a loss of original capital may occur.
Distribution
United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within
KDB Daewoo Securities Research

April 20, 2015

CJ CGV

Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order), and (ii) high net worth companies and other
persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as Relevant
Persons). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its
contents.
United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional
investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance
thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that
they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed
herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The
securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or
sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.
Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong
Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for
distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws
of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person.
All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or
its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its
affiliates to any registration or licensing requirement within such jurisdiction.

KDB Daewoo Securities International Network


Daewoo Securities Co. Ltd. (Seoul)
Head Office
34-3 Yeouido-dong, Yeongdeungpo-gu
Seoul 150-716
Korea
Tel: 82-2-768-3026

Daewoo Securities (Hong Kong) Ltd.


Two International Finance Centre
Suites 2005-2012
8 Finance Street, Central
Hong Kong, China
Tel: 85-2-2845-6332

Daewoo Securities (America) Inc.


320 Park Avenue
31st Floor
New York, NY 10022
United States
Tel: 1-212-407-1000

Daewoo Securities (Europe) Ltd.


41st Floor, Tower 42
25 Old Broad St.
London EC2N 1HQ
United Kingdom
Tel: 44-20-7982-8000

Daewoo Securities (Singapore) Pte. Ltd.


Six Battery Road #11-01
Singapore, 049909

Tel: 65-6671-9845

Tokyo Branch
7th Floor, Yusen Building
2-3-2 Marunouchi, Chiyoda-ku
Tokyo 100-0005
Japan
Tel: 81-3- 3211-5511

Beijing Representative Office


2401A, 24th Floor, East Tower, Twin Towers
B-12 Jianguomenwai Avenue
Chaoyang District, Beijing 100022
China
Tel: 86-10-6567-9299

Shanghai Representative Office


Room 38T31, 38F SWFC
100 Century Avenue
Pudong New Area, Shanghai 200120
China
Tel: 86-21-5013-6392

Ho Chi Minh Representative Office


Suite 2103, Saigon Trade Center
37 Ton Duc Thang St,
Dist. 1, Ho Chi Minh City,
Vietnam
Tel: 84-8-3910-6000

Daewoo Investment Advisory (Beijing) Co., Ltd.

Daewoo Securities (Mongolia) LLC

PT. Daewoo Securities Indonesia

2401B, 24th Floor, East Tower, Twin Towers


B-12 Jianguomenwai Avenue,
Chaoyang District, Beijing 100022
China

#406, Blue Sky Tower, Peace Avenue 17


1 Khoroo, Sukhbaatar District
Ulaanbaatar 14240
Mongolia

Equity Tower Building Lt.50


Sudirman Central Business District Jl.
Jendral Sudirman Kav. 52-53, Jakarta Selatan
Indonesia 12190

Tel: 86-10-6567-9699

Tel: 976-7011-0807

Tel: 62-21-515-1140

KDB Daewoo Securities Research