The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. — Ed.
We maintain a Positive outlook on the media/entertainment industry. Given: 1) an expansion of new sales sources amid Covid-19; and 2) the possibility of resumed operations following vaccination, our preferences within the industry follow the order of entertainment > casino > advertisement > media (content producers).
Those damaged by Covid-19 now becoming beneficiaries
We maintain a Positive outlook on the media/entertainment industry, believing that the key phrase for 2H21 is to be ‘earnings recovery following vaccination’. Once 70% of Koreans are vaccinated (planned to be completed by September), the recovery of industries hardest hit by Covid-19 should be evident. In 2H21, market interest is to focus on those businesses which stand to benefit most from vaccination.
Moving ahead, an easing of social distancing should help in normalizing operations at both multi-use facilities (ie, concert halls and movie theaters) and casinos catering both to Korean and foreign nationals. Then, once vaccine passports are widely adopted, foreigner-only casinos should enjoy an increase in visitors. The advertising industry, which has inevitably suffered indirect damage stemming from economic uncertainties, is also anticipated to recover in the days ahead on a resumption in advertising budget execution. However, in the case of content producers, the benefits of vaccination should be relatively limited.
Preferences for 2H21: Entertainment > casino > ad > media
For 2H21, our preferences within the industry follow the order of entertainment > casino > advertisement > media (content producers), taking into account: 1) an expansion of new sales sources amid Covid-19; and 2) the possibility of resumed operations following vaccination.
Entertainment: Despite the suspension of offline concerts due to Covid-19, entertainment companies have maintained their earnings growth via an expansion of additional sales sources such as MD and online content. As such sales sources should be sustainable even after vaccination, the resumption of concerts should act as an earnings upside factor in addition to representing a normalization of business. We offer YG Entertainment as our industry top pick, favorably viewing its strong additional sales growth and concert resumption momentum.
Casino: The anticipated phased easing of social distancing and quarantine following vaccination should lead to an increase in casino visitors and operating capacity. We advise paying attention to Kangwon Land, which is expected to see the fastest business normalization in 2H21 upon the easing of social distancing.
Advertisement/Media: Expecting the advertising recovery for traditional media channels to be noticeable going forward, we recommend looking at comprehensive ad agencies boasting large clients. In the case of content production firms, many have now secured mid/long-term growth potential through the production of dramas for Hollywood studios. Nevertheless, such firms have little to gain from vaccination.
