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2015 2H Outlook : Korean Media industry

Media (Analyst Jee-hyun Moon)
A big jump forward

■ [Summary]
■ 2H15 outlook: A big jump forward
■ Themes and issues
■ Valuation and investment strategies
■ Top pick and stocks to watch
■ [Conclusion] Not just recovering, but leaping forward

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2015 2H Outlook : Korean Media industry

  1. 1. 2H15 Outlook Report May 28, 2015 Overweight (Maintain) 2 4 13 21 25 45 [Summary] I. 2H15 outlook: A big jump forward II. Themes and issues III. Valuation and investment strategies IV. Top pick and stocks to watch CJ E&M Cheil Worldwide, Nasmedia KT Skylife, CJ HelloVision KTH, SBS Contents Hub, J Contentree [Conclusion] Not just recovering, but leaping forward Media A big jump forward Jee-hyun Moon +822-2-768-3615 jeehyun.moon@dwsec.com
  2. 2. 2H15 Outlook 2 Source: Cheil Worldwide, KOCCA, Thomson Reuters, KDB Daewoo Securities Research [Summary] A big jump forward for the media sector Media sector to take a leap forward in 2H Structural growth New market, new Model Increase in Chinese sales Establishment of local companies M&A activities Decrease in content sales to Japan Decrease in advertising sales to EU Incurred one-off costs 0 550 1,100 1,650 2,200 2,750 3,300 25 50 75 100 125 150 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F (Wbn)(p) Total overseas revenue from broadcasting content and advertising (R) Media sector index (L) [Domestic market focus] Limited growth in advertising and high sensitivity to domestic economy and seasonality Structural growth New market, new Model Increase in Chinese sales Establishment of local companies M&A activities Decrease in content sales to Japan Decrease in advertising salesto EU Incurred one-off costs
  3. 3. 2H15 Outlook 3 Media sector to take a leap forward in 2H • Note stocks that are likely to advance further after share price recovery • Following ad market recovery, additional momentum from ad-oriented deregulation • Overseas marketability already confirmed; Strategy to ensure sustainable growth needs to be formulated 1) Beyond boundaries • Digital conversion tearing down boundaries • More opportunities for the ad, content, and pay-TV businesses likely to arise 2) Beyond regulations • Broadcast ad-oriented deregulation to take effect • Lifting of advertising restrictions on specific items to stimulate overall ad market growth 3) Beyond the domestic market • Expansion into global markets is essential • Overseas marketability, and ability to expand into overseas markets, already confirmed • Time to devise a thorough strategy to ensure sustainable growth Major themes and issues • We highlight four themes under the keyword J.U.M.P. J: Jungle – Changes in the competitive environment • Competition has mounted due to FTAs and an increase in the number of players • Collaboration and consolidation likely to arise from deregulation and M&As U: UHD – Commoditization of UHD TV • Picture quality improvement in TV gaining momentum • UHD content is increasing across the media value chain (terrestrial TV networks, cable PPs, and satellite broadcasters) M: Monetization – Monetization of new business models • Monetization is important after expansion into new markets • Tailored business strategies, more sophisticated consumer billing models, and additional content-related businesses P: Personalization – Single-person households’ media consumption • Media consumption in an era of increasing focus on single-person households and personalization • Advertisers have been shifting to new ad media in line with changing consumer behavior [Summary] A big jump forward for the media sector
  4. 4. 2H15 Outlook 4 Media Notes: Media sector’s OP margin based on nine companies under our coverage Source: Company data, Thomson Reuters, KDB Daewoo Securities Research Korean media sector’s OP margin and index performance Media sector to take a leap forward • Focus on likelihood of media shares not just recovering, but advancing sharply • In addition to the ad market recovery, deregulation will likely boost media shares. • Overseas marketability has already confirmed; Strategy to ensure sustainable growth needs to be formulated. I. 2H15 outlook: A big jump forward Easing of advertising regulations: Enforcement decree of revised broadcasting law to take effect between July and August this year Overseas revenue fell in 2014 due to Japan’s weakness; Chinese revenue to increase starting in 2015 TIP 3 4 5 6 7 8 9 60 70 80 90 100 110 120 130 2011 2012 2013 2014 2015F 2016F (%)(p) OP margin (R) Media sector index (L) Falling profitability Sideways stock price trend in 2013, followed by plunge in 2014 OP margin to recover in 2015 Dissipation of one-off costs Additional momentum sources: 1) Easing of domestic regulations on advertising 2) Increase in overseas revenue
  5. 5. 2H15 Outlook 5 Media 62% 74% 2% 63% 0% 20% 40% 60% 80% 05 06 07 08 09 10 11 12 13 14 Digital/total pay TV LTE/total wireless telecom Source: Ministry of Science, ICT and Future Planning, Statistics Korea, KDB Daewoo Securities Research Note opportunities as pay-TV digital conversion and spread of LTE services reach the final stage 1) Beyond boundaries • Digital conversion tearing down existing business boundaries • Pay-TV digital conversion (household level) and spread of mobile LTE (individual level) • Digital conversion reaching the final stage: Focus on opportunities rather than risks (including capex and costs). I. 2H15 outlook: A big jump forward Time taken to reach 60% penetration: 10 years for digital conversion of pay TV vs. three years for LTE conversion of mobile phones TIP
  6. 6. 2H15 Outlook 6 Media Source: KDB Daewoo Securities Research Expansion of broadcasting value chain in the digital era 1) Beyond boundaries I. 2H15 outlook: A big jump forward • In the broadcasting value chain, new revenue sources have formed around the pay-TV platform. • Platform: Commission markets for VOD distribution and T-commerce transmission • Content: The VOD market is growing on the back of the availability of various kinds of services, including fixed monthly schemes, packaged products, and mobile clip services. • Advertising: In-program ad market, including products in placement (PPL) and IPTV ads (which play before VOD content begins) The pay-TV digital conversion is bringing new business opportunities: 1) The conventional broadcasting value chain is horizontal 2) The digital conversion has expanded the value chain and brought new revenue sources, including VOD ads and T-commerce TIP Advertising Home shopping, T-commerce Production/ programming Service/distribution Devices Subscribers Content providers - Terrestrial TV - Program providers Pay TV - System operators - Satellite TV - IPTV operator (telcos) - OTT operators Broadcasting fees Service fees Revenue RevenueRevenue
  7. 7. 2H15 Outlook 7 Media Note: Decided on April 24th , 2015 ; Virtual ads, indirect advertising, and sponsorship notices are all in-program ads Source: KCC, KDB Daewoo Securities Research Details on easing of advertising regulations (enforcement decree of the Broadcasting Act) 2) Beyond regulations I. 2H15 outlook: A big jump forward Ad type Details Total amount of advertising ★ Total ad time regulation introduced; Total ad time is based on program hours. - Terrestrial broadcasters, etc.: Total ad time per program hour raised to maximum of 18% (previously 10% maximum); Average of 15% (9 min. on average; 10 min. 48 sec. maximum) - Pay TV, etc.: Ads allowed to take up a maximum of 20% (17% on average) per program hour (10 min. 12 sec. on average; 12 min. maximum) Virtual ads ★ Ad-eligible programs to expand from only sporting events to sporting events, entertainment shows, and sports coverage programs ★ Time allowance to expand (for pay TV, etc.): 5% per program hour  7% Indirect advertising ★ Time allowance to expand (for pay TV, etc.): 5% per program hour  7% Sponsorship notices ★ Easing of restrictions - Sponsorship notices will be allowed for producers of ad-ineligible products. ★ Expansion of eligible products - For ad-ineligible products of public institutions, public service ads will be allowed. • Easing of ad regulations appears imminent, mostly on broadcasting ads • Intention is to strengthen financial conditions of broadcasters that produce “killer content” and to create a fair business environment. • Total ad time: KCC to abolish individual TV ad regulations, putting a limit only on total ad time; This will mainly benefit terrestrial broadcasters. • Virtual ads: Advertising opportunities will expand as virtual ads will be allowed on more types of programs. • Indirect advertising and sponsorship notices: Lifting of ad ban on certain items will help expand accounts. Regulations related to terrestrial broadcasters: 1) In-program ads (commercial breaks) remain prohibited (but allowed in the case of sporting events and cultural/art events). 2) Virtual and indirect ads: Current allowance (5% of the program hour) will remain unchanged. 3) Regulations on sponsorship notices will ease (e.g., expansion of eligible items/accounts). TIP
  8. 8. 2H15 Outlook 8 Media Domestic ad market growth and outlook 2) Beyond regulations • The government is working to devise policies to boost the overall ad market. • Loosening of regulations on ads for alcoholic beverages, powdered infant formula, formulated milk, medical services, and prescription drugs • Boosting new media advertising (based on smart media) • Discussions are underway on ways to improve the smart ad production environment, promote standardization, assess advertising effects (statistics), and nurture relevant professionals. I. 2H15 outlook: A big jump forward Domestic ad market grew only 0.6% YoY in 2014, to W9.6tr. For 2015, we expect the market to expand 3.9% YoY to W10tr. TIP Source: Company data, PwC, KDB Daewoo Securities Research -40 -20 0 20 40 0 3 6 9 12 91 93 95 97 99 01 03 05 07 09 11 13 15F 17F (%, YoY)(Wtr) Domestic ad market size (L) Growth rate (R) Market recovery Deregulation Korea/Japan World Cup Economic recovery; South Africa World Cup Sewol ferry disaster; decrease in SEC earnings
  9. 9. 2H15 Outlook 9 Media Source: Cheil Worldwide, KOCCA, Thomson Reuters, KDB Daewoo Securities Research Increasing correlation between media share prices and overseas revenue 3) Beyond the domestic market • The most effective way to sidestep the impact of domestic regulations is to go global. • The correlation between media share prices and overseas revenue has increased since 2010. • Overseas revenue helps ease the impacts of macro conditions and seasonality on earnings and share prices. I. 2H15 outlook: A big jump forward In 2014, overseas revenue stagnated; Broadcast content business was hurt by drop in Japanese revenue, while ad business was weighed down by decrease in European revenue. For 2015, we expect both the content and ad businesses to show revenue growth in China. Also, M&A deals and overseas network expansion should provide an additional boost. TIP 0 550 1,100 1,650 2,200 2,750 25 50 75 100 125 150 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F (Wbn)(p) Total overseas revenue from broadcasting content and advertising (R) Media sector index (L) Correlation between overseas revenue and media sector performance has increased since 2010
  10. 10. 2H15 Outlook 10 Media Source: KDB Daewoo Securities Research Evolution of the Korean Wave: Currently in the third phase (i.e., expansion into China) 3) Beyond the domestic market • Thanks to the evolution of the “Korean Wave,” Korea’s cultural phenomenon is developing into an industry. • Among global markets, Japan is the main market for offline dramas, while the US and Europe are strong markets for online music. • Currently, the industry is paying keen attention to the Chinese content/ad market (both online and offline). I. 2H15 outlook: A big jump forward Korean Wave content market in China encompasses online and offline channels: - Online: Youku (e.g., right to transmit content) - Offline: TV broadcasters and film box office TIP China My Love from the Star; Running Man Online/offline US/EU „Gangnam Style‰ Online Japan Popularity of Bae Yong-joon Offline First Second Third Cultural phenomenon (fads, temporary) Potential revenue (industry development, sustainability)
  11. 11. 2H15 Outlook 11 Media Source: KDB Daewoo Securities Research Sustainable business lineup is necessary to ensure overseas expansion 3) Beyond the domestic market • For overseas projects, marketability and likelihood of success in expansion have already been confirmed. • The success of overseas projects is inherently unpredictable • It is time to form detailed strategies for establishing sustainable business lineups and ensuring overseas growth. • Companies need to make steady business plans and lineups. I. 2H15 outlook: A big jump forward Overseas projects are hard to reflect in enterprise value due to their highly unpredictable business nature, no matter how well they perform. Only if overseas subsidiaries are established and provide a sustainable business lineup can overseas business be reflected in enterprise value. TIP
  12. 12. 2H15 Outlook 12 Media Source: KDB Daewoo Securities Research Two-track strategy: JV + direct operations 3) Beyond the domestic market • Two-track strategy: Joint venture (JV) + overseas subsidiaries • A JV can lead to faster monetization and reduce errors in the early stages. • Establishing an overseas subsidiary can help ensure business sustainability and stronger growth over the medium to long term. I. 2H15 outlook: A big jump forward KEEP CALM AND SET UP SHOP Joint ventures help improve short-term results, but restrictions on equity ownership and business flexibility may limit growth. Establishing an overseas subsidiary can be riskier than forming a JV, but the prospect of full revenue recognition can be attractive. TIP
  13. 13. 2H15 Outlook 13 Media Source: KDB Daewoo Securities Research Key themes in 2H15 II. Themes and issues: J.U.M.P. J.U.M.P. • 2H15 keyword: J.U.M.P. • J: Jungle - Changes in the competitive environment • U: UHD - Commoditization of UHD TV • M: Monetization - Monetization of new business models and new markets • P: Personalization - Changes in content and ad market driven by single-person households 2H15 media industry trends: Changing competitive landscape, earnings improvement, higher pixel counts, and personalization TIP U M Jungle : Rapidly changing competitive landscape UHD : Rising penetration Monetization : With growth story in place, monetization now the key Personalization : Media consumption by single-person households J P
  14. 14. 2H15 Outlook 14 Media Source: KDB Daewoo Securities Research Media industry to undergo major changes in competitive structure starting in 2H II. Themes and issues: 1) Jungle 1) Jungle: A dog-eat-dog world • Jungle: Changes in the competitive landscape to pick up speed • Media content: Opening of the program provider (PP) market under the ROK-US FTA; Growing demand from China • Pay-TV competition variables: 1) Telcos’ expansion into the pay-TV market and 2) digital conversion • Deregulation, M&As, and partnerships may result in industry cooperation/consolidation. Changes in market competition may lead to higher ARPU for media content. Korea’s pay-TV ARPU is among the lowest in the world. Netflix may enter the Korean market next year. TIP Market integration Easing uncertainty Evolving domestic Platform strategy Expansion into China Overseas services entering Korean market Establishment of a new segment New entrants OTT Netflix Content-platform integration Domestic: Exclusive content China: Broadcasting, film Pay TV: C&M Multiplex: Megabox ContentM&A
  15. 15. 2H15 Outlook 15 Media Source: Broadcast industry status report, KCTA, KDB Daewoo Securities Research Pay-TV market consolidation is underway, but still has a long way to go (19 operators) II. Themes and issues: 1) Jungle 1) Jungle: Industry consolidation • The Korean pay-TV market has been weighed down by stiff competition. • The digital broadcast conversion has caused investments and costs to rise; ARPU growth has stagnated due to price discount pressures amid competition. • Some companies (C&M, etc.) were placed on the M&A market amid deregulation, signaling industry consolidation. • A successful merger would likely improve the involved firms’ enterprise values. The pay-TV industry’s history is marked by consolidation. TIP 21 20 25 23 23 21 18 19 11 10 0 10 20 30 40 05 06 07 08 09 10 11 12 13 14 (no.) IPTV Satellite Cable SO (individual) Cable MSO
  16. 16. 2H15 Outlook 16 Media Source: Display Search, LG Display, KDB Daewoo Securities Research UHD TV penetration to exceed 10% in 2015, as more UHD TV content becomes available II. Themes and issues: 2) UHD 2) UHD: “My neighbor’s got a UHD TV!” • UHD: Early stage of UHD TV commoditization • Higher pixel counts are catching on with consumers more quickly than past TV trends. • UHD TV penetration is anticipated to exceed 10% this year. • Starting in 2H, terrestrial TV networks, cable PPs (CJ E&M), and satellite TV operators (KT Skylife) are anticipated to step up UHD TV content operations Content providers’ big shift: - Terrestrial TV networks to begin UHD content production and programming in 2H - CJ E&M (Korea’s largest cable PP) launched UXN, a channel dedicated to UHD content - Skylife TV launched two UHD content channels TIP 5% 13% 21% 28% 32% 0 10 20 30 40 210 220 230 240 250 260 2014 2015F 2016F 2017F 2018F (%)(mn units) Global TV shipments (L) UHD TV penetration rate (R)
  17. 17. 2H15 Outlook 17 Media Source: KDB Daewoo Securities Research Monetization to begin in 2015 II. Themes and issues: 3) Monetization 3) Monetization • Monetization: Businesses start to make money after a growth story is in place. • Monetization is important after forming and entering into new markets. • Strategies to strengthen business sustainability are under review. • More sophisticated monetization models and more diverse business models are needed. 2014 2015 2016 Formation of story - Confirmation of Chinese market viability - Policy easing proposals Monetization - Strategies for Chinese operations - Realization of regulatory easing - Business model diversification Business lineup - Localization efforts - Recovery of market growth - Increase in contribution of new businesses
  18. 18. 2H15 Outlook 18 Media Source: CJ E&M, Thomson Reuters, KDB Daewoo Securities Research CJ E&M shares are rallying as the company has delivered profit for two straight quarters II. Themes and issues: 3) Monetization 3) Monetization: Share prices to trend upward if earnings continue to improve • Share prices should trend upward in line with improving earnings over the long term • CJ E&M could be a case in point: • Despite improvement in the recognized competitiveness of content, CJ E&M turned to red on a quarterly basis two times in the past two years. • This year, however, the company remained in the black in 1Q despite unfavorable seasonality, leading to a share price rally. Improvement in recognized competitiveness is leading to earnings growth. TIP 1,000 1,500 2,000 2,500 3,000 -8 -4 0 4 8 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15F (Wbn)(%) CJ E&M OP margin (L) CJ E&M market cap (R)
  19. 19. 2H15 Outlook 19 Media Note: Survey of 308 single households in 2015; Displaying the most chosen answers and percentage Source: Job Korea, Visual Dive, KDB Daewoo Securities Research Single people spend the largest share of time consuming media content II. Themes and issues: 4) Personalization 4) Personalization: Single-person households’ media consumption • Personalization of media driven by increasing focus on single-person households • Increasing focus on single-person households’ media consumption changing the media content market landscape • The ad market is also developing and expanding as advertisers shift focus to single people with large purchasing power. Single people spend the largest share of time consuming media content. TIP 63.6% Satisfied with daily routine 56.5% Satisfied overall with single- person household life 83.7% Encountered feelings of loneliness 29.9% Watch TV/movies to relieve loneliness
  20. 20. 2H15 Outlook 20 Media Source: KISDI, Nasmedia, Cable TV VOD, KDB Daewoo Securities Research VOD market’s growth is driving up fixed-rate monthly subscription sales and the IPTV ad market II. Themes and issues: 4) Personalization 4) Personalization: Single-person households’ media consumption • Major indicator for personalized media consumption is VOD consumption. • VOD market’s growth is driving up digital conversion in the pay-TV market and the unit price of VOD content. • Recently, fixed-rate monthly subscription package sales and IPTV ad billings have also been on the rise. VOD: Video on demand IPTV ad slots have been completely sold out since July 2014 TIP 0 40 80 120 160 0 200 400 600 800 2011 2012 2013 2014 2015F (Wbn)(Wbn) Cable VOD revenue (L) IPTV VOD revenue (L) IPTV monthly plans revenue (R) IPTV ad billings (R)
  21. 21. 2H15 Outlook 21 Media Note: Based on the data of nine media companies under our Universe, Source: Each company, Korea Creative Content Agency, Thomson Reuters, KDB Daewoo Securities Research Shares gaining momentum in 2015 on the back of growth in margins and overseas revenue III. Valuation and investment strategies Riding the wave of margin growth and overseas expansion • Media sector’s share performance depends on policy, short-term earnings, and long-term growth story. • Revenue is still largely swayed by policy factors due to high concentration on domestic market • In the short term, shares likely have limited upside potential without earnings growth. • Share re-rating is unlikely without long-term growth potential. • Three determinants of share performance all likely to be favorable in 2015  Easing of regulations, recovery of margins, and improved long-term growth potential (confirmed by overseas success) Media sector’s OP margin and overseas revenue to improve simultaneously in 2015 TIP 0 5 10 15 20 25 30 35 60 70 80 90 100 110 120 130 2011 2012 2013 2014 2015F 2016F (%)(p) Media sector index (L) OP margin (R) Overseas revenue growth (R) 2014: shares and profitability slumped; overseas revenue growth also fell 2015: expectations for profitability as well as acceleration of overseas revenue growth
  22. 22. 2H15 Outlook 22 Media CJ E&M’s 12-month forward P/B band Major global media companies’ earnings forecast and valuation (Wbn, %, x) J Contentree’s 12-month forward P/B band Notes: KDB Daewoo Securities estimates for CJ E&M and J Contentree; Data for other companies are based on the consensus Source: Bloomberg, KDB Daewoo Securities Research III. Valuation and strategies: Global peer group 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 10 11 12 13 14 15 16 17 (W) 8.0x 4.0x 2.7x 2.0x 1.5x 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 10 11 12 13 14 15 16 17 (W) Adj. price 1.8x 1.5x 1.2x 1.0x 0.7x Company Revenue (Wbn) OP (Wbn) OP margin (%) NP (Wbn) PE (x) P/B (x) ROE (%) 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F CJ E&M (Korea) 1,233 1,306 1,370 -13 41 49 -1.0 3.2 3.5 233 117 69 6.6 23.3 39.5 1.0 1.6 1.5 16.4 7.1 4.0 SBS Media Holdings 450 463 500 29 34 39 6.5 7.4 7.8 17 30 32 42.2 23.3 21.8 1.1 1.0 1.0 2.5 4.4 4.5 J Contentree 394 398 411 35 39 45 8.9 9.8 10.9 15 25 27 - 23.9 21.8 2.4 2.6 2.4 -0.1 12.3 12.0 Fuji Media Holdings (Japa n) 6,227 6,033 6,113 248 262 298 4.0 4.3 4.9 193 194 223 20.3 18.5 16.3 0.6 0.7 0.6 3.3 3.6 4.0 Walt Disney (US) 51,102 57,019 61,713 11,902 14,866 16,541 23.3 26.1 26.8 7,853 9,401 10,367 23.4 21.8 19.3 4.0 3.9 3.5 17.7 18.2 21.5 Time Warner 28,818 31,184 33,288 6,294 7,817 9,076 21.8 25.1 27.3 4,031 4,240 5,038 18.6 18.2 14.7 2.9 2.6 2.4 12.9 16.1 20.1 Viacom 14,429 15,091 15,626 4,273 4,177 4,814 29.6 27.7 30.8 2,503 2,426 2,795 11.7 11.4 10.0 11.4 7.5 7.5 53.2 60.3 73.7 Discovery 6,599 7,145 7,582 2,171 2,301 2,433 32.9 32.2 32.1 1,200 1,286 1,431 18.2 17.6 15.2 2.7 4.0 3.8 17.3 20.4 23.0 ITV (EU) 4,491 4,993 5,316 1,266 1,361 1,482 28.2 27.3 27.9 808 1,077 1,176 23.0 17.0 15.5 10.6 8.6 6.6 49.8 52.3 46.2 RTL Group 8,122 7,204 7,397 1,401 1,362 1,422 17.3 18.9 19.2 913 881 918 19.5 17.7 16.8 4.5 4.5 4.4 21.8 25.1 26.6 Huayi Brothers (China) 406 560 692 146 221 283 35.9 39.5 40.9 153 187 235 75.2 57.1 45.6 9.8 9.0 7.8 15.2 16.3 16.7 Beijing Enlight Media 207 290 380 65 117 160 31.2 40.3 42.0 56 91 123 131.1 76.6 58.9 13.9 12.1 10.4 12.2 13.4 15.1 Zhejiang Huace Film & TV 326 550 667 73 142 190 22.4 25.9 28.5 67 119 156 77.7 50.6 38.5 9.3 5.5 4.8 15.3 14.8 13.7 Shanghai New Culture 106 273 361 26 72 95 24.2 26.2 26.4 21 55 71 110.4 67.4 51.3 16.2 8.7 7.3 12.4 16.9 14.6 Average 8,779 9,465 10,102 1,994 2,344 2,638 20.4 22.4 23.5 1,290 1,438 1,619 45.8 31.7 27.5 6.5 5.1 4.6 17.9 20.1 21.1
  23. 23. 2H15 Outlook 23 Media Cheil Worldwide’s 12-month forward P/E band Major global ad agencies’ earnings forecast and valuation (Wbn, %, x) Cheil Worldwide’s 12-month forward P/B band III. Valuation and strategies: Global peer group Notes: KDB Daewoo Securities estimates for Cheil Worldwide; Data for other companies are based on the consensus Source: Bloomberg, KDB Daewoo Securities Research 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 10 11 12 13 14 15 16 17 (W) 31.4x 26.4x 21.4x 16.4x 11.4x 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 10 11 12 13 14 15 16 17 (W) 3.4x 2.9x 2.5x 2.1x 1.7x Company name Revenue (Wbn) OP (Wbn) OP margin (%) NP (Wbn) P/E (x) P/B (x) ROE (%) 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F Cheil Worldwide (Korea) 2,666 2,673 2,863 127 157 174 4.8 5.9 6.1 102 124 136 19.5 20.3 18.6 2.0 2.2 2.0 13.2 13.1 12.6 Dentsu (Japan) 7,053 6,058 7,080 1,281 890 1,195 18.2 14.7 16.9 773 527 740 41.7 30.1 22.3 1.9 1.7 1.6 4.9 5.7 7.4 Hakuhodo DY holdings 10,948 10,656 10,974 356 362 385 3.3 3.4 3.5 192 198 209 25.0 22.9 21.6 1.9 1.8 1.7 7.9 8.6 8.4 Asatsu-DK 3,517 3,222 3,344 41 42 49 1.2 1.3 1.5 37 39 44 33.5 30.7 27.4 1.1 1.0 - 3.3 2.9 - BlueFocus (China) 19,993 19,888 20,999 2,463 2,683 2,912 12.3 13.5 13.9 1,868 2,046 2,221 18.9 16.5 15.0 2.8 2.5 2.4 14.3 15.5 16.2 Guangdong Advertising 16,135 16,467 17,088 2,048 2,089 2,207 12.7 12.7 12.9 1,163 1,173 1,241 17.5 17.3 16.0 7.7 6.8 6.7 35.6 36.4 40.1 WPP PLC (UK) 10,146 11,724 12,436 1,582 1,733 1,900 15.6 14.8 15.3 1,007 1,195 1,317 23.4 17.2 15.5 2.6 2.6 2.4 12.9 16.2 17.0 Omnicom Group (US) 7,939 8,211 8,548 830 931 1,031 10.5 11.3 12.1 503 513 577 20.2 18.1 15.8 4.5 4.1 4.0 24.5 21.7 24.5 Publicis Groupe (EU) 1,017 1,526 1,909 136 220 286 13.4 14.4 15.0 122 167 222 75.6 38.7 29.3 8.4 6.8 5.7 11.6 19.0 20.4 Interpublic Group (US) 1,078 1,545 1,833 103 185 233 9.6 12.0 12.7 73 129 162 63.2 42.7 32.8 13.5 11.3 8.2 23.1 30.8 27.5 Average 8,049 8,200 8,711 897 929 1,037 10.1 10.4 11.0 584 611 687 33.9 25.4 21.4 4.6 4.1 3.9 15.1 17.0 19.4
  24. 24. 2H15 Outlook 24 Media Major global pay-TV companies’ earnings forecast and valuation (Wbn, %, x) III. Valuation and strategies: Global Peer Group Notes: KDB Daewoo Securities estimates for CJ HelloVision and KT Skylife; Data for other companies are based on the consensus Source: Bloomberg, KDB Daewoo Securities Research 0 6,000 12,000 18,000 24,000 30,000 10 11 12 13 14 15 16 17 (W) 57.0x 30.0x 20.0x 15.0x 10.0x 0 10,000 20,000 30,000 40,000 50,000 10 11 12 13 14 15 16 17 (W) Adj. price 30.3x 25.5x 20.8x 16.0x 11.3x Company Revenue (Wbn) OP (Wbn) OP margin (%) NP (Wbn) P/E (x) P/B (x) ROE (%) 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F CJ HelloVision (Korea) 1,270 1,279 1,350 102 126 140 8.0 9.8 10.4 26 69 80 29.3 15.0 13.0 0.8 1.1 1.0 2.9 7.3 7.8 KT Skylife 623 621 640 78 89 94 12.5 14.3 14.7 56 68 72 15.8 13.0 12.3 2.0 1.8 1.6 13.2 14.8 14.0 Hyundai HCN 306 298 299 57 56 57 18.5 18.8 18.9 44 46 47 11.9 10.7 10.4 0.9 0.8 0.8 7.9 8.1 7.8 Sky Perfect JSAT (japan) 1,581 1,766 1,859 190 248 253 12.0 14.0 13.6 131 154 159 15.9 13.7 12.3 1.1 1.0 0.9 7.1 - - Comcast (US) 72,443 79,040 84,814 15,699 17,654 19,032 21.7 22.3 22.4 8,827 9,153 10,003 19.2 17.7 15.5 2.8 2.7 2.5 16.6 15.4 15.8 Time Warner Cable 24,029 26,274 27,692 4,879 5,208 5,777 20.3 19.8 20.9 2,139 2,292 2,619 24.6 25.0 21.3 6.4 6.1 5.5 26.4 24.6 26.8 Liberty Global 19,221 20,152 21,238 2,347 3,075 3,817 12.2 15.3 18.0 -732 166 803 - 197.1 71.9 3.9 3.8 4.0 -9.4 0.8 4.5 Charter Communications 9,594 10,804 11,631 1,023 1,474 1,829 10.7 13.6 15.7 -193 138 478 - 185.0 44.4 261.5 90.8 - - 113.0 32.6 Cablevision 6,806 7,176 7,254 970 1,030 1,074 14.3 14.4 14.8 328 260 288 36.5 29.8 27.1 - - - - -4.4 -4.2 DirecTV (US) 35,034 37,737 39,218 5,401 5,969 6,236 15.4 15.8 15.9 2,903 3,256 3,439 15.7 15.5 14.5 - - 111.1 - -86.0 427.4 Dish Network 15,424 16,534 17,092 1,922 2,022 2,016 12.5 12.2 11.8 995 947 881 30.1 37.2 40.2 13.9 10.5 8.2 65.5 34.0 22.5 Shaw Communications (C anada) 5,116 4,922 5,014 1,405 1,330 1,381 27.5 27.0 27.5 836 730 783 15.1 15.9 14.9 2.7 2.5 2.3 17.3 17.0 16.5 British Sky (UK) 13,241 18,163 20,142 2,014 2,350 2,717 15.2 12.9 13.5 1,501 1,545 1,837 11.5 19.9 16.8 6.9 6.4 5.4 84.2 40.9 31.5 Beijing Gehua (China) 414 479 530 16 79 136 3.8 16.5 25.7 97 142 186 69.1 53.1 39.2 6.6 6.1 5.4 10.0 11.7 13.4 Average 14,650 16,089 17,055 2,579 2,908 3,183 14.6 16.2 17.4 1,211 1,355 1,548 24.7 46.3 25.3 25.8 11.1 12.4 22.0 15.2 47.4 CJ HelloVision's 12-month forward P/E band KT Skylife’s 12-month forward P/E band
  25. 25. 2H15 Outlook 25 Media Source: KDB Daewoo Securities Research IV. Top pick and stocks to watch Top pick Buy Buy Trading Buy [Content] CJ E&M [Advertising] Cheil Worldwide, Nasmedia [Platform] KT Skylife , CJ HelloVision , KTH SBS Contents Hub, J Contentree
  26. 26. 2H15 Outlook 26 Media Taking a leap forward Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 1,395 1,246 1,233 1,306 1,370 1,429 OP (Wbn) 39 -9 -13 41 49 56 OP margin (%) 2.8 -0.7 -1.1 3.1 3.6 3.9 NP (Wbn) 37 5 225 111 66 78 EPS (W) 975 133 5,796 2,869 1,695 2,026 ROE (%) 3.1 0.4 16.4 7.1 4.0 4.5 P/E (x) 27.2 229.0 6.6 22.4 37.9 31.7 P/B (x) 0.8 1.0 1.0 1.5 1.5 1.4 (Maintain) Buy Target Price (12M, W) 80,000 Share Price (5/27/15, W) 64,300 Expected Return 24% OP (15F, Wbn) 41 Consensus OP (15F, Wbn) 54 EPS Growth (15F, %) -50.5 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 22.4 Market P/E (15F, x) 11.0 KOSDAQ 699.19 Market Cap (Wbn) 2,490 Shares Outstanding (mn) 39 Free Float (%) 56.7 Foreign Ownership (%) 12.7 Beta (12M) 1.94 52-Week Low 32,300 52-Week High 68,500 (%) 1M 6M 12M Absolute 11.6 72.4 38.4 Relative 11.7 34.6 8.5 60 70 80 90 100 110 120 130 140 150 160 14.5 14.9 15.1 15.5 CJ E&M KOSDAQ Investment points • Domestic: Profitability is strengthening on the back of competitive content. • Overseas: Momentum is likely to pick up after Chinese and Vietnamese subsidiaries are established this year. • Robust earnings growth of the mobile games subsidiary will serve as a reliable buttress amid the growing amount of risk-taking associated with business expansion. • As each business segment has gained competitiveness, the firm’s diversified business portfolio has begun to reduce earnings volatility. Risk factors • Difficulty estimating earnings due to the complex nature of the business • Regulatory uncertainty in China and Vietnam • Earnings volatility associated with commercial success of content CJ E&M (130960 KQ)Top pick
  27. 27. 2H15 Outlook 27 Media Note: 2015-16 figures are our estimates Source: CJ E&M, KDB Daewoo Securities Research Mobile games to drive 2Q-3Q earningsBroadcasting operating profit on the rise Notes: Release months clockwise from top left: 3/15, 4/15, 6/15, and 7/15 Source: Netmarble Games, KDB Daewoo Securities Research Higher growth in both broadcasting and games • Broadcasting (parent): Operating profit to recover after two years of slowdown, aided by tighter cost control (production and personnel) and enhanced content competitiveness. • Games (subsidiary): Diversification in genres (from casual to RPG, etc.) and game publishing platforms (from KakaoTalk to NAVER), and the “Global One Build” strategy (i.e., releasing mobile games simultaneously worldwide in multiple languages CJ E&M (130960 KQ)Top pick 0 10 20 30 40 50 60 0 200 400 600 800 1,000 11 12 13 14 15F 16F (Wbn)(Wbn) Broadcasting revenue (L) Broadcasting operating profit (R)
  28. 28. 2H15 Outlook 28 Media 0 1 2 3 4 5 6 7 0 20 40 60 80 91 94 97 00 03 06 09 12 15F (US$)(US$bn) Viacom market cap (L) Viacom EPS (R) 2014 Rise in revenue led by success of films in China 2005 Separation from CBS; focused on cable PP and film businesses 1995 Began entry into China; Chinese MTV channel 1999-2000 China CCTV-MTV music show 2001 Launch of Nickelodeon channel in China; entered film business Share price rose sharply on pickup of localized programming/operations Overseas momentum imminent • CJ E&M will establish subsidiaries in Vietnam and China this year. • Since starting businesses in Vietnam and China in 2004, the company has accumulated project- oriented experience and relationships. • JV negotiations are already underway; Eight movies with localized content are in the pipeline in Vietnam and China. • Focus on case of Viacom: Shares soared as its Chinese operations took off. Source: Viacom, Thomson Reuters, Yahoo Finance, KDB Daewoo Securities Research Correlation between share performance and Chinese operations of US company Viacom CJ E&M (130960 KQ)Top pick Viacom - Music: MTV, etc. - Broadcast: Nickelodeon, etc. - Movies: Paramount Pictures CJ E&M - Music : Mnet, etc. - Broadcast: tvN, OCN, Tooniverse, etc. - Movies : CJ Entertainment Viacom’s Chinese operations began with music, as the business required relatively small investments, before expanding to broadcast and then to movies. CJ E&M is following a similar path. TIP
  29. 29. 2H15 Outlook 29 Media Note: Based on May 27th closing price Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 1,233 1,306 1,370 1,429 Cost of Sales 977 1,019 1,069 1,115 Gross Profit 256 287 301 314 SG&A Expenses 268 246 253 259 Operating Profit (Adj) -13 41 49 56 Operating Profit -13 41 49 56 Non-Operating Profit -37 114 44 55 Net Financial Income -6 1 1 3 Net Gain from Inv in Associates 10 133 66 72 Pretax Profit -50 155 93 111 Income Tax 7 38 24 29 Profit from Continuing Operations -57 117 69 82 Profit from Discontinued Operation 290 0 0 0 Net Profit 233 117 69 82 Controlling Interests 225 111 66 78 Non-Controlling Interests 9 5 3 4 Total Comprehensive Profit 228 117 69 82 Controlling Interests 221 110 65 77 Non-Controlling Interests 8 7 4 5 EBITDA 290 325 341 354 FCF (Free Cash Flow) 176 202 306 299 EBITDA Margin (%) 23.5 24.9 24.9 24.8 Operating Profit Margin (%) -1.1 3.1 3.6 3.9 Net Profit Margin (%) 18.2 8.5 4.8 5.5 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 1,039 1,043 1,094 1,064 Cash and Cash Equivalents 34 49 50 68 AR & Other Receivables 368 419 439 457 Inventories 5 6 6 7 Other Current Assets 632 569 599 532 Non-Current Assets 1,318 1,425 1,465 1,496 Investments in Associates 377 453 475 496 Property, Plant and Equipment 88 89 81 75 Intangible Assets 695 725 745 758 Total Assets 2,357 2,468 2,558 2,560 Current Liabilities 581 571 591 510 AP & Other Payables 215 244 256 267 Short-Term Financial Liabilities 148 157 157 57 Other Current Liabilities 218 170 178 186 Non-Current Liabilities 271 275 276 277 Long-Term Financial Liabilities 253 253 253 253 Other Non-Current Liabilities 18 22 23 24 Total Liabilities 852 846 867 787 Controlling Interests 1,510 1,620 1,686 1,765 Capital Stock 194 194 194 194 Capital Surplus 973 973 973 973 Retained Earnings 316 427 493 572 Non-Controlling Interests -4 2 5 9 Stockholders' Equity 1,506 1,622 1,691 1,774 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 6.6 23.3 39.5 33.0 P/CF (x) 4.4 8.5 8.1 7.8 P/B (x) 1.0 1.6 1.5 1.5 EV/EBITDA (x) 4.7 7.8 7.3 6.9 EPS (W) 5,796 2,869 1,695 2,026 CFPS (W) 8,719 7,858 8,231 8,632 BPS (W) 39,100 41,969 43,665 45,691 DPS (W) 0 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Revenue Growth (%) -1.0 5.9 4.9 4.3 EBITDA Growth (%) -19.7 12.1 4.9 3.8 Operating Profit Growth (%) - - 19.5 14.3 EPS Growth (%) 4,257.9 -50.5 -40.9 19.5 Accounts Receivable Turnover (x) 3.3 3.5 3.3 3.3 Inventory Turnover (x) 209.5 232.9 224.1 223.4 Accounts Payable Turnover (x) 11.7 14.1 13.5 13.5 ROA (%) 10.2 4.8 2.7 3.2 ROE (%) 16.4 7.1 4.0 4.5 ROIC (%) -1.4 3.3 3.7 4.2 Liability to Equity Ratio (%) 56.6 52.1 51.3 44.4 Current Ratio (%) 178.9 182.6 184.9 208.5 Net Debt to Equity Ratio (%) -7.5 -4.4 -6.9 -9.2 Interest Coverage Ratio (x) -0.8 2.9 3.4 4.5 CJ E&M (130960 KQ)Top pick
  30. 30. 2H15 Outlook 30 Media Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 2,365 2,709 2,666 2,673 2,863 3,071 OP (Wbn) 126 130 127 157 174 193 OP margin (%) 5.3 4.8 4.8 5.9 6.1 6.3 NP (Wbn) 94 99 102 123 135 149 EPS (W) 817 857 883 1,072 1,172 1,297 ROE (%) 13.6 14.7 13.2 13.1 12.6 12.3 P/E (x) 26.4 32.1 19.5 19.6 17.9 16.2 P/B (x) 3.1 3.5 2.0 2.1 1.9 1.7 (Maintain) Buy Target Price (12M, W) 30,000 Share Price (5/27/15, W) 20,950 Expected Return 43% OP (15F, Wbn) 157 Consensus OP (15F, Wbn) 152 EPS Growth (15F, %) 21.3 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 19.6 Market P/E (15F, x) 11.0 KOSPI 2,107.50 Market Cap (Wbn) 2,410 Shares Outstanding (mn) 115 Free Float (%) 59.7 Foreign Ownership (%) 28.1 Beta (12M) 1.16 52-Week Low 15,600 52-Week High 25,000 (%) 1M 6M 12M Absolute -12.3 8.3 -13.6 Relative -10.3 1.8 -18.1 50 60 70 80 90 100 110 120 14.5 14.9 15.1 15.5 Cheil Worldwide KOSPI Investment points • Cheil Worldwide’s growth potential will likely pick up this year, driven by European and Chinese businesses. • Positives: Recovery of domestic ad market, lifting of advertising ban on certain items • Acquired overseas subsidiaries have performed well in taking orders from non-affiliates; Additional M&A deals likely. • The value of Pengtai, a Chinese digital marketing subsidiary, could be reflected in Cheil’s enterprise value. Risks • Share volatility could increase due to changes in governance of major accounts (e.g., SEC and Samsung Group). • Earnings visibility is weak due to heavy dependence on overseas revenue. • IPO of Innocean, the second-largest ad agency in Korea, might affect share liquidity. Growth engines secured Cheil Worldwide (030000 KS) Stocks to watch
  31. 31. 2H15 Outlook 31 Media Note: For ad agencies, gross profits reflects top line better than revenue; 2015 data is our estimate. Source: Company data, KDB Daewoo Securities Research Focus on the value of PengtaiTop-line and net profit to improve in 2015 Source: Company data, Pengtai, KDB Daewoo Securities Research Enterprise value hinges on growth potential and China • Cheil Worldwide’s top-line growth is likely to accelerate on the back of M&A deals. Net profit is also anticipated to grow thanks to limited SG&A growth. • Pengtai, a Chinese digital marketing subsidiary, is the third-largest digital ad agency in China. Pay attention to partnerships with major Chinese internet companies and the value of large accounts. Among local Chinese advertisers, four are Fortune 100 companies; Solid relationships with 180 partners, including video content providers, portals, and online shopping malls Cheil Worldwide (030000 KS) Stocks to watch 0 20 40 60 80 100 120 140 0 200 400 600 800 1,000 1,200 11 12 13 14 15F (Wbn)(Wbn) Gross profit (L) Net profit (R)
  32. 32. 2H15 Outlook 32 Media Note: Based on May 27th closing price Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 2,666 2,673 2,863 3,071 Cost of Sales 1,873 1,711 1,832 1,965 Gross Profit 793 962 1,031 1,106 SG&A Expenses 666 805 857 913 Operating Profit (Adj) 127 157 174 193 Operating Profit 127 157 174 193 Non-Operating Profit 13 14 13 14 Net Financial Income 3 9 11 14 Net Gain from Inv in Associates 0 0 0 0 Pretax Profit 140 171 187 207 Income Tax 38 47 51 57 Profit from Continuing Operations 102 124 136 150 Profit from Discontinued Operation 0 0 0 0 Net Profit 102 124 136 150 Controlling Interests 102 123 135 149 Non-Controlling Interests 0 1 1 1 Total Comprehensive Profit 92 124 136 150 Controlling Interests 91 125 136 151 Non-Controlling Interests 1 -1 -1 -1 EBITDA 160 186 204 223 FCF (Free Cash Flow) 17 153 139 152 EBITDA Margin (%) 6.0 7.0 7.1 7.3 Operating Profit Margin (%) 4.8 5.9 6.1 6.3 Net Profit Margin (%) 3.8 4.6 4.7 4.9 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 1,523 1,683 1,874 2,094 Cash and Cash Equivalents 317 468 573 699 AR & Other Receivables 899 905 969 1,039 Inventories 0 0 0 0 Other Current Assets 307 310 332 356 Non-Current Assets 321 292 303 307 Investments in Associates 5 5 14 15 Property, Plant and Equipment 101 82 83 84 Intangible Assets 151 140 139 139 Total Assets 1,844 1,974 2,177 2,401 Current Liabilities 905 911 974 1,044 AP & Other Payables 543 546 585 628 Short-Term Financial Liabilities 18 18 18 18 Other Current Liabilities 344 347 371 398 Non-Current Liabilities 56 57 61 65 Long-Term Financial Liabilities 0 0 0 0 Other Non-Current Liabilities 56 57 61 65 Total Liabilities 961 967 1,035 1,109 Controlling Interests 879 1,002 1,136 1,285 Capital Stock 23 23 23 23 Capital Surplus 118 118 118 118 Retained Earnings 857 980 1,115 1,264 Non-Controlling Interests 4 5 6 7 Stockholders' Equity 883 1,007 1,142 1,292 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 19.5 20.3 18.6 16.8 P/CF (x) 11.4 13.1 12.2 11.3 P/B (x) 2.0 2.2 2.0 1.8 EV/EBITDA (x) 9.5 10.2 8.7 7.4 EPS (W) 883 1,072 1,172 1,297 CFPS (W) 1,506 1,663 1,783 1,937 BPS (W) 8,704 9,776 10,948 12,245 DPS (W) 0 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Revenue Growth (%) -1.6 0.3 7.1 7.3 EBITDA Growth (%) 1.9 16.3 9.7 9.3 Operating Profit Growth (%) -2.3 23.6 10.8 10.9 EPS Growth (%) 3.0 21.4 9.3 10.7 Accounts Receivable Turnover (x) 3.0 3.0 3.1 3.1 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Accounts Payable Turnover (x) 3.5 3.4 3.5 3.5 ROA (%) 5.8 6.5 6.5 6.6 ROE (%) 13.2 13.1 12.6 12.3 ROIC (%) 24.6 29.0 32.9 35.4 Liability to Equity Ratio (%) 108.9 96.1 90.6 85.8 Current Ratio (%) 168.3 184.7 192.4 200.7 Net Debt to Equity Ratio (%) -53.0 -61.6 -64.6 -67.8 Interest Coverage Ratio (x) 68.8 81.9 91.0 101.0 Cheil Worldwide (030000 KS) Stocks to watch
  33. 33. 2H15 Outlook 33 Media Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 23 25 30 40 47 55 OP (Wbn) 8 6 9 13 16 20 OP margin (%) 34.8 24.0 30.0 32.5 34.0 36.4 NP (Wbn) 6 6 8 11 14 16 EPS (W) 887 681 965 1,370 1,679 1,987 ROE (%) 15.7 11.2 13.4 16.9 17.9 18.2 P/E (x) - 16.6 24.7 30.6 25.0 21.1 P/B (x) - 1.7 3.1 4.8 4.2 3.6 (Maintain) Buy Target Price (12M, W) 52,000 Share Price (5/27/15, W) 41,900 Expected Return 24% OP (15F, Wbn) 13 Consensus OP (15F, Wbn) 12 EPS Growth (15F, %) 42.0 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 30.6 Market P/E (15F, x) 11.0 KOSDAQ 699.19 Market Cap (Wbn) 346 Shares Outstanding (mn) 8 Free Float (%) 30.0 Foreign Ownership (%) 3.4 Beta (12M) 1.11 52-Week Low 14,900 52-Week High 43,400 (%) 1M 6M 12M Absolute 31.3 62.4 141.5 Relative 31.4 26.8 89.3 80 130 180 230 280 330 14.5 14.9 15.1 15.5 Nasmedia KOSDAQ Investment points • Well-positioned to benefit from growing demand for new media • The company’s internet ad unit is being driven by growing mobile display/video ad market and account expansion. • IPTV ad revenue is likely to double this year. The company is likely to see structural benefits from the digital conversion of the media market. • Indeed, Verizon acquired AOL because of its digital advertising capabilities (including its patented technology for programmatic buying). Risks • Intensifying competition in the media representative market could drag down market share and margins. • Steady investments are likely necessary to respond to the changing new media market. • Personnel expenses are increasing. Well-positioned ad media rep Nasmedia (089600 KQ) Stocks to watch
  34. 34. 2H15 Outlook 34 Media Note: Based on May 27th closing price Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 30 40 47 55 Cost of Sales 0 0 0 0 Gross Profit 30 40 47 55 SG&A Expenses 21 27 31 35 Operating Profit (Adj) 9 13 16 20 Operating Profit 9 13 16 20 Non-Operating Profit 1 2 2 1 Net Financial Income 1 1 1 1 Net Gain from Inv in Associates 0 0 0 0 Pretax Profit 10 15 18 21 Income Tax 2 3 4 5 Profit from Continuing Operations 8 11 14 16 Profit from Discontinued Operation 0 0 0 0 Net Profit 8 11 14 16 Controlling Interests 8 11 14 16 Non-Controlling Interests 0 0 0 0 Total Comprehensive Profit 8 11 14 16 Controlling Interests 8 11 14 16 Non-Controlling Interests 0 0 0 0 EBITDA 9 13 17 20 FCF (Free Cash Flow) 1 2 8 10 EBITDA Margin (%) 30.0 32.5 36.2 36.4 Operating Profit Margin (%) 30.0 32.5 34.0 36.4 Net Profit Margin (%) 26.7 27.5 29.8 29.1 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 90 111 131 154 Cash and Cash Equivalents 4 3 8 14 AR & Other Receivables 59 79 92 108 Inventories 0 0 0 0 Other Current Assets 27 29 31 32 Non-Current Assets 7 7 7 7 Investments in Associates 0 0 0 0 Property, Plant and Equipment 0 0 0 0 Intangible Assets 1 1 1 1 Total Assets 98 118 138 161 Current Liabilities 33 45 52 61 AP & Other Payables 31 42 49 57 Short-Term Financial Liabilities 0 0 0 0 Other Current Liabilities 2 3 3 4 Non-Current Liabilities 2 2 2 3 Long-Term Financial Liabilities 0 0 0 0 Other Non-Current Liabilities 2 2 2 3 Total Liabilities 35 47 55 64 Controlling Interests 63 71 83 97 Capital Stock 4 4 4 4 Capital Surplus 22 22 22 22 Retained Earnings 36 45 57 71 Non-Controlling Interests 0 0 0 0 Stockholders' Equity 63 71 83 97 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 24.7 30.6 25.0 21.1 P/CF (x) 18.3 25.1 20.2 17.0 P/B (x) 3.1 4.8 4.2 3.6 EV/EBITDA (x) 18.5 23.5 18.5 15.0 EPS (W) 965 1,370 1,679 1,987 CFPS (W) 1,304 1,671 2,071 2,472 BPS (W) 7,587 8,668 10,057 11,753 DPS (W) 290 290 290 290 Payout ratio (%) 30.1 21.2 17.3 14.6 Dividend Yield (%) 1.2 0.7 0.7 0.7 Revenue Growth (%) 20.0 33.3 17.5 17.0 EBITDA Growth (%) 50.0 44.4 30.8 17.6 Operating Profit Growth (%) 50.0 44.4 23.1 25.0 EPS Growth (%) 41.7 42.0 22.6 18.3 Accounts Receivable Turnover (x) 3.3 3.8 3.5 3.5 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 ROA (%) 8.2 10.5 10.8 11.0 ROE (%) 13.4 16.9 17.9 18.2 ROIC (%) 23.5 27.3 28.7 30.3 Liability to Equity Ratio (%) 55.8 65.5 66.2 66.2 Current Ratio (%) 269.9 248.2 249.3 251.4 Net Debt to Equity Ratio (%) -49.2 -44.1 -45.3 -46.6 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 Nasmedia (089600 KQ) Stocks to watch
  35. 35. 2H15 Outlook 35 Media Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 551 600 623 621 640 655 OP (Wbn) 67 102 78 89 94 96 OP margin (%) 12.2 17.0 12.5 14.3 14.7 14.7 NP (Wbn) 56 73 56 68 72 74 EPS (W) 1,178 1,526 1,162 1,428 1,503 1,545 ROE (%) 17.6 19.3 13.2 14.8 14.0 13.1 P/E (x) 28.4 19.4 15.8 12.9 12.3 11.9 P/B (x) 4.6 3.4 2.0 1.8 1.6 1.5 (Maintain) Buy Target Price (12M, W) 24,000 Share Price (5/27/15, W) 18,450 Expected Return 30% OP (15F, Wbn) 89 Consensus OP (15F, Wbn) 95 EPS Growth (15F, %) 23.0 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 12.9 Market P/E (15F, x) 11.0 KOSPI 2,107.50 Market Cap (Wbn) 882 Shares Outstanding (mn) 48 Free Float (%) 49.3 Foreign Ownership (%) 13.7 Beta (12M) 0.46 52-Week Low 15,150 52-Week High 27,400 (%) 1M 6M 12M Absolute -1.6 -1.9 -21.5 Relative 0.7 -7.7 -25.6 60 70 80 90 100 110 120 130 140 14.5 14.9 15.1 15.5 KT Skylife KOSPI Leader in UHD broadcasting Investment points • Pay-TV operator capable of nationwide simultaneous UHD broadcasting; Subscriber numbers will likely rise due to differentiated strategies. • Incurred large one-off costs last year; Earnings to normalize this year • Most aggressive in the pursuit of T-commerce channel programs; Such platform business is directly tied to profitability. • Dividend yield of 2.3%, the highest level in the media sector Risks • Volatility arising from changes in KT Group’s media strategies • An increase in the cancellation of KT’s bundled products (OTS; Olleh TV Skylife) might lead to a decrease in subscribers. • Limited increase in ARPU KT Skylife (053210 KS) Stocks to watch
  36. 36. 2H15 Outlook 36 Media Note: Based on May 27th closing price Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 623 621 640 655 Cost of Sales 0 0 0 0 Gross Profit 623 621 640 655 SG&A Expenses 545 532 546 559 Operating Profit (Adj) 78 89 94 96 Operating Profit 78 89 94 96 Non-Operating Profit -9 -3 -4 -4 Net Financial Income 1 2 5 8 Net Gain from Inv in Associates 0 0 0 0 Pretax Profit 69 86 90 92 Income Tax 14 17 18 18 Profit from Continuing Operations 56 68 72 74 Profit from Discontinued Operation 0 0 0 0 Net Profit 56 68 72 74 Controlling Interests 56 68 72 74 Non-Controlling Interests 0 0 0 0 Total Comprehensive Profit 52 68 72 74 Controlling Interests 52 68 72 74 Non-Controlling Interests 0 0 0 0 EBITDA 149 157 152 146 FCF (Free Cash Flow) 33 107 109 105 EBITDA Margin (%) 23.9 25.3 23.8 22.3 Operating Profit Margin (%) 12.5 14.3 14.7 14.7 Net Profit Margin (%) 9.0 11.0 11.3 11.3 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 249 343 353 435 Cash and Cash Equivalents 108 102 105 156 AR & Other Receivables 88 93 95 98 Inventories 3 3 3 4 Other Current Assets 50 145 150 177 Non-Current Assets 421 386 353 327 Investments in Associates 25 26 27 28 Property, Plant and Equipment 309 273 238 211 Intangible Assets 39 39 39 39 Total Assets 670 730 706 762 Current Liabilities 221 168 93 96 AP & Other Payables 0 0 0 0 Short-Term Financial Liabilities 80 20 -60 -60 Other Current Liabilities 141 148 153 156 Non-Current Liabilities 13 74 74 75 Long-Term Financial Liabilities 0 60 60 60 Other Non-Current Liabilities 13 14 14 15 Total Liabilities 235 242 167 171 Controlling Interests 436 487 539 591 Capital Stock 120 120 120 120 Capital Surplus 161 161 161 161 Retained Earnings 161 213 264 317 Non-Controlling Interests 0 0 0 0 Stockholders' Equity 436 487 539 591 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 15.8 13.0 12.3 12.0 P/CF (x) 5.6 5.8 6.2 6.6 P/B (x) 2.0 1.8 1.6 1.5 EV/EBITDA (x) 5.4 4.7 4.2 3.9 EPS (W) 1,162 1,428 1,503 1,545 CFPS (W) 3,287 3,172 2,988 2,817 BPS (W) 9,266 10,346 11,421 12,519 DPS (W) 350 430 450 470 Payout ratio (%) 30.0 29.9 29.8 30.2 Dividend Yield (%) 1.9 2.3 2.4 2.5 Revenue Growth (%) 3.8 -0.3 3.1 2.3 EBITDA Growth (%) -9.7 5.4 -3.2 -3.9 Operating Profit Growth (%) -23.5 14.1 5.6 2.1 EPS Growth (%) -23.9 22.9 5.3 2.8 Accounts Receivable Turnover (x) 6.6 6.9 6.8 6.8 Inventory Turnover (x) 159.3 189.4 187.7 187.1 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 ROA (%) 8.3 9.8 10.0 10.1 ROE (%) 13.2 14.8 14.0 13.1 ROIC (%) 20.6 23.5 28.1 32.4 Liability to Equity Ratio (%) 53.9 49.7 31.0 28.9 Current Ratio (%) 112.6 203.8 380.3 451.8 Net Debt to Equity Ratio (%) -16.8 -32.4 -45.0 -54.3 Interest Coverage Ratio (x) 21.0 23.6 49.9 0.0 KT Skylife (053210 KS) Stocks to watch
  37. 37. 2H15 Outlook 37 Media Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests; as of closing price at 5/27/2015 Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 891 1,160 1,270 1,279 1,350 1,405 OP (Wbn) 149 116 102 126 140 153 OP margin (%) 16.7 10.0 8.0 9.9 10.4 10.9 NP (Wbn) 104 77 26 68 79 87 EPS (W) 1,347 994 332 879 1,014 1,126 ROE (%) 15.5 9.6 2.9 7.3 7.8 8.1 P/E (x) 10.4 19.3 29.3 15.1 13.1 11.8 P/B (x) 1.5 1.7 0.8 1.1 1.0 0.9 (Maintain) Buy Target Price (12M, W) 16,000 Share Price (5/27/15, W) 13,250 Expected Return 21% OP (15F, Wbn) 126 Consensus OP (15F, Wbn) 116 EPS Growth (15F, %) 164.7 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 15.1 Market P/E (15F, x) 11.0 KOSPI 2,107.50 Market Cap (Wbn) 1,026 Shares Outstanding (mn) 77 Free Float (%) 45.2 Foreign Ownership (%) 9.8 Beta (12M) 0.74 52-Week Low 8,640 52-Week High 15,450 (%) 1M 6M 12M Absolute 9.1 26.8 -13.4 Relative 11.6 19.2 -17.9 50 60 70 80 90 100 110 120 14.5 14.9 15.1 15.5 CJ Hellovision KOSPI On the cusp of a turnaround Investment points • Leading cable SO and MVNO; Share price moves closely in line with regulatory issues (and is particularly sensitive to favorable changes). • Broadcasting business to enjoy positive policy momentum, including regulations on excessive discounts on bundled plans, amid accelerating digital conversion • MVNO losses to narrow thanks to the government’s cut to network wholesale prices • Earnings to improve sharply this year thanks to the low base of comparison (due to one-off costs, including an asset charge, recorded in 2014) Risks • Continued competition in the pay-TV and mobile telecom market • Average revenue per subscriber (ARPS) for the broadcasting business is recovering slowly following plunge • Losses from new businesses (MVNO and Tving) CJ HelloVision (037560 KS) Stocks to watch
  38. 38. 2H15 Outlook 38 Media Note: As of closing price at 5/27/2015 Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 1,270 1,279 1,350 1,405 Cost of Sales 809 815 860 895 Gross Profit 461 464 490 510 SG&A Expenses 359 339 350 357 Operating Profit (Adj) 102 126 140 153 Operating Profit 102 126 140 153 Non-Operating Profit -66 -33 -32 -33 Net Financial Income -25 -21 -20 -17 Net Gain from Inv in Associates -1 0 0 0 Pretax Profit 36 93 108 120 Income Tax 10 24 28 31 Profit from Continuing Operations 26 69 80 89 Profit from Discontinued Operation 0 0 0 0 Net Profit 26 69 80 89 Controlling Interests 26 68 79 87 Non-Controlling Interests 0 1 2 2 Total Comprehensive Profit 24 69 80 89 Controlling Interests 24 68 79 87 Non-Controlling Interests 0 1 1 2 EBITDA 387 423 456 483 FCF (Free Cash Flow) 142 164 144 217 EBITDA Margin (%) 30.5 33.1 33.8 34.4 Operating Profit Margin (%) 8.0 9.9 10.4 10.9 Net Profit Margin (%) 2.0 5.3 5.9 6.2 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 413 508 401 535 Cash and Cash Equivalents 96 172 47 167 AR & Other Receivables 271 286 302 314 Inventories 19 20 22 22 Other Current Assets 27 30 30 32 Non-Current Assets 1,757 1,741 1,756 1,717 Investments in Associates 4 4 4 4 Property, Plant and Equipment 782 801 850 840 Intangible Assets 849 813 778 748 Total Assets 2,170 2,249 2,157 2,252 Current Liabilities 510 524 357 367 AP & Other Payables 164 173 182 190 Short-Term Financial Liabilities 274 274 93 93 Other Current Liabilities 72 77 82 84 Non-Current Liabilities 757 758 759 761 Long-Term Financial Liabilities 732 732 732 732 Other Non-Current Liabilities 25 26 27 29 Total Liabilities 1,267 1,282 1,116 1,128 Controlling Interests 903 965 1,037 1,118 Capital Stock 194 194 194 194 Capital Surplus 193 193 193 193 Retained Earnings 518 580 653 734 Non-Controlling Interests 1 2 4 6 Stockholders' Equity 904 967 1,041 1,124 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 29.3 15.1 13.1 11.8 P/CF (x) 1.8 2.5 2.3 2.2 P/B (x) 0.8 1.1 1.0 0.9 EV/EBITDA (x) 4.3 4.4 3.9 3.5 EPS (W) 332 879 1,014 1,126 CFPS (W) 5,289 5,318 5,733 6,030 BPS (W) 11,653 12,457 13,395 14,447 DPS (W) 75 75 75 75 Payout ratio (%) 22.6 8.4 7.3 6.5 Dividend Yield (%) 0.8 0.6 0.6 0.6 Revenue Growth (%) 9.5 0.7 5.6 4.1 EBITDA Growth (%) 13.2 9.3 7.8 5.9 Operating Profit Growth (%) -12.1 23.5 11.1 9.3 EPS Growth (%) -66.6 164.8 15.4 11.0 Accounts Receivable Turnover (x) 4.9 4.8 4.8 4.8 Inventory Turnover (x) 59.4 64.3 64.3 63.8 Accounts Payable Turnover (x) 28.2 31.3 31.3 31.1 ROA (%) 1.2 3.1 3.6 4.0 ROE (%) 2.9 7.3 7.8 8.1 ROIC (%) 4.2 5.3 5.9 6.5 Liability to Equity Ratio (%) 140.2 132.5 107.2 100.3 Current Ratio (%) 81.0 97.0 112.6 145.8 Net Debt to Equity Ratio (%) 99.8 85.3 73.7 57.6 Interest Coverage Ratio (x) 3.0 3.6 4.4 5.3 CJ HelloVision (037560 KS) Stocks to watch
  39. 39. 2H15 Outlook 39 Media Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 127 130 136 159 179 197 OP (Wbn) -7 2 7 10 18 23 OP margin (%) -5.5 1.5 5.1 6.3 10.1 11.7 NP (Wbn) -11 2 12 11 17 22 EPS (W) -306 64 341 302 479 617 ROE (%) -6.4 1.4 6.5 5.4 7.9 9.4 P/E (x) - 121.1 22.4 33.6 21.2 16.4 P/B (x) 1.8 1.6 1.4 1.8 1.6 1.5 (Maintain) Buy Target Price (12M, W) 17,000 Share Price (5/27/15, W) 10,150 Expected Return 67% OP (15F, Wbn) 10 Consensus OP (15F, Wbn) 13 EPS Growth (15F, %) -11.4 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 33.6 Market P/E (15F, x) 11.0 KOSDAQ 699.19 Market Cap (Wbn) 363 Shares Outstanding (mn) 36 Free Float (%) 32.9 Foreign Ownership (%) 3.5 Beta (12M) 0.69 52-Week Low 7,100 52-Week High 14,800 (%) 1M 6M 12M Absolute -23.4 19.1 31.3 Relative -23.4 -7.0 2.9 80 100 120 140 160 180 200 14.5 14.9 15.1 15.5 KTH KOSDAQ Leader in the T-commerce market Investment points • Content and commerce  Greatest contributors to the pay-TV business • Robust medium- to long-term growth potential of the T-commerce business on the back of favorable policy environment and KT Group’s media strategy • Efforts to expand T-commerce channel coverage likely to widen the user base • Content revenue to grow YoY thanks to expanded film VOD lineup Risks • Uncertainties at the early stages of new businesses • Downward pressure on margins due to increased costs from carrying out T-commerce business • Intensifying competition in the T-commerce and VOD markets KTH (036030 KQ) Stocks to watch
  40. 40. 2H15 Outlook 40 Media Note: As of closing price at 5/27/2015 Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 136 159 179 197 Cost of Sales 120 138 150 165 Gross Profit 16 21 29 32 SG&A Expenses 9 11 11 9 Operating Profit (Adj) 7 10 18 23 Operating Profit 7 10 18 23 Non-Operating Profit 5 2 1 2 Net Financial Income 0 0 0 0 Net Gain from Inv in Associates 0 0 0 0 Pretax Profit 12 12 19 25 Income Tax 0 1 2 2 Profit from Continuing Operations 12 11 17 22 Profit from Discontinued Operation 0 0 0 0 Net Profit 12 11 17 22 Controlling Interests 12 11 17 22 Non-Controlling Interests 0 0 0 0 Total Comprehensive Profit 12 11 17 22 Controlling Interests 12 11 17 22 Non-Controlling Interests 0 0 0 0 EBITDA 23 26 34 39 FCF (Free Cash Flow) 38 16 26 32 EBITDA Margin (%) 16.9 16.4 19.0 19.8 Operating Profit Margin (%) 5.1 6.3 10.1 11.7 Net Profit Margin (%) 8.8 6.9 9.5 11.2 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 120 123 136 154 Cash and Cash Equivalents 32 19 19 25 AR & Other Receivables 25 29 32 36 Inventories 1 1 1 1 Other Current Assets 62 74 84 92 Non-Current Assets 107 120 129 137 Investments in Associates 1 1 1 2 Property, Plant and Equipment 17 19 17 16 Intangible Assets 25 26 26 27 Total Assets 227 243 265 291 Current Liabilities 30 35 39 43 AP & Other Payables 23 27 30 33 Short-Term Financial Liabilities 0 0 0 0 Other Current Liabilities 7 8 9 10 Non-Current Liabilities 1 2 2 2 Long-Term Financial Liabilities 0 0 0 0 Other Non-Current Liabilities 1 2 2 2 Total Liabilities 31 36 41 45 Controlling Interests 196 207 224 246 Capital Stock 36 36 36 36 Capital Surplus 214 214 214 214 Retained Earnings -69 -58 -41 -19 Non-Controlling Interests 0 0 0 0 Stockholders' Equity 196 207 224 246 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 22.4 33.6 21.2 16.4 P/CF (x) 19.3 14.3 11.2 9.6 P/B (x) 1.4 1.8 1.6 1.5 EV/EBITDA (x) 9.4 12.0 9.1 7.7 EPS (W) 341 302 479 617 CFPS (W) 396 708 904 1,058 BPS (W) 5,487 5,790 6,268 6,886 DPS (W) 0 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Revenue Growth (%) 4.6 16.9 12.6 10.1 EBITDA Growth (%) 21.1 13.0 30.8 14.7 Operating Profit Growth (%) 250.0 42.9 80.0 27.8 EPS Growth (%) 432.8 -11.4 58.6 28.8 Accounts Receivable Turnover (x) 4.6 6.1 6.0 5.9 Inventory Turnover (x) 393.8 244.3 240.1 237.5 Accounts Payable Turnover (x) 7.0 5.6 5.3 5.2 ROA (%) 5.6 4.6 6.7 7.9 ROE (%) 6.5 5.4 7.9 9.4 ROIC (%) 8.2 10.9 18.1 22.0 Liability to Equity Ratio (%) 15.9 17.6 18.3 18.3 Current Ratio (%) 405.4 354.3 347.1 357.5 Net Debt to Equity Ratio (%) -27.9 -22.3 -21.9 -23.8 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 KTH (036030 KQ) Stocks to watch
  41. 41. 2H15 Outlook 41 Media Notes: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 193 196 198 229 256 276 OP (Wbn) 28 28 13 16 18 19 OP margin (%) 14.5 14.3 6.6 7.0 7.0 6.9 NP (Wbn) 22 25 9 11 12 13 EPS (W) 1,009 1,156 412 500 554 622 ROE (%) 18.2 17.7 5.8 6.8 7.2 7.8 P/E (x) 12.9 13.5 35.2 34.0 30.7 27.4 P/B (x) 2.2 2.2 2.0 2.3 2.2 2.1 (Maintain) Trading Buy Target Price (12M, W) 20,000 Share Price (5/27/15, W) 17,000 Expected Return 18% OP (15F, Wbn) 16 Consensus OP (15F, Wbn) 0 EPS Growth (15F, %) 21.4 Market EPS Growth (15F, %) 38.9 P/E (15F, x) 34.0 Market P/E (15F, x) 11.0 KOSDAQ 699.19 Market Cap (Wbn) 365 Shares Outstanding (mn) 21 Free Float (%) 35.0 Foreign Ownership (%) 5.0 Beta (12M) 1.77 52-Week Low 11,500 52-Week High 20,050 (%) 1M 6M 12M Absolute -0.9 2.1 -12.4 Relative -0.8 -20.3 -31.3 50 60 70 80 90 100 110 120 130 140 14.5 14.9 15.1 15.5 SBS Contents Hub KOSDAQ Pay attention to Chinese business strategy Investment points • Distributes content of SBS Media Group and plays a major role in the group’s profitability • Stock is sensitive to structural momentum related to the content environment. • Domestic VOD rate hikes and rise in exports of dramas and entertainment show formats to China are positive. • In 2H, mid- to long-term projects, including the establishment of a subsidiary and expansion into the e-commerce business in China, will likely take shape. Risks • Content fee paid to SBS has been hiked, putting downward pressure on earnings • Increase in in-house content investments/production likely to raise costs in the short term • Uncertainties from overseas content regulations, particularly in China and Japan SBS Contents Hub (046140 KQ) Stocks to watch
  42. 42. 2H15 Outlook 42 Media Note: Based on May 27th closing price Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 198 229 256 276 Cost of Sales 178 205 229 247 Gross Profit 20 24 27 29 SG&A Expenses 7 8 9 10 Operating Profit (Adj) 13 16 18 19 Operating Profit 13 16 18 19 Non-Operating Profit 4 3 3 4 Net Financial Income 3 0 0 0 Net Gain from Inv in Associates 0 0 0 0 Pretax Profit 17 19 21 23 Income Tax 8 8 9 10 Profit from Continuing Operations 9 11 12 13 Profit from Discontinued Operation 0 0 0 0 Net Profit 9 11 12 13 Controlling Interests 9 11 12 13 Non-Controlling Interests 0 0 0 0 Total Comprehensive Profit 9 11 12 13 Controlling Interests 9 11 12 13 Non-Controlling Interests 0 0 0 0 EBITDA 16 18 21 22 FCF (Free Cash Flow) 34 17 17 18 EBITDA Margin (%) 8.1 7.9 8.2 8.0 Operating Profit Margin (%) 6.6 7.0 7.0 6.9 Net Profit Margin (%) 4.5 4.8 4.7 4.7 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 167 185 202 219 Cash and Cash Equivalents 77 80 85 93 AR & Other Receivables 34 39 44 48 Inventories 0 0 0 0 Other Current Assets 56 66 73 78 Non-Current Assets 53 52 50 47 Investments in Associates 4 5 5 6 Property, Plant and Equipment 30 28 26 24 Intangible Assets 3 2 1 0 Total Assets 221 236 252 266 Current Liabilities 63 73 81 88 AP & Other Payables 34 39 44 48 Short-Term Financial Liabilities 0 0 0 0 Other Current Liabilities 29 34 37 40 Non-Current Liabilities 2 3 3 3 Long-Term Financial Liabilities 0 0 0 0 Other Non-Current Liabilities 2 3 3 3 Total Liabilities 65 75 84 91 Controlling Interests 156 161 168 176 Capital Stock 11 11 11 11 Capital Surplus 26 26 26 26 Retained Earnings 116 122 128 136 Non-Controlling Interests 0 0 0 0 Stockholders' Equity 156 161 168 176 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) 35.2 34.0 30.7 27.4 P/CF (x) 17.5 17.2 15.7 14.2 P/B (x) 2.0 2.3 2.2 2.1 EV/EBITDA (x) 11.5 12.5 10.4 9.3 EPS (W) 412 500 554 622 CFPS (W) 830 987 1,080 1,197 BPS (W) 7,253 7,503 7,807 8,179 DPS (W) 250 250 250 250 Payout ratio (%) 60.7 50.0 45.1 40.2 Dividend Yield (%) 1.7 1.5 1.5 1.5 Revenue Growth (%) 1.0 15.7 11.8 7.8 EBITDA Growth (%) -48.4 12.5 16.7 4.8 Operating Profit Growth (%) -53.6 23.1 12.5 5.6 EPS Growth (%) -64.4 21.4 10.8 12.3 Accounts Receivable Turnover (x) 7.5 7.1 7.0 6.9 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Accounts Payable Turnover (x) 8.2 6.3 6.2 6.1 ROA (%) 4.2 4.7 4.9 5.1 ROE (%) 5.8 6.8 7.2 7.8 ROIC (%) 19.5 40.7 65.0 103.5 Liability to Equity Ratio (%) 41.8 46.7 50.2 51.7 Current Ratio (%) 266.1 254.4 248.6 249.6 Net Debt to Equity Ratio (%) -81.7 -85.8 -89.6 -92.7 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 SBS Contents Hub (046140 KQ) Stocks to watch
  43. 43. 2H15 Outlook 43 Media Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests; based on May 27th closing price Source: KDB Daewoo Securities Research FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 393 380 394 398 411 423 OP (Wbn) 43 38 35 39 45 48 OP margin (%) 10.9 10.0 8.9 9.8 10.9 11.3 NP (Wbn) 12 -10 0 12 13 13 EPS (W) 177 -152 -1 178 196 204 ROE (%) 13.2 -11.1 -0.1 12.3 12.0 11.1 P/E (x) 21.9 - - 23.9 21.8 20.9 P/B (x) 2.6 3.0 2.4 2.6 2.4 2.1 (Maintain) Trading Buy Target Price (12M, W) 4,700 Share Price (5/27/15, W) 4,265 Expected Return 10% OP (15F, Wbn) 39 Consensus OP (15F, Wbn) 41 EPS Growth (15F, %) - Market EPS Growth (15F, %) 38.9 P/E (15F, x) 23.9 Market P/E (15F, x) 11.0 KOSDAQ 699.19 Market Cap (Wbn) 282 Shares Outstanding (mn) 66 Free Float (%) 64.0 Foreign Ownership (%) 3.8 Beta (12M) 0.73 52-Week Low 3,220 52-Week High 4,325 (%) 1M 6M 12M Absolute 21.0 21.9 12.2 Relative 21.0 -4.8 -12.0 60 70 80 90 100 110 120 130 140 14.5 14.9 15.1 15.5 Jcontentree KOSDAQ Acquisition of Megabox finalized Investment points • Uncertainties arising from Megabox to dissipate due to the company’s decision to acquire the multiplex theater; Net profit attributable to controlling interests to increase • The company produces and distributes content for JTBC; Its value deserves attention in light of JTBC’s rising content competiveness. • Restructuring of magazine and other less profitable businesses being pursued • Serves as a core part of the JoongAng Media Network’s governance structure Risks • Rights offering and convertible bond issuance • Rights offering: Aimed at acquiring the remaining stake in Megabox: 43mn new shares to be listed on August 11th , 2015 • Convertible bonds: Issued in October 2013; Number of shares that can be converted stood at 4.68mn as of May 2015, before rights offering J Contentree (036420 KQ) Stocks to watch
  44. 44. 2H15 Outlook 44 Media Note: Based on May 27th closing price Source: Company data, KDB Daewoo Securities Research Comprehensive Income Statement (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 394 398 411 423 Cost of Sales 206 209 215 222 Gross Profit 188 189 196 201 SG&A Expenses 153 150 151 153 Operating Profit (Adj) 35 39 45 48 Operating Profit 35 39 45 48 Non-Operating Profit -12 -1 -3 -5 Net Financial Income -4 0 0 0 Net Gain from Inv in Associates 2 0 0 0 Pretax Profit 23 38 42 43 Income Tax 8 13 15 15 Profit from Continuing Operations 15 25 27 28 Profit from Discontinued Operation -1 0 0 0 Net Profit 15 25 27 28 Controlling Interests 0 12 13 13 Non-Controlling Interests 15 13 14 15 Total Comprehensive Profit 15 25 27 28 Controlling Interests 0 0 0 0 Non-Controlling Interests 15 24 27 28 EBITDA 57 61 67 70 FCF (Free Cash Flow) 30 42 44 45 EBITDA Margin (%) 14.5 15.3 16.3 16.5 Operating Profit Margin (%) 8.9 9.8 10.9 11.3 Net Profit Margin (%) 0.0 3.0 3.2 3.1 Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F Current Assets 160 192 227 263 Cash and Cash Equivalents 51 82 113 146 AR & Other Receivables 55 55 57 59 Inventories 7 7 8 8 Other Current Assets 47 48 49 50 Non-Current Assets 321 315 311 306 Investments in Associates 11 11 12 12 Property, Plant and Equipment 120 114 108 101 Intangible Assets 82 81 81 80 Total Assets 481 507 538 570 Current Liabilities 217 219 222 225 AP & Other Payables 48 49 50 52 Short-Term Financial Liabilities 112 112 112 112 Other Current Liabilities 57 58 60 61 Non-Current Liabilities 98 99 99 100 Long-Term Financial Liabilities 78 78 78 78 Other Non-Current Liabilities 20 21 21 22 Total Liabilities 316 317 321 325 Controlling Interests 90 102 115 128 Capital Stock 33 33 33 33 Capital Surplus 48 48 48 48 Retained Earnings 14 25 38 52 Non-Controlling Interests 75 88 102 117 Stockholders' Equity 165 190 217 245 Forecasts/Valuations (Summarized) 12/14 12/15F 12/16F 12/17F P/E (x) - 23.9 21.8 20.9 P/CF (x) 3.4 4.8 4.5 4.4 P/B (x) 2.4 2.6 2.4 2.1 EV/EBITDA (x) 7.6 7.6 6.8 6.1 EPS (W) -1 178 196 204 CFPS (W) 1,002 882 938 964 BPS (W) 1,438 1,617 1,812 2,016 DPS (W) 0 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Revenue Growth (%) 3.7 1.0 3.3 2.9 EBITDA Growth (%) -6.6 7.0 9.8 4.5 Operating Profit Growth (%) -7.9 11.4 15.4 6.7 EPS Growth (%) - - 10.1 4.1 Accounts Receivable Turnover (x) 6.9 7.7 7.8 7.8 Inventory Turnover (x) 60.3 53.7 54.2 54.2 Accounts Payable Turnover (x) 9.3 10.1 10.3 10.2 ROA (%) 2.9 5.0 5.2 5.1 ROE (%) -0.1 12.3 12.0 11.1 ROIC (%) 10.0 11.4 13.4 15.0 Liability to Equity Ratio (%) 191.3 167.2 148.3 132.8 Current Ratio (%) 73.6 87.8 102.3 117.0 Net Debt to Equity Ratio (%) 78.7 52.2 31.0 13.9 Interest Coverage Ratio (x) 3.3 0.0 0.0 0.0 J Contentree (036420 KQ) Stocks to watch
  45. 45. 2H15 Outlook 45 Media Media sector to take a big jump forward Source: KDB Daewoo Securities Research [Conclusion] Not just recovering, but leaping forward Top pick: CJ E&M: A content firm that will take a leap forward via global expansion and rising domestic profitability Stocks to watch: 1) Ad market recovery and growth: Cheil Worldwide, Nasmedia 2) Changing pay-TV market: KT Skylife, CJ HelloVision 3) New markets: KTH 4) Dissipation of uncertainties: J Contentree , SBS Contents Hub Underperformers Those that have not set a clear strategy yet
  46. 46. Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price CJ E&M(130960) 05/11/2015 Buy 80,000 10/30/2014 Trading Buy 23,000 03/29/2015 Buy 70,000 10/05/2014 Trading Buy 25,000 02/06/2015 Buy 51,000 07/28/2014 Buy 29,000 11/26/2014 Buy 48,000 04/29/2014 Buy 30,000 No Coverage 10/29/2013 Trading Buy 34,000 03/19/2013 Buy 42,000 10/02/2013 Trading Buy 32,000 SBS(034120) 05/17/2015 Buy 55,000 07/30/2013 Buy 41,000 04/26/2015 Buy 51,000 07/22/2013 Buy 45,000 02/22/2015 Buy 42,000 05/03/2013 Buy 50,000 07/25/2014 Buy 34,000 CJ HelloVision(037560) 05/28/2015 Buy 16,000 06/01/2014 Buy 40,000 05/07/2015 Buy 15,000 10/02/2013 Buy 50,000 04/24/2015 Buy 16,000 08/29/2013 Buy 56,000 11/06/2014 Buy 13,000 04/19/2013 Buy 58,000 08/12/2014 Buy 20,000 Cheil Worldwide(030000) 04/24/2015 Buy 30,000 11/08/2013 Buy 22,000 10/24/2014 Buy 27,000 07/22/2013 Buy 23,000 10/13/2014 Buy 31,000 KTH(036030) 04/24/2015 Buy 17,000 04/21/2014 Buy 32,000 03/10/2015 Trading Buy 14,000 04/29/2013 Buy 34,000 11/26/2014 Trading Buy 10,000 Nasmedia(089600) 05/28/2015 Buy 52,000 No Coverage 05/17/2015 Buy 44,000 SBS Contents Hub(046140) 05/28/2015 Trading Buy 20,000 04/24/2015 Buy 40,000 11/26/2014 Buy 20,000 11/26/2014 Buy 33,000 No Coverage KT Skylife(053210) 04/24/2015 Buy 24,000 Jcontentree(036420) 05/28/2015 Trading Buy 4,700 01/28/2015 Trading Buy 20,000 11/26/2014 Buy 4,700
  47. 47. 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 Analyst’s 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 Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater 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 analyst’s 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 As of the publication date, Daewoo Securities Co., Ltd. has been acting as a financial advisor to Cheil Worldwide for its treasury share buyback program, and other than this, Daewoo Securities has no other special interests in the companies covered in this report. 0 20,000 40,000 60,000 80,000 100,000 May 13 May 14 May 15 (W) CJ E&M 0 20,000 40,000 60,000 80,000 May 13 May 14 May 15 (W) SBS 0 10,000 20,000 30,000 40,000 May 13 May 14 May 15 (W) Cheil Worldwide 0 10,000 20,000 30,000 40,000 50,000 60,000 May 13 May 14 May 15 (W) Nasmedia 0 10,000 20,000 30,000 40,000 50,000 60,000 May 13 May 14 May 15 (W) KT Skylife 0 5,000 10,000 15,000 20,000 25,000 May 13 May 14 May 15 (W) CJ HelloVision 0 5,000 10,000 15,000 20,000 May 13 May 14 May 15 (W) KTH 0 5,000 10,000 15,000 20,000 25,000 May 13 May 14 May 15 (W) SBS Contents Hub 0 1,000 2,000 3,000 4,000 5,000 6,000 May 13 May 14 May 15 (W) Jcontentree
  48. 48. 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. 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  49. 49. KDB Daewoo Securities International Network Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul 150-716 Korea Two International Finance Centre Suites 2005-2012 8 Finance Street, Central Hong Kong, China 320 Park Avenue 31st Floor New York, NY 10022 United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000 Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 25 Old Broad St. London EC2N 1HQ United Kingdom Six Battery Road #11-01 Singapore, 049909 7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511 Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China Room 38T31, 38F SWFC 100 Century Avenue Pudong New Area, Shanghai 200120 China Suite 2103, Saigon Trade Center 37 Ton Duc Thang St, Dist. 1, Ho Chi Minh City, Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 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

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