The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.
Copus’ drama production capabilities are expected to strengthen in line with its proposed takeover of Kim Jong-Hak Production. We expect the annual number of Copus drama productions to increase to 6-9 dramas next year. With production sales to be recognized in earnest from 2023, the company is expected to enjoy strong revenue growth going forward. Its valuations look attractive relative to those of its peers.
Takeover of Kim Jong-hak Production to strengthen drama production capabilities
Benefiting from stable cash flow from its traditional content distribution business, Copus Korea (Copus) entered the drama production arena last year. Following a successful CB issuance (W30 billion) in 2021, the company said the proceeds would be used to build its production capabilities by acquiring a drama production company. Recently (July 11), Copus announced that it would take over a 100% stake in Kim Jong-hak Production at an acquisition price of 12.86 billion won.
Founded in 1988, Kim Jong-hak Production has produced more than 70 drama series to date, including Sandglass, Full House, Happy Time: The Legend and All of Us Are Dead. The planned purchase of the company is expected to help Copus’ annual drama production count grow from 3 at present to 6-9 titles next year.
Distribution activity is going well; enjoys merit evaluation
Having expanded its range of genre offerings from dramas to variety shows and web novels/webtoons over the past 17 years, Copus offers the largest library of K content in Japan. As for the company’s content distribution business, its new-to-old work ratio stands at 3:7 in terms of sales, and its distribution contract renewal rate is high. Benefiting from a GPM of more than 50%, Copus’ distribution activity should continue to play its role as a cash cow in the future. Amid growing expectations of a thaw in Korea-Japan relations, we expect an expanded streaming share for Korean content in Japan to translate into medium/long-term earnings growth for Copus.
Even conservatively assuming 6 drama productions next year, Copus’ production sales are still expected to reach W60 billion, in turn leading to strong revenue growth. For 2023, we forecast sales of 102.6 billion W (+111.7% YoY) and OP of 20.2 billion W (+86.5% YoY; OPM of 19.7% ). With the company’s shares currently trading at a 2023F P/E of 8.3x, we see clear valuation merit.