[Weekend Money] “Media Earnings Improving”... Stocks to Watch in Q3?

Shinhan Securities Maintains 'Overweight' on Media Sector
"Buy CJ ENM and SBS... Media Earnings Improving"

Shinhan Securities said on October 17 that it is maintaining its “Overweight” rating on the media sector, as earnings in the industry are improving.

“We have seen advertising redistributed following the end of sports events, a reshaping of the market amid liquidity crises at competitors, and strong growth in online video services (OTT),” said Ji In-hae, a researcher at Shinhan Securities. “Investors should focus on stocks poised to benefit substantially after weathering a prolonged downturn.”

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Shinhan Securities is focusing on CJ ENM and SBS. It expects CJ ENM to report third-quarter revenue of KRW 1.2 trillion, down 1% year over year, and operating profit of KRW 14.7 billion, down 16%, falling short of market expectations.

By business division, the media division is expected to post KRW 3 billion in profit, marking a return to profitability. The division is expected to continue its contraction due to the seasonal lull in TV advertising and the absence of sports broadcasts in the third quarter, but the rate of decline is expected to narrow considerably from the first half. Tving, within the division, achieved its first-ever quarterly profit in the previous quarter on the back of several new releases, but is expected to fall slightly short of break-even (BEP) in the third quarter. “Quarterly earnings are inevitably volatile, depending on the schedule of original content and overseas sales performance,” Ji said. “However, compared with the same period last year, earnings are clearly improving, supported by a solid foundation for revenue growth.” She added, “A full-year loss of KRW 6.3 billion is estimated, reflecting Tving’s compensation plan.”

The commerce division is expected to post KRW 10 billion in profit, down 21%, while the music division is expected to record a loss of KRW 1.5 billion, marking a shift to a loss. These results reflect investment in live commerce (MLC) and influencer marketing, as well as investment in the Mnet Plus platform, despite solid revenue. The film and drama division is forecast to post KRW 7.2 billion in profit, up 5%. Studio Dragon reported strong earnings, but the results also reflect losses stemming from a content gap at global studio Fifth Season. Contributions from the films “Tazza” and “International Market 2” are expected to be concentrated in the fourth quarter.

“It is important to focus on improvement in media earnings, the most important factor for corporate value,” Ji said. “The long-term strategy announced earlier, under which multiple investments and ongoing businesses are expected to begin generating substantial returns in 2028, is being carried out steadily.” Shinhan Securities maintained its “Buy” rating on CJ ENM and set a target price of KRW 50,000.

For the same period, Shinhan Securities expects SBS to report revenue of KRW 272.8 billion, up 14%, and operating profit of KRW 7 billion, down 46%, exceeding market expectations. Advertising revenue is expected to reach KRW 67.7 billion, up 6.7%, despite the seasonal lull, supported by resilient advertising during the Asian Games.

Online revenue is expected to reach KRW 70 billion, a quarterly record. Netflix pre-buy content, in which the streaming service purchases intellectual property (IP) from production companies, is helping offset the decline in TV advertising revenue. Consolidated earnings are expected to remain in the black, supported by improved results at subsidiaries, led by Studio S.

“In the fourth quarter, the burden of a high comparison base caused by the end of the Wavve service in September last year will be removed, while tentpole productions such as ‘Doctor X’ are expected to be released,” Ji said. “In 2027, SBS will benefit from a gradual improvement in the terms of its Netflix deal, the redistribution of TV advertising as regulations are eased and competitors’ challenges create spillover benefits, and lower costs due to the absence of sports events. These factors will create a favorable business environment for SBS.” Shinhan Securities maintained its “Buy” rating on SBS and set a target price of KRW 17,000.

This content was produced with the assistance of AI translation services.