[THE INVESTOR] Korean securities firms are rushing to cut the target price of the largest multiplex cinema chain CJ CGV amid concerns over slowing growth in both domestic and overseas markets.
Some major brokerages including Mirae Asset Daewoo, KB Investment & Securities, Korea Investment & Securities, NH Investment & Securities, DB Financial Investment and SK Securities were among the firms that flipped their rating to negative. Other brokerages such as Shinhan Investment have also cut the price for two consecutive months.
The downgrade came as analysts see limited growth for the company both in Korea and overseas.
“The crash of Turkish lira is maximizing the burden on CJ CGV and it’s a growing concern that the non-operating loss would increase,” NH Investment & Securities analyst Lee Hwa-jung wrote on Aug. 28, while cutting the target price by 14 percent to 75,000 won (US$67).
“It is necessary to reevaluate the value of its Chinese business from 1.6 trillion won to 900 billion won because the weakening yuan could hurt not only its profitability but also the purchasing power of Chinese customers,” said Son Yoon-kyung, an analyst at SK Securities.
In the second quarter this year, CJ CGV recorded a net loss of 1.2 billion won -- posting a loss of 1.8 billion won in China and 3.3 billion won in Turkey. Vietnam was the only region in the black with a net profit of 5.2 billion won.
Even though CJ CGV is doing well in Vietnam where it holds a 50 percent market share, it is not strong enough to offset the weak domestic growth and unstable Chinese and Turkish markets, analysts said.
The slowdown in the domestic market, in particular, is weighing down the firm.
“There are a number of increasing alternatives for leisure and the population is shrinking so the number of moviegoers is set to decrease in the long term,” Lee of NH added.
On Aug. 28, shares of CJ CGV closed at 54,600 won, plunging more than 60 percent from Jan. 25, 2016, when it hit 141,500 won.
By Park Ga-young (email@example.com)