Studio Dragon sets sights overseas, $3.4 bn market cap possible: analyst

South Korea’s leading drama producer Studio Dragon Corp. is expected to post handsome earnings in coming years, boosted by a steady stream of joint projects with global distributors as Korean dramas become a worldwide phenomenon.

In a research report dated Sept. 15, Shinhan Investment Corp. analyst Hong Se-jong said Studio Dragon has significant growth potential, given the keen interest from global content distributors such as Netflix Inc. for joint productions of Korean dramas.

“Studio Dragon is in talks with American pay TV network Home Box Office Inc. (HBO) and Apple Inc. to jointly produce Korean dramas following its earlier deals with Netflix,” he said in the report. “The time is coming for the Korean company to win orders for three to four dramas a year from the US alone.”

He expects Studio Dragon’s earnings to significantly improve on the back of robust exports of its dramas as Chinese video platform operators such as iQIYI Inc., Tencent Holdings Ltd. and Youku Tudou Inc. as well as US distributors aggressively seek to forge ties with Korean content providers.

He said Korea’s three mobile carriers -- SK Telecom, KT and LG Uplus -- are also trying to transform into video platform operators, which will boost Studio Dragon’s earnings.

In recent years, growing over-the-top (OTT) media services helped boost the global popularity of Korean dramas and the flourishing appetite for Korean content has nudged overseas studios to reach out to Korean production companies for potential collaboration.

Korean dramas have become a worldwide phenomenon amid the coronavirus pandemic, enjoying popularity even in countries that harbor anti-Korean sentiment and where Asian content faces high entry barriers.

In 2019, Korean cultural content exports posted $10.3 billion (12.4 trillion won), an 8.1% increase from 2018, according to government data. It was the first time for such exports to exceed $10 billion, posting almost double the volume from the $5.27 billion posted in 2014.

‘RARE CHANCE TO BAG A BARGAIN’

Shinhan Investment analyst Hong said Studio Dragon’s operating profit could rise to around 130 billion won within three years from 28.7 billion won in 2019.

“Theoretically, more than 4 trillion won ($3.39 billion) in market cap is possible if the current trend continues,” he said.

Currently, Studio Dragon’s market value is 2.37 trillion won and the market consensus for its 2020 operating profit is 54.4 billion won.

Studio Dragon is a drama wing of CJ E&M, a division of the nation’s largest entertainment company CJ ENM.

Shinhan’s Hong said Studio Dragon’s price-earnings ratio stands at a relatively high multiple of 73 times on average for the past three years, but the company’s value needs to be evaluated considering the boom of the content and platform industries.

“Studio Dragon shares are currently in a correction phase following a sharp rise. That may provide investors with a rare opportunity to buy into it,” Hong said.

Studio Dragon shares were trading up 5.4% at 88,600 won late on Wednesday. The stock has risen 39% from this year’s low of 63,700 won in mid-March.

Write to Ji-Yeon Sul at sjy@hankyung.com
Editd by In-Soo Nam