Brief Consumer: Puregold Price Club: Steady Grower with Provincial Expansion Story and more

In this briefing:

1. Puregold Price Club: Steady Grower with Provincial Expansion Story
2. Nongshim Holdco/Sub Trade: Current Status & Trade Approach
3. Sony: Mispriced, Misunderstood, or Both?
4. A War Between Netflix & Disney = $$$ for Studio Dragon
5. Maoyan Entertainment (猫眼娱乐) Post-IPO: The CNY Box Office Catalyst Hasn’t Materialized

1. Puregold Price Club: Steady Grower with Provincial Expansion Story

• Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
• The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
• There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context. 
• PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x

2. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

3. Sony: Mispriced, Misunderstood, or Both?

• Forward earnings will focus heavily on the debut of PS5, the performance of the new Spider-Man movie and other core content revenue streams for the company this year.
• Some see Sony as coasting on historically successes of the past, others see recent Disney and ATT deals acquiring content competitors, as a prelude to a play on Sony this year.
• Investor pressure to sell or spin off non-content businesses growing due to continued poor performance in mobile and possible profitable departure from semiconductor sector.

4. A War Between Netflix & Disney = $$$ for Studio Dragon

• In this report, we provide an update on Studio Dragon (253450 KS), which has been one of the best IPOs in Korea in the past two years. We believe that the stock is well poised to resume its higher share price in the upcoming months driven by a strong line up of new original dramas & movies in 2019. Studio Dragon (253450 KS) is a key beneficiary of the ultra-aggressive push by major global powerhouses such as Netflix and Disney to expand their OTT streaming services and provide “original” Korean drama contents that have the potential to become globally popular. 
• One of the strong competitive weapons of Studio Dragon is that its main script writers including Park Ji-Eun, Kim Eun-Sook, and Kim Young-Hyun are considered some of the best ones in Korea. The top screenwriters at Studio Dragon are women. It is fair to say that an overwhelming percentage of the Korean TV dramas have women as their key target audience. As such, most of the Korean TV dramas tend not to include too much violence. Most of them have intricate relationship based story lines geared towards the female audience.
• Valuation of the company has become more attractive since the highs in the summer of 2018. Studio Dragon (253450 KS) is currently trading at P/E multiples of 35x in 2019E and 26x in 2020E. If we apply the same 35x P/E to next year’s consensus net profit estimate of 99.6 billion won, this would imply a market cap of 3.5 trillion won, which would be 35% higher than current market cap of 2.6 trillion won. Thus, we remain positive on this stock. 

5. Maoyan Entertainment (猫眼娱乐) Post-IPO: The CNY Box Office Catalyst Hasn’t Materialized

We mentioned in our previous note prior to the listing of Maoyan Entertainment on Feb 4th that Chinese New Year (CNY) Box office from the two movies, namely Pegasus and The New King of Comedy that the company invested could be a catalyst post listing. However, our analysis of CNY box office data suggests although Pegasus reported box office revenues slightly north of RMB 1bn, it is far behind the number one movie, The Wandering Earth’s RMB 2bn box office. In addition to the company-specific movie investment, the overall box office for the CNY holiday has been disappointing, suggesting a challenging year for the movie industry in 2019. 

• Entertainment Plus (猫眼娱乐) IPO: The Engineered Movie Ticketing Leader that Runs Out of Steam (Part 1)
• Entertainment Plus (猫眼娱乐) IPO: The Coming Regulatory Bang Isn’t That Bad (Part 2)
• Maoyan Entertainment (猫眼娱乐) IPO: Turning Profitable, Thoughts on Valuation
• Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst