1980s Boom Years Living On in Korea's Outperforming Media Stocksby
CJ E&M shares double as `Reply 1988' caps year of hits
Chinese companies seek co-production with Korea partners
While Korean steel mills and ship yards struggled to stay in business in 2015, the nation’s media companies were busy emulating the boom years of the 1980s -- literally.
Shares of CJ E&M, which owns cable TV channel tvN, doubled in 2015 as it capped a year of hits with a weekly drama called "Reply 1988." The show depicting the lives of high school students during a year of 11.9 percent economic growth and the Seoul Olympics struck a chord with households in an economy reeling from 11 months of slumping exports.
The "Korean Wave" of popular culture that spans drama, K-Pop music, fashion and cosmetics boosted a range of stocks last year as companies around Asia sought co-productions or product tie-ins. Shares in Showbox Corp. and Chorokbaem Media Co. jumped more than 50 percent in 2015 on production tie-ups with companies from China.
"While the industries that led Korea’s growth for the past decades are having difficulties from getting out of the doldrums, we found the media content industry emerging as a promising sector for the next generation," said Chang Lee, head of the Equity Research Center at NH Investment and Securities. "We are neighboring with China, a major content importer, and both countries signed a free trade agreement recently."
Middle-aged viewers feel nostalgia for the heydays of Korean economy, particularly in the 80s and early 90s, said Kim Ye Eun, analyst at LIG Investment & Securities.
CJ E&M drew an audience of 13 million for a nostalgic movie "Ode To My Father," which describes a man born after the 1950-53 Korean War who had to support his family by working as a laborer in a German coal mine and participating in the Vietnam War. Confectionery makers, apparel brands and even brewery companies rode the trend with retro-themed chocolates, jackets, and beers.
"People buy items that remind them of past memories, and stores and supermarkets are marketing those products," Kim said. "The nostalgia for the past is the biggest factor for their consumption."
The Kospi index climbed 0.6 percent at the close on Tuesday.
Asia’s fourth-largest economy, where exports account for about 50 percent of gross domestic product, has slowed amid a slump in global demand. Inflation near 1 percent over the past year shows domestic consumption remains stagnant. The Kospi index of shares rose 2.4 percent in 2015 to 1,961.31, falling short of forecasts it would end the year above 2,000 points. While the government declared victory over the deadly Middle Ease Respiratory Syndrome virus in July 2015, the stock market suffered further declines during Shanghai’s stock market crash over the summer.
Chinese producers lack the creativity and experience to make a high-quality dramas like "My Love from the Star," a Korean series aired last year about the romance between an actress and an alien, said Hyun Choi, Head of Equity in Baring Asset Management Korea Ltd. The show was so popular in China that it helped spur sales of everything from Korean tours to Amorepacific Corp.’s cosmetics.
"Chinese filmmakers are attempting to build up partnerships with Korean companies as they can provide Korean directors as well as creative ideas," Choi said. "China is still at an early stage of film and drama production."
Showbox Corp. stock jumped 58 percent in 2015 as it signed a contract with Beijing-based Huayi Brothers Media Corp. to co-produce six films over three years. Chorokbaem Media Co. jumped 55 percent as a holding company for China’s DMG Entertainment became its biggest shareholder in November 2015. Chorokbaem, the maker of "The Producers" drama starring My Love actor Kim Soo-hyun, said in a filing on Dec. 29, 2015 that it will work with DMG to co-produce a drama.
NH Investment’s Lee said valuations of such stocks are heavily affected by the success or failure of their productions in the short-term. CJ E&M and Showbox have price to estimated earnings ratios of about 30, while Chorokbaem is making losses, according to data compiled by Bloomberg.
"Unlike CJ E&M, which is a subsidiary of the chaebol CJ Corp., most Korean media stocks are small-sized companies," said Lee. "Even if they forge a partnership with Chinese companies and succeed in their productions, uncertainties still remain among some investors over whether the success would effectively lead to profitability or not."
CJ E&M has released a series of films with Chinese companies, including "A Wedding Invitation" produced with China Film Group Corp.
"China has the world’s second-largest content market and the size will surpass the U.S. market within five years," said Mike Suh, vice president in the Global Business Department at CJ E&M. "While keeping the value of the Korean Wave, developing competitive contents there is our goal in cooperation with Chinese partners."
The entertainment sector is one of the few sectors unaffected by global economic slowdown as Korea’s consumer power has grown enough to support the industry, according to Justin Lee, analyst at BNP Paribas Securities. CJ E&M has recently been added to the MSCI Korea Index, while heavyweight manufacturers including Doosan Infracore Co. and LS Industrial Systems Co. were removed.
"Exporting content is the old style of the Korean Wave," said Lee. "Developing content with overseas partners or expanding investment in Asia, not only China, is the only way to achieve growth as the domestic market is too limited."