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The author is an analyst of KB Securities. He can be reached at — Ed.

4Q22 review: OP misses market consensus

— Studio Dragon posted 4Q22 revenue of KRW190.5bn (+28.8% YoY) and OP of KRW1.2bn (-81.4% YoY; 0.6% OPM), missing the market consensus.

— The no. of aired episodes was unchanged YoY at 101, but a price increase per episode boosted revenue by 28.8% YoY, confirming rising production costs are sustaining top-line growth.

— Distribution revenue reached KRW132.8bn (+66.4% YoY) thanks to the airing of four original shows and four multi-platform shows. Overseas sales hit KRW116.7bn (+148.5% YoY) with expanded global OTT client bases at Netflix, Amazon Prime Video and Apple TV. 

— Programing revenue fell to KRW54.0bn (-9.1% QoQ), as no. of aired TV episodes stopped at 76 (-23 QoQ).

— OP fell short of the market consensus because of PPA write-offs associated with the Gill Pictures acquisition as well as larger-than-expected depreciation related to the Alchemy of Souls license. 

Looking forward to a great year

— We expect top-line growth this year to be driven by increases in both price and quantity, especially the latter.

— Price: We see a price increase with the airing of nine shows. 4Q22 construction-in-progress rose to KRW221.5bn (+7.6% QoQ), confirming preparation of blockbuster works (e.g., Ask the Stars, Arthdal Chronicles season two).

— Quantity: The no. of aired shows should reach 35 (19 TV shows; 16 OTT shows; +2 YoY). The no. of aired OTT content should increase by 1 YoY.

— In terms of profitability, the recoup rate should rise with the airing of 10 OTT multi-platform content (high margins) and an increase in OTT clients. The no. of OTTs broadcasting Studio Dragon’s multi-platform content should expand (Netflix/Disney→Netflix/Disney/Amazon). 

— We see Studio Dragon reducing earnings volatility by renewing contracts with existing OTTs and signing long-term deals with new OTTs.

— We expect Studio Dragon to air two multi-platform shows and five original shows in 1Q23, with the no. of aired episodes reaching 116. 

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