Stock offering reveals shaky financial status of CGV

CGV Piccadilly 1958 branch in Jung District, central Seoul [CJ CGV]

CJ Corporation's decision to raise 1 trillion won ($772 million) for its money-losing cinema operator CGV has exposed the vulnerable financial status of the affiliate, spooking investment sentiment.

CGV shares hit an all-time low on Thursday at 10,500 won, down 8.22 percent from the previous day.

Thursday's closing price was the lowest since its listing in 2004.

Other subsidiaries were also impacted by CJ's decision. Although CJ ENM remained flat to close at 68,700 won on Thursday, its shares fell 5.5 percent on Wednesday after the Tuesday announcement. CJ shares dropped 1.89 percent to 72,800 won.

The CGV board on Tuesday decided to issue new shares worth 570 billion won or 74.7 million shares. CJ, CGV’s parent company, will buy 60 billion of the newly issued shares, which will be available for trading from September, and allocate 450 billion worth of its shares in CJ OliveNetworks to CGV via a stock swap deal.

Thus, a combined 1 trillion won will be injected into the multiplex chain to refurnish its theater business, CGV explained.

However, investors are shocked by how much money CGV is raising, which is nearly twice the 501.1 billion-won market capitalization of the multiplex chain.

The number of newly issued shares, 74.7 million, is 1.5 times more than the existing shares of 47.7 million, which means the shares investors already have will inevitably be diluted.

“What this signals is that CGV is really knee-deep in a financially tight situation,” said an analyst who wished to remain anonymous. “Since the Covid-19 pandemic, the entire theater business is struggling globally due to the presence of streaming services. In turn, theaters are raising their ticket prices, which makes people more hesitant to come back to theaters. So, what remains critical for CGV to really revive their business is how it will utilize the theater space and become a trendsetter, not a follower.”

A total of 11.63 million tickets were sold from January to May this year, less than one-fourth of the 46.93 million tickets sold during the same period in 2019, before the Covid-19 pandemic.

In the first quarter this year, CGV recorded revenue of 393.6 billion won, a 76 percent increase on year. The operating loss recorded 14.1 billion won, better than 2022’s first quarter of 54.9 billion loss. However, its debt rate stands at 912 percent and net debt recorded 2.4 trillion won.

“In the short-term, CGV shares will remain shaky due to the large scale of capital increase, as well as doubts remaining about the stability of the domestic box office,” said analyst Ji In-hae of Shinhan Securities. “On the other hand, it is positive that CGV is stabilizing its financial structure, which has been its biggest risk. Its net debt will fall, as will interest costs, due to the capital increase. The annual 10 billion won of shares allocated from CJ OliveNetworks will lead to a gradual turnaround in the current financial situation.”

"The newly issued shares are not just merely a means to make up for our financially difficult situation,” the multiplex chain emphasized Tuesday.

CGV is revamping its theater business amid falling box office sales in a project dubbed “Next CGV,” transforming its movie theaters into futuristic multi-space environments for general leisure, entertainment and culture.

CGV plans to secure content from affiliates like CJ ENM, Studio Dragon and Tving — as well as K-pop concerts, musicals and e-sports — to screen in theaters, creating a value chain from the very start of content planning.

The company also aims to actively collaborate with CJ OliveNetworks to use its IT technology to establish smart cinemas and strengthen its advertisement business.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]