[Edaily Reporter Shin Ha-yeon ] On the 11th, Meritz Securities assessed that Studio Dragon Corporation(253450)is working to improve profitability through channel and genre diversification, expansion of its intellectual property (IP) business, and production cost reductions utilizing artificial intelligence (AI). The firm maintained its “Buy” investment rating but lowered the fair value from 48,000 won to 43,000 won—a 10.4% reduction—to reflect revised earnings estimates.

Jeong Ji-soo, an analyst at Meritz Securities, stated, “The company is strengthening its structural improvements through IP value-enhancement strategies, such as diversifying channels and genres, launching an official YouTube channel, and establishing royalty and revenue-sharing structures,” adding, “Through cost efficiencies—including the implementation of AI to streamline production systems—the company is projected to reduce production costs by 30% over the medium to long term.”

Studio Dragon Corporation’s consolidated revenue for the second quarter reached 145.3 billion won, a 26.9% increase year-over-year. Operating profit stood at 15.4 billion won, marking a turnaround from a loss in the same period last year and meeting the market consensus of 14.8 billion won. The operating profit margin was 10.6%.

The second-quarter content lineup consisted of a total of 77 episodes—including *The Legend of the Cook*, *Yumi’s Cells 3*, *The Boy in the Back Row*, and *Brave New World*—marking an increase of 36 episodes compared to the 41 episodes in the same period last year. Of these, 50 episodes were for TV and 27 for online video services (OTT).

Analyst Jeong explained, “‘I’ll Go to Work Tomorrow, Too!’ was pre-sold to global OTT platforms, and regional sales of ‘Secret Gratitude’ performed well,” adding, “We recorded an operating profit margin of 10.6% thanks to a reduction in the burden of deferred amortization expenses related to content and cost savings achieved through the expanded use of AI.”

Meritz Securities projected that Studio Dragon Corporation’s consolidated revenue for this year will reach 569.1 billion won, a 7.2% increase from the previous year, while operating profit will rise 55.1% to 47.1 billion won. The firm projected that the operating profit margin would improve from 5.7% last year to 8.3% this year. However, compared to previous estimates, this year’s revenue forecast has been lowered by 6.0% and the operating profit forecast by 16.5%.

In the second half of the year, the broadcast volume is expected to be similar to that of the first half, centered on highly anticipated titles. Analyst Jeong stated, “The second-half lineup, which includes highly anticipated titles such as ‘Slowly but Intensely’ and ‘100 Days of Lies,’ is expected to total 166 broadcast episodes, a level similar to the 168 episodes in the first half.”

In particular, the performance of the blockbuster “Slowly but Intensely” is expected to influence profitability in the second half. He analyzed, “‘Slowly but Intensely’ is a major production with a budget of around 80 billion won, and if it achieves solid viewership results, it is expected to make a significant contribution to profits.”

The company is also developing its IP commerce business as a new revenue stream. Studio Dragon Corporation is expanding its footprint in this sector through initiatives such as a convenience store collaboration for *The Legend of the Cook* and the release of the original soundtrack (OST) for *Taste Boys*.

Researcher Jeong stated, “We plan to expand IP commerce-centered content—including brands and stories—by building an IP value chain that goes beyond product placement (PPL).”

A change in the accounting method for amortizing distribution rights was also cited as a factor that will reduce future earnings volatility. Starting in the second quarter, a new method was implemented whereby distribution rights for general productions are amortized over 48 months—with 64% accelerated amortization during the first 7 months—while OTT pre-sold productions are amortized at a fixed rate over 4 months.

Analyst Jeong predicted, “The change in the copyright amortization period, newly implemented starting in the second quarter, is expected to reduce earnings volatility unrelated to actual revenue and operating activities.” He added, “We maintain our ‘Buy’ investment rating, but lower the fair value from the previous 48,000 won to 43,000 won—a 10.4% reduction—to reflect the revised earnings estimates.”