South Korea’s securities firms on Tuesday cut their target price for CJ CGV, raising concerns that the company’s decision to issue new shares worth 250 billion won ($203.66 million) could dilute the stock value.

Hit by the pandemic, the cinema chain recorded a net loss of 118.6 billion won in the January-March period, compared with a net loss of 8.6 billion won a year earlier. It may have been inevitable for the firm to go ahead with the massive capital increase, said Meritz Securities, downgrading its rating from buy to hold. It cut its target price from 50,000 won to 25,000 won.

The company’s net asset value per share will be reduced 14.6 percent to between 20,492 won and 41,496 won, considering the capital increase ratio, it added.

“CJ CGV’s NAV per share will likely not jump from the range mentioned, at least until the date of issuance on Oct. 7,” said Jeong Ji-soo, an analyst at Meritz Securities. “The firm’s stock price is less likely to reach a meaningful figure this year even after the successful issuance, due to the call for a ban on short selling.”

Citing previous recapitalization cases dragging down local firms’ stock prices in the short term, Eugene Investment & Securities also cut its rating from buy to hold, while Daishin Securities slashed its target price by 9.4 percent from 32,000 won to 29,000 won.

When CJ CGV announced its capital increase plan Friday via DART -- the Financial Supervisory Service’s electronic disclosure board – its share price fell 6.61 percent from the previous session’s close. The figures dropped a further 3.96 percent Monday and 5.64 percent Tuesday to close at 21,750 won.

Some brokerage firms, however, forecast that CJ CGV would improve its financial structure through the issuance and recommended that investors look at the firm from a long-term perspective. Hi Investment & Securities raised its target price from 24,000 won to 32,000 won and maintained its buy rating.

“As the firm’s earnings per share has diluted 40 percent, the stock price will fluctuate in the short term, but it will reduce the debt ratio up to 500 percent until the end of this year through the capital financing and a better business performance in the second half,” said Kim Min-jeong, an analyst at Hi Investment & Securities.

Meanwhile, CJ CGV’s board of directors has approved the plan to increase its capital by issuing new stocks to spend 161 billion on operating funds and 89 billion won on repaying debt, preparing for a prolonged COVID-19 crisis.

By Jie Ye-eun (yeeun@heraldcorp.com)