[Click eStock] "SM, Strong Album Sales... Target Price Up 25%"

Hana Financial Investment Report
Expectations for Increased Album Sales of EXO and NCT

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating on SM Entertainment on the 9th and raised the target price by 25% from the previous level to 40,000 KRW. This is interpreted as reflecting expectations that album sales of EXO and NCT could increase significantly.

SM's sales and operating profit for the second quarter of this year are expected to be 130.1 billion KRW each, down 19% compared to the same period last year. Operating profit is forecasted to increase by about 25% to 4.8 billion KRW.

Researcher Kihoon Lee of Hana Financial Investment said, “Despite the absence of KeyEast dramas, difficult advertising conditions for C&C, and losses from subsidiaries due to the lack of a Japan tour, album sales increased significantly,” adding, “Separate operating profit increased further due to a two-month royalty reduction to Like Planning to share the COVID-19 burden.”

The expected separate operating profit is forecasted to increase by 442% to 10.6 billion KRW. It is estimated that a total of 2.3 million albums of NCT127, NCT Dream, and Baekhyun were sold. This is the highest level since the fourth quarter of 2018 (2.8 million albums), when EXO’s full-length and repackage albums were released on a quarterly basis.

Specifically, NCT127 album sales tripled compared to last year, and Baekhyun’s solo album sales doubled. In particular, Baekhyun’s album exceeded 1 million copies, which was higher than EXO’s sales (770,000 copies) last year, contributing significantly to earnings. Researcher Kihoon Lee explained, “It is estimated that this was influenced by a sharp increase in donation group purchases in China,” and added, “If the ban on Korean entertainment (Hallyu ban) is lifted, EXO and NCT, which have strong Chinese fandoms, are expected to benefit.”

SM’s annual album sales this year are expected to increase by 55% to 7.08 million copies compared to the same period last year. Accordingly, the company’s operating profit estimate for next year has been raised by 12% from the previous forecast.