[Click eStock] "SM, Subsidiary Earnings Rise with Strengthened K-pop Content... Target Price Up"

KB Securities Report

[Asia Economy Reporter Minji Lee] On the 27th, KB Securities issued a buy rating on SM Entertainment with a target price raised by 14% from the previous to 42,000 KRW. This is based on the expectation of a turnaround in the subsidiaries' performance due to increased sales from active artist activities and the strengthening of the global competitiveness of K-content.

Source: SM

SM Entertainment's consolidated sales for the fourth quarter are estimated to have decreased by 9% year-on-year to 174.8 billion KRW. Operating profit is expected to decline by 31% during the same period to 9.4 billion KRW, which is anticipated to exceed the market forecast of 7.2 billion KRW.

SM Entertainment's standalone operating profit is expected to increase by about 7% year-on-year as NCT released two full-length albums in October and November, recording album sales of 2.45 million copies. Additionally, SMC&C is entering the peak advertising season, and KeyEast has succeeded in turning profitable with the production of three dramas, leading to better-than-expected solid results.

SM Entertainment owns platforms called ‘Listen’ and ‘Bubble’, similar to Big Hit's ‘Weverse’. Dear U, a subsidiary operating these K-pop fan community platforms, recorded an operating loss of 7.8 billion KRW in 2019 but turned profitable in the third quarter, achieving an operating profit of 900 million KRW. It is currently estimated to generate about 1 billion KRW in monthly revenue.

Seonhwa Lee, a researcher at KB Securities, said, “In addition to existing SMTOWN artists, artists from other entertainment companies such as FNC, JYP, and Jellyfish have joined, resulting in a sharp increase in the monthly average users (MAU) of the service.”