[Click eStock] Hana Financial Investment "SM, Repeated Earnings Shock"... Target Price Down 9%

[Asia Economy Reporter Ji Yeon-jin] Hana Financial Investment has lowered the target stock price of SM by 9% to 39,000 KRW, expressing concerns over repeated earnings shocks.

Lee Ki-hoon, a researcher at Hana Financial Investment, stated, "Looking at aespa's debut process, they were preparing for the metaverse era earlier than anyone else and I highly evaluate them as an innovative company. However, rather than such preparations, it is more important now to reduce the repeatedly occurring earnings shocks at an incomprehensible level through business restructuring or cost-cutting efforts. The future corporate value is also based on current performance and the accumulation of investor trust."

SM's Q4 sales and operating profit were 184.2 billion KRW and 1.3 billion KRW, down 5% and 90% year-on-year, respectively. During this period, separate operating profit was 7.9 billion KRW (-28%). Considering that NCT's two albums (2.35 million copies) included about 3.5 million copies, which is the highest ever, the results are somewhat disappointing. Japan continued a deficit trend of 4.5 billion KRW due to the absence of large concerts, and Dream Maker/C&C recorded 700 million KRW (+140%) / 2.6 billion KRW (-27%) during the concert and advertising peak season of Beyond Live.

Dear U also succeeded in turning a profit, improving the annual deficit by 7 billion KRW.

Non-operating losses included 7.2 billion KRW impairment losses on intangible assets such as C&C management, and impairment losses on tangible assets of 1.6 billion KRW for F&B, 3.9 billion KRW for F&B Japan (business suspended), and 3.8 billion KRW for USA. Equity method investment losses amounted to 13.3 billion KRW, including Dreamus Company (-4.3 billion KRW), Mystic Story (-5.2 billion KRW), and Esteem (-2.2 billion KRW). Additionally, 18.9 billion KRW in corporate tax was additionally incurred due to a tax audit.

The researcher said, "While earnings declines due to COVID-19 are understandable, Big Hit increased earnings by 44%, JYP is expected to have flat profits compared to the previous year, and YG improved by discontinuing loss-making businesses. SM, which has the most loss-making divisions, did not show such efforts (in performance) during the COVID-19 period, which is very disappointing. Like YG, which strengthened its online business through cooperation with Weverse and reorganized loss-making divisions, or like JYP, which has growth momentum with 3 to 4 teams debuting over two years, SM needs similar efforts."