[Click eStock] SM, Unfavorable Environment for Growth Stocks Despite Strong Earnings

[Asia Economy Reporter Kwon Jae-hee] Hana Financial Investment on the 17th gave SM a 'Buy' investment rating and set a target price of 100,000 KRW.

SM's first-quarter earnings showed sales of 169.4 billion KRW and operating profit of 19.2 billion KRW, increasing by 10% and 25% respectively. This significantly exceeded market expectations (12.3 billion KRW). One-time costs included stock grants (13.9 billion KRW), and one-time gains included royalties from Dalkomsoft (15 billion KRW). Looking at operating profit by segment, the separate account recorded 24.7 billion KRW (42%), which was strong due to one-time Chinese appearance fees and better-than-expected MD sales. In the past, MD and appearance fees linked to comebacks or concerts have continuously created one-time surprises even when related events were limited, thanks to multiple artist lineups, globalization of fandoms, and the company's efforts.

The expected operating profit for Q2 this year is 17.9 billion KRW (-35%), with separate operating profit estimated around 15 billion KRW, assuming multiple solo releases, NCT127 repackages, and aespa comebacks. In Japan, about 470,000 concert attendees are reflected from 21 TVXQ fan meetings, 5 NCT dome tours, and 3 Super Junior fan meetings. Considering Japan's past restructuring efforts, surprises can also be expected. In the second half of the year when NCT127 returns, it is expected that quarterly operating profit capacity of around 30 billion KRW or more will be confirmed.

Lee Ki-hoon, a researcher at Hana Financial Investment, analyzed, "Despite the resumption of artists' tours leading to recovery in Japan and Dream Maker, and the debut of new male artists within the year, which are positive for earnings and momentum, the environment is unfavorable for growth stocks." He added, "There is about a 15% upside potential for the target price, but due to the large gap with the current stock price, the target price is maintained."