[Click eStock] SM's 'Founder Risk' Expected to be Resolved

Source: SM

[Asia Economy Reporter Hwang Junho] KB Securities maintained a target price of 100,000 KRW for SM Entertainment, projecting an average annual operating profit growth rate of 22.9% over the next three years as of the 4th.

Researcher Lee Seonhwa of KB Securities stated, "SM Entertainment has a highly loyal fandom (with strong album sales), creates synergy not only through unit activities within groups but also through unit activities across groups, and diversifies content revenue by operating platform businesses through subsidiaries Beyond LIVE and Dear U," setting the investment opinion as 'Buy' along with this target price.

Lee identified governance issues related to the largest shareholder, producer Lee Soo-man, as a stock risk for SM. The issue concerns the producing service contract with Lee's personal company, Like Planning, which is said to receive excessive royalties. However, with the recent appointment of an audit committee member recommended by Align Partners, corporate management transparency is expected to improve significantly.

KB Securities estimates SM's Q2 revenue this year at 182.5 billion KRW, a 2.1% decrease compared to the previous year. Operating profit is expected to record 20.1 billion KRW, down 27% year-on-year. Although operating profit is expected to decline significantly compared to last year, it is forecasted to meet the market consensus of 20.8 billion KRW.

Lee explained, "The strong album sales of NCT DREAM's 2nd repackaged album 'Beatbox' led the sales, and NCT 127 continued its growth by conducting a world tour in Japan," but also noted, "The Japanese concerts may pose a risk factor due to a 1 to 3-month lag in settlement completion."