[Click eStock] "SM, Parting Ways with Like Planning, Market Cap to Reach 3 Trillion Won"

[Asia Economy Reporter Ji Yeon-jin] SM is considering an early termination of its contract with Like Planning, led by Chief Producer Lee Soo-man, raising expectations that the company's corporate value could soar to 3 trillion won.

Hana Securities announced on the 16th that if the producing contract with Like Planning is terminated, the target market capitalization reflecting SM's operating profit forecast of 170 billion won for next year would be set at 3 trillion won. However, since this operating profit is not yet confirmed, applying a 20% discount rate based on JYP's corporate value, Hana Securities raised SM's target stock price to 110,000 won.

Lee Ki-hoon, a researcher at Hana Securities, explained, "After large-scale amortization and tax audits on subsidiaries in 2019-2020, there was a clear structural improvement with the sale of real estate by non-operating subsidiaries, the high growth of DearU, and the start of the first dividend. If the contract with Like Planning is also terminated, governance issues will be resolved as well."

Earlier, SM disclosed that it is reviewing the early termination of the producing contract with Like Planning. SM stated, "We have conducted multifaceted reviews and discussions regarding the producing contract with Chief Producer Lee Soo-man. The Chief Producer has expressed his intention to terminate the producing contract early by the end of this year. We plan to deeply discuss the impact of the early termination of the producing contract with the Chief Producer on our business with key stakeholders and organize our position on the future direction to announce later."

The researcher added, "The noteworthy point is that the early termination intention was received from the contracting party, Like Planning, confirming that the will of Chief Producer Lee Soo-man is reflected. Although it is under review, the possibility is considered quite high. The mention of early termination refers to changing Like Planning's settlement structure from 15% of existing album sales revenue to a maximum of 6% of separate sales revenue, setting the contract termination date to 2023, which means advancing the termination by one year compared to the existing contract."

Like Planning is a company led by Chief Producer Lee Soo-man, and through the producing contract, SM pays royalties of up to 6% of music-related separate sales revenue. SM paid 24 billion won in royalties to Like Planning last year and 11.4 billion won in the first half of this year. The expected annual fees are approximately 26 billion won in 2022 and 30 billion won in 2023. If the contract is terminated, SM could see an additional operating profit of 30 billion won in 2023.