[Click eStock] "SM, Performance and Valuation Improvement Are Inevitable"

[Asia Economy Reporter Kwon Jae-hee] Hana Securities maintained a 'Buy' rating on SM Entertainment (SM) on the 25th, setting a target price of 120,000 KRW.

Hana Securities designated SM as a 'Top Pick.' They analyzed that the long-standing irrational issues are being resolved, which will inevitably lead to improvements in performance and valuation.

SM has fully accepted the 12 corporate governance improvement measures proposed by Align Partners Asset Management, which has been running a shareholder value enhancement campaign. The long-standing problems will be resolved through the board of directors in the post-SM era without General Producer Lee Soo-man. In this process, various factors affecting performance improvement, such as the multi-producing system, SMBM (SM Brand Marketing) structural improvements, and the sale of non-core businesses, are highly likely to be confirmed in the short term.

The key points of the 12 agreed items include ▲ the board of directors to be composed of three inside directors, three outside directors, and one other non-executive director (Lee Chang-hwan, CEO of Align) at the regular shareholders' meeting to be held in March ▲ the establishment of an internal transaction committee consisting of directors and auditors to closely review all transactions with major shareholders, related parties, affiliates, and subsidiaries and take necessary measures ▲ the sale of non-core assets unrelated to the main business held by the headquarters and subsidiaries ▲ cooperation with the board to improve SM's governance and enhance shareholder value.

SM has very clear long-standing issues, such as the irrational structure where the largest shareholder additionally holds shares in SM subsidiaries conducting core businesses like SMBM, and it is expected that consolidation and sale of non-core businesses unrelated to the main business, such as the winery, and 40 affiliates will proceed.

Lee Ki-hoon, a researcher at Hana Securities, said, "Setting aside the improvements, SM is expected to have the highest profit growth rate (63%) among entertainment agencies this year," adding, "The tentpole drama by KeyEast and the recent ticket price increase for aespa concerts (about 154,000 KRW, up 20,000 KRW) will also reflect the normalization of profits for concert-related subsidiaries."