[Click eStock] SM Without Lee Soo-man "Governance Improvement Gains Momentum"... Target Price Upward Revision

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Daol Investment & Securities announced on the 6th that it maintains a 'Buy' rating on SM and raises the target price from 102,000 KRW to 120,000 KRW. Kim Ha-jung, a researcher at Daol Investment & Securities, explained, "Through the disclosure of the SM 3.0 strategy, the direction for governance improvement and the possibility of IP monetization have become credible," adding, "We reflected these favorable expectations in the forecast, and accordingly raised the appropriate valuation to the same level as competing companies." However, he pointed out that the specific level of IP monetization and the success of music under the multi-label system need to be proven.

SM is now transitioning to a multi-label system without Lee Soo-man as the general producer. Music will be produced without this producer. Regarding this, Researcher Kim said, "The feasibility of the 12 governance improvement measures announced on the 20th of last month has become trustworthy, and the guidance disclosed together (18 million album sales in 2023) also gave confidence in IP monetization," emphasizing, "It will be possible to raise profit forecasts due to governance improvements."

First, due to governance improvements, profit forecast upgrades can be made by eliminating Like Planning fees, selling non-core assets such as SM USA, and normalizing Dream Maker's shareholding ratio. Accordingly, it is judged that an upward revision of the excessively low forecast (2023 operating profit forecast of 121.9 billion KRW) can be expected.

He added, "Specifically, the multi-label system announced and the rookie lineup, which includes one additional team and one solo artist compared to the existing plan, are positive," but noted, "Whether the music will be successful remains to be seen."