[Click eStock] "SM, This Year's Earnings Estimates Revised... Target Price Down"

On the 9th, Kiwoom Securities analyzed that an adjustment is needed for this year's earnings estimates of SM Entertainment (SM). Accordingly, they maintained a 'Buy' investment rating but lowered the target price to 118,000 KRW.

Namsoo Lee, a researcher at Kiwoom Securities, stated, "We are taking a more conservative approach than the previous profit estimates by reflecting the downgrade in K-POP album sales, the period required to secure profitability in newly incorporated businesses, and the performance fluctuations of major subsidiaries."

SM's operating profit for the first quarter of this year was 15.5 billion KRW, down 15% year-on-year, falling short of consensus. Lee explained, "Margins declined due to increased personnel, higher initial operating costs of new affiliates, and the allocation of performance bonuses, which led to rising expenses."

However, they succeeded in defending profitability. Although album sales decreased by 8% due to high sales of back-catalog albums (albums released more than six months ago) last year and there was a reduction in the number of concert performances, this was offset by the enlargement of concert scale and growth in MD (merchandising).

SM's sales for this year are expected to increase by 2.3% year-on-year to 982.3 billion KRW, while operating profit is projected to decrease by 1.2% to 111.1 billion KRW. Lee analyzed, "Starting from the first quarter results as the bottom, performance improvement is expected in the second half of the year with album comebacks, concerts, and MD advancement."

He evaluated that if the concert lineup is raised through the third quarter, the growth potential of the core business can continue to be confirmed. Lee forecasted, "In the second half, the artist lineup is expected to be further strengthened with the virtual artist Naibis, a rookie girl group, and the launch of a UK boy group. Additionally, synergy expansion with Kakao is expected to accelerate collaboration with Kakao Games and others to expand secondary IP businesses, including Naibis, who simultaneously develops story and music activities."