[Click eStock] "HYBE, Negative Factors to End from Q4... Remains Top Pick in Entertainment"

Q2 Earnings Expected to Fall Short, Target Price Cut by 5%
Anticipation for Full BTS Group Activities, Stock Price to Reflect from Year-End
4Q 'Paid Upgrade' Weverse Service Also in Focus

Hana Securities on the 8th lowered the target price for HYBE by 5%, from the previous 315,000 KRW to 300,000 KRW, citing weak second-quarter earnings. The investment opinion of 'Buy' and the top pick within the sector were maintained.

Researchers Kihoon Lee and Jiwon Hwang of Hana Securities stated, "Due to the Olympics, the third-quarter earnings momentum is also limited. However, the recent stock price decline reflects not only this but also internal personnel issues, an industry-wide decrease in album sales to China, and global macroeconomic impacts. Starting from the fourth quarter, as these negative factors conclude, we expect an increased weighting in entertainment companies and present HYBE as our top pick."

HYBE's second-quarter revenue was 640.5 billion KRW, and operating profit was 50.9 billion KRW. Compared to the same period last year, revenue grew by 3%, marking the highest quarterly revenue ever, but operating profit fell by 37%. It also fell short of the consensus (market average forecast) of 68.3 billion KRW. Comebacks by Seventeen, Tomorrow X Together (TXT), NewJeans, Tours, and Boy Next Door led to approximately 11.6 million album sales, and global tours by Seventeen, TXT, and Enhypen attracted about 990,000 attendees, driving the revenue. However, including losses of about 20 billion KRW related to the game "Be the Star 2" and deficits of around 25 billion KRW from new businesses such as Shift and Dearus, operating profit was weak.

Researchers Kihoon Lee and Jiwon Hwang said, "Album sales of major artists decreased by up to 45% compared to the first half of last year, but considering the China share (30-40%), the album decline is expected to gradually conclude. The normalization of the historically weak yen is also positive for HYBE, which has a high Japan revenue share of about 30%." BTS, which has the highest momentum toward the U.S. market within K-pop, is scheduled to conduct a full-group tour next year, so this could be reflected in the stock price as early as the end of this year. The last remaining risk is personnel-related issues. Since January next year is the stock option exercise date for Min Hee-jin, CEO of ADOR, it is analyzed that this will likely be resolved by the fourth quarter at the latest.

Meanwhile, Hana Securities focused on the planned monetization of Weverse scheduled for the fourth quarter. This will be a separate service from the existing membership, including digital membership cards, ad-free video viewing, offline VOD storage, selective exclusive membership content access, and priority participation in events. Different forms of service are expected depending on the label or artist. It is estimated that artists with lower hourly revenue will have a broader range of service offerings. Researchers Kihoon Lee and Jiwon Hwang said, "With about 10 million monthly active users (MAU), increasing the paid conversion rate of fans will be very important going forward, and this will be confirmed in the fourth quarter, expanding momentum." They also forecast that HYBE's operating profit will grow to around 500 billion KRW annually in 2026 when BTS will be active as a full group.