[Click eStock] "SM, Profit Margin Improvement Expected This Year... Target Price Up"

Korea Investment & Securities raised the target price for SM to 130,000 won on the 27th, stating that the profit margin is expected to improve this year.

Andoyoung Ahn, a researcher at Korea Investment & Securities, said, "We raised the 12-month forward earnings per share (EPS) estimate reflecting the effect of DearU's consolidated inclusion, and slightly adjusted the target price-to-earnings ratio (PER) from the previous 22.5 times to 23.8 times."

This year, SM's operating profit margin fell from 12% to 9% due to a decrease in album sales of the existing senior lineup and an expansion of losses in subsidiaries. Researcher Ahn analyzed, "This year, operational efficiency and expansion of fandom for the junior lineup are expected, and an increase in separate profits is anticipated. In addition, due to the improvement in the performance of loss-making subsidiaries and the effect of consolidated inclusion of DearU, which has a high profit margin, the consolidated operating profit margin is expected to improve to 13%."

SM is undergoing a portfolio generational shift. Previously, the lineup centered on NCT (127, Dream, WayV, etc.) who debuted in the late 2010s, but recently it has shifted to junior groups who debuted in the 2020s.

Researcher Ahn explained, "aespa continues to achieve good results, and Rise, who debuted in 2023, and NCT WISH, who debuted in 2024, are rapidly forming fandoms, contributing to the expansion of the junior lineup's sales proportion." In fact, Rise's first mini-album recorded cumulative sales of 1.33 million copies, and NCT WISH recorded 850,000 copies.

Along with this, monetization strategies are also being strengthened. Compared to the past, album releases, performances, and MD (merchandise) launch schedules are tightly organized, which is expected to increase sales. In the second quarter, aespa, Rise, NCT WISH, Hearts to Hearts, Mark, Doyoung, and Kai are scheduled to release albums, and an increase in album sales centered on the junior lineup is expected.

Subsidiary restructuring is also underway. While synergy with performance and MD subsidiaries is expanding, activities of rookie groups such as KMR and MIK (Myteoro, Dear Alice) are expected to be in full swing. On the other hand, subsidiaries such as KeyEast and SM C&C, which have little synergy with the entertainment business, are undergoing sale procedures.

The consolidated inclusion of DearU is also expected to have a positive impact. As of the 24th, SM expanded its stake in DearU from the existing 33.6% to 45.1%. Accordingly, DearU's performance will be reflected in SM's consolidated results from the second quarter. Researcher Ahn forecasted, "As of last year, DearU's sales and operating profit were 74.9 billion won and 25.4 billion won respectively, so the effect of consolidated inclusion will be fully reflected."