[Click eStock] "DearU, Slower China Business Growth... Target Price Down"

Target Price Lowered by 18% from Previous Estimate

On November 5, NH Investment & Securities lowered its target price for DearU from 65,000 won to 53,000 won, citing slower-than-expected growth in the company's China business.

Lee Hwajeong, a researcher at NH Investment & Securities, stated, "We are revising our target price downward by 18% compared to the previous estimate," and explained, "The onboarding of C-pop artists to the QQ Music Bubble service has been slower than anticipated, and it appears that quarterly settlements take about one quarter to process. As a result, the point at which we can expect a tangible sales impact is now projected to be from 2026. We have therefore changed our valuation base year to 2026, when the full-year impact of these benefits can be reflected, and have adjusted our earnings estimates to reflect the slower-than-expected pace of growth in the China business."

For the third quarter of this year, DearU reported operating revenue of 22.3 billion won, up 26% year-on-year, and operating profit of 8.7 billion won, up 37%, both falling short of the consensus (the average of securities firms' forecasts). Lee commented, "Despite delays in settlement from QQ Music, the company managed to maintain strong topline growth. The number of quarterly subscriptions increased by 8% to 2.19 million, with additional benefits from higher subscription fees." She added, "However, the effect of reduced payment fees was limited due to a lower-than-expected conversion rate to web payments, and some advertising and promotional expenses that were expected to be recognized in the fourth quarter were booked early, so profitability improvement was limited."

Although growth in the Chinese market has been sluggish, the overall direction remains valid. Lee said, "The recent share price decline reflects the slower-than-expected pace of growth in the Chinese market. However, while the pace has slowed, the direction of expanding into China and strengthening profitability remains intact." She added, "The mention of cultural exchange during the recent Korea-China summit has created an inflection point for the sector overall, which is a positive factor, and downside risk appears limited."