[Click eStock] EXO Military Enlistment and Lineup Gaps Plus COVID-19... SM Faces a Cold First Half

1Q Event and Concert Cancellations Continue... Advertising Revenue Also at Risk Due to Economic Slowdown

Source: SM

[Asia Economy Reporter Minwoo Lee] There is a forecast that SM Entertainment's poor performance in the first half of the year is inevitable. Due to the impact of the novel coronavirus disease (COVID-19), various performances have been postponed, significantly reducing event revenue, while the popular group EXO is undergoing military enlistment.

On the 17th, DS Investment & Securities predicted that SM would record consolidated sales of 130.4 billion KRW and an operating profit of 3.3 billion KRW in the first quarter of this year. Sales decreased by 0.3% compared to the same period last year, while operating profit increased by 15.9%. This was due to the cancellation of various concerts and a decline in advertising revenue caused by COVID-19. However, subsidiary KeyEast is expected to turn an operating profit thanks to partial reflection of the performance from the drama 'Hyena,' which ended on the 11th.

Performance is expected to remain sluggish through the second quarter due to the impact of COVID-19. Activities in Japan by TVXQ, SuperM, and Taeyeon have been postponed. NCT127's North American tour is also uncertain. Concert revenue, which accounted for 16% of total company sales last year, and advertising and event revenue, which accounted for 13%, are expected to decline significantly.

The absence of an artist lineup is also expected to affect poor performance. Since last year, EXO members, who contribute significantly to profits, have been enlisting in the military sequentially. Jaeho Choi, a researcher at DS Investment & Securities, explained, "For the time being, activities by NCT127, SuperM, and Super Junior will support performance, but it will be difficult to fill the performance gap until the first half of the year."

SM is expected to aim for a full rebound starting in the second half of the year. It has never debuted two groups in one year, but this year, unusually, one girl group and one boy group are expected to debut respectively. Concerts canceled in the first half are also expected to be postponed to the second half. Expectations related to Chinese President Xi Jinping's visit to Korea in the second half are also favorable.

Accordingly, DS Investment & Securities has issued a 'Buy' rating for SM while lowering the target stock price to 36,000 KRW. The closing price the previous day was 26,700 KRW. Researcher Choi said, "Last year, investment sentiment in the domestic entertainment industry deteriorated, making it difficult to detect clear signs of stock price increases. Although SM's stock price has fallen by 48.6% from early last year to the present due to COVID-19, the possibility of further negative factors emerging is limited."

This content was produced with the assistance of AI translation services.