[Click eStock] "SM, Time to Simplify Business"

[Asia Economy Reporter Oh Ju-yeon] Meritz Securities evaluated SM's first-quarter performance this year as satisfactory on the 18th, and predicted that if unrelated businesses are cut off in the future, SM's inherent strengths will be highlighted, potentially serving as a catalyst for valuation rerating.

Meritz Securities diagnosed that SM's consolidated sales in the first quarter of this year increased by 10.7% year-on-year to 144.7 billion KRW, while operating profit decreased by 40.3% to 1.7 billion KRW, recording results similar to expectations.

There was a large gap compared to the estimate (1.5 billion KRW) for standalone performance (7.8 billion KRW), which was explained as due to strong sales of albums and related revenues including MD and fan clubs.

However, SM Japan and Dream Maker underperformed due to the absence of concerts, and it was analyzed that these subsidiaries may need to lower their annual expectations for 2020 due to COVID-19.

Additionally, losses from non-core subsidiaries such as SM C&C and F&B were larger than expected, but consolidated operating profit did not differ significantly from estimates, the report added.

Researcher Lee Hyo-jin judged that while attempts at untact (non-face-to-face) concerts are positive, it is a time when business simplification is necessary.

Researcher Lee said, "SM's artists have lower popularity compared to other companies, but due to a highly cohesive fandom, there is a high dependence on albums and concerts. To respond to COVID-19, they are attempting an online paid concert called 'Beyond Live,' and assuming 200,000 attendees in the second quarter, related revenue is estimated at 4.8 billion KRW." This is analyzed to be similar to SM's average quarterly domestic concert revenue. Researcher Lee viewed that future performance fluctuations are possible depending on MD sales linked to concerts. Although the sales scale is smaller than before, it is better than having none.

Researcher Lee said, "The fact that they prepared a self-help measure through untact concerts is positively evaluated, but the large losses from unrelated businesses act as a burden to withstand COVID-19." He added, "If this opportunity is used to cut off unrelated businesses, SM's inherent strengths will be highlighted, potentially serving as a catalyst for valuation rerating."

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