[Click eStock] "SM, Clear Earnings Improvement Until Next Year... Target Price Up 67%"

[Asia Economy Reporter Ji-hwan Park] Korea Investment & Securities maintained a 'Buy' rating on SM, stating that its earnings improvement trend will be clear not only this year but also next year, and raised the target price by 67% to 75,000 KRW from the previous level.

Researcher Ha-kyung Park of Korea Investment & Securities said, "Operating profit estimates for this year and next year have been raised by 36% and 46%, respectively, and the applied earnings per share (EPS) estimates increased due to the change in the target price calculation period." Due to better-than-expected core business performance this year, the separate operating profit forecast was raised from 52 billion KRW to 69 billion KRW. The sales increase was driven by highly profitable album sales, and the operating profit margin is expected to improve by 2 percentage points compared to the previous forecast. Next year, with continued strong core business performance and the resumption of offline performances, major subsidiaries are expected to escape operating losses.

In particular, the growth of new artists is analyzed to be steep. Researcher Ha-kyung Park emphasized, "The second quarter was a quarter where we could confirm the potential of NCT Dream," adding, "The first full-length album sold 3.2 million copies according to the Gaon chart. NCT sold 5 million albums in the first half of the year, and the total album sales in the first half reached 9 million, already achieving last year's annual sales of 9.05 million in just two quarters." In the second half of the year, activities of NCT 127 and NCT 2021 are scheduled, and SM's annual album sales are expected to reach 16.3 million, an 80% increase compared to the previous year.

Regarding subsidiary performance, the combined operating loss is expected to shrink significantly this year due to the turnaround to profitability of the DearU corporation, and a sharp turnaround is anticipated from next year with the resumption of performances. Due to the burden of fixed costs caused by the absence of performances, SM experienced the largest profit decline among the four companies last year. Researcher Ha-kyung Park said, "Since the impact of the absence of performances was the greatest, the speed of earnings rebound due to the resumption of performances will also be the fastest." He added, "With the turnaround to profitability of SMJ and Dream Maker, the combined operating profit of subsidiaries is expected to reach 25 billion KRW next year, significantly improving from the 30 billion KRW operating loss in 2019."

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