[Click eStock] "SM Awaits Resumption of Performances"

Album Sales Continue to Improve Thanks to NCT and aespa Duo
Korea Investment & Securities Maintains SM Target Price at 100,000 Won

Source: SM

[Asia Economy Reporter Gong Byung-sun] SM's operating profit for the fourth quarter of last year is expected to fall short of market consensus. However, there is a view that if offline performances resume this year, earnings will rise again.

On the 25th, Korea Investment & Securities estimated SM's fourth-quarter sales last year at 217.5 billion KRW, an 18% increase compared to the same period last year, and operating profit at 20.2 billion KRW, about 20 times higher than the same period. The operating profit is expected to be 24% below consensus. Additionally, the operating profit margin is forecasted to improve by 0.2 percentage points from the previous quarter to 9.3%.

It appears that bonuses were paid in the fourth quarter as well as the third quarter of last year. Furthermore, the operating profit of the subsidiary DearU is expected to be 1.3 billion KRW due to listing expenses.

However, album sales showed strong performance. NCT released two albums, selling 3.06 million copies, and rookie group aespa's first album sales reached 570,000 copies. SM's album sales in the fourth quarter of last year recorded 4.2 million copies, a 17% increase compared to the same period last year.

Last year's album sales market share also expanded by 9 percentage points compared to the previous year. This was thanks to SM's annual album sales last year reaching 14.77 million copies, a 77% increase over the same period. Park Ha-kyung, a researcher at Korea Investment & Securities, explained, "SM has the largest number of artists among entertainment companies," and added, "The rising trend of the rookie girl group that debuted last year is also steep."

If performances resume, earnings are expected to improve further. Offline performance sales, which accounted for nearly 10% of total sales as of 2019, sharply declined after COVID-19. When the performance market normalizes, SM's earnings are expected to recover quickly based on the largest number of artists and performance counts.

Researcher Park said, "Due to the increased fixed cost burden from the absence of performances, SM's earnings decline last year was the largest among the four major entertainment companies," and added, "With steady album sales, the time for concert resumption has arrived."

Accordingly, Korea Investment & Securities maintained a 'Buy' rating and a target price of 100,000 KRW for SM. The closing price on the previous day was 63,900 KRW.

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