Alline Partners Proposes Appointment of Auditor to Major Shareholder SM Entertainment

SM, Despite Leading 2021 Album Sales Over HYBE, Significantly Undervalued

[Asia Economy Reporter Hwang Yoon-joo] Align Partners Asset Management (Align Partners) announced that it has submitted a shareholder proposal to appoint Gwak Jun-ho, former CFO of SK Nexilis, as an auditor at SM Entertainment's 2021 Annual General Meeting of Shareholders.

Lee Chang-hwan, CEO of Align Partners, explained the background of the shareholder proposal, stating, "SM is not being properly valued in the stock market due to perceptions in the capital market that there are shortcomings in governance."

In fact, SM sold a total of 17.31 million albums in 2021, centered on NCT and EXO, surpassing HYBE, which sold 14.25 million albums mainly through BTS, and JYP Entertainment, which sold 6.44 million albums centered on Stray Kids and TWICE, securing the top position in the industry during the same period.

Despite these achievements, SM's market capitalization stands at 1.5763 trillion KRW, which is less than one-sixth of HYBE's 10.8553 trillion KRW, and its sales up to the third quarter of 2021 remain at a level similar to JYP Entertainment (1.4778 trillion KRW), which is 26% of SM's sales.

According to Align Partners, the main reasons for this are the recent frequent quarterly net profit earnings shocks, a 20.2 billion KRW tax surcharge following a National Tax Service audit in February 2021, large-scale related-party transactions with the largest shareholder that have persisted for a long time, and the absence of a shareholder return policy, all of which have led to a decline in trust from the capital market. In 2019, KB Asset Management also sent an open shareholder letter demanding changes from SM regarding similar issues.

Align Partners believes that appointing an independent and professional auditor recommended by external shareholders will greatly help resolve SM's undervaluation.

Auditor candidate Gwak Jun-ho is a financial management expert who has contributed to successful investment outcomes. He worked in GS Home Shopping's overseas business team and SK Hynix's finance team, was recruited by global private equity firm KKR to OB Beer’s finance team, and later served as CFO and head of the management support division at KCFT echnologies, the world's number one battery foil company and another KKR portfolio company, playing a key role in generating successful investment results.

Meanwhile, Align Partners, established in 2021, is a private equity firm led by CEO Lee Chang-hwan, formerly of Goldman Sachs and KKR. The firm is composed of professionals with experience in management buyouts, M&A, value enhancement of portfolio companies, and research on listed companies. Focusing on the Korea discount phenomenon, Align Partners conducts in-depth corporate research in a buyout PE style and concentrates on long-term investments in a select few confident domestic listed companies. Detailed information regarding Align Partners’ shareholder proposal for SM’s auditor appointment can be found through the SM lounge on the shareholder platform Beside Korea.

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