[Click eStock] "SM, Potential for Further Corporate Governance Improvement"

[Asia Economy Reporter Jang Hyowon] NH Investment & Securities maintained a target price of 105,000 KRW for SM (SM) on the 20th, expecting further improvements in its corporate governance.

Lee Hwajeong, a researcher at NH Investment & Securities, stated in a report on the day, "On the 14th, the activist fund Align Partners (hereinafter Align) delivered a shareholder letter to SM demanding additional improvements in corporate governance and requested a response by January 13."

Previously, Align sent two open letters in March and August urging improvements related to the service contract with Like Planning. In response, SM announced in October the early termination of the producing contract with Like Planning and indicated a high possibility of continuing production with internal personnel in the future.

Researcher Lee Hwajeong analyzed, "Since internal personnel who have been producing content alongside Lee Soo-man for years are expected to lead production, there will be no impact on the content's identity. Additionally, in this case, most of the annual producing royalties currently paid (25 to 30 billion KRW) are expected to be saved, so structural growth in profitability is also anticipated."

She judged, "Although specific demands were not disclosed in this shareholder letter, the main improvement requests likely included: ▲ SM Brand Marketing (42% subsidiary) operating the key new business Gwangya Club but not being a consolidated entity, ▲ Dream Maker (60% subsidiary) experiencing long-term losses during the COVID-19 period, and ▲ SM USA (100% subsidiary) having a business structure focused on non-core businesses."

She added, "With the resolution of the Like Planning-related issues, which were the biggest undervaluation factors, and the steady growth of existing artists along with new momentum from rookies (boy group, NCT Tokyo), the investment attractiveness is high. Furthermore, if corporate governance transparency is further improved according to the demands of this shareholder letter, even minor concerns can be fully resolved, which is also positive."

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