[This Week's Industry Insight] Growing Fandom... Clear Growth Momentum of JYP Ent.

Q1 Operating Profit Hits 42 Billion KRW, Earnings Surprise
Brokerages Uniformly Raise Target Prices... Expectations for Success of Existing Artists and Upcoming Projects

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to become your hands, feet, eyes, and ears to deliver accurate information about companies. Each week, we focus on companies that rank high in stock inquiries by the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, clients, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We meet you every week under the name "This Week's Watchlist," highlighting notable stocks of the week. This week, we analyzed JYP Entertainment (JYP Ent.), a hot topic in the domestic stock market recently.

Group TWICE. Photo by JYP Entertainment [Image source=Yonhap News]

JYP Ent.'s stock price surge is remarkable. At the beginning of the year, the stock price was at 67,200 KRW, but as of the 22nd of this month, it rose to 114,100 KRW, a sharp increase of 69.79%. On the 16th of this month, it jumped over 20% in a single day, surpassing the 100,000 KRW mark. On the 18th, it set a new all-time high, reaching 120,900 KRW intraday and closing at 119,800 KRW.

JYP Ent. is a comprehensive entertainment company established in 1996. It was listed on the KOSDAQ in 2013 after merging with the surviving company J.Tune Entertainment, a KOSDAQ-listed company, and the dissolved company JYP. The largest shareholder is singer Park Jin-young, who owns 5,402,311 shares (15.21%) out of a total of 35,497,492 issued shares as of the first quarter of this year. The National Pension Service is also a major shareholder, holding 1,800,507 shares (5.07%).

The company has a specialized organization capable of discovering and nurturing artists and plans and produces music content. It operates music and video content businesses that plan, produce, and distribute albums, music tracks, and video content, as well as management-related businesses that generate revenue through services such as performances and appearances by its artists. It also conducts IP licensing business utilizing intellectual property rights (IP). JYP Ent. maintains strategic partnerships with global partners within the related industry to expand its influence in the content industry. In the first quarter, JYP Ent.'s consolidated sales increased by 74% year-on-year to 118 billion KRW, of which album and music sales accounted for 52 billion KRW. Concerts and advertisements accounted for 7 billion KRW and 5 billion KRW, respectively. Advertising, appearance fees, and others were estimated at 5 billion KRW, 2 billion KRW, and 52 billion KRW, respectively.

First Quarter Earnings Exceed Expectations

The recent surge in JYP Ent.'s stock price is largely due to its first-quarter earnings surprise. Operating profit for the first quarter was 42 billion KRW, significantly surpassing the consensus estimate of 27.1 billion KRW. This marks the highest quarterly performance to date. As the global recognition of its artists increases, the company showed strong results across its businesses, including albums, music tracks, concerts, merchandise (MD), IP, and licensing. The new albums by TWICE and NMIXX sold 3 million copies. This was reflected as 12 billion KRW in album sales through Republic Records, which handles album distribution in the North American market. Growth in North America has been notable since the partnership with Republic Records was established.

Growth of JYP360, which operates the online mall 'JYP Shop,' was also remarkable. JYP Ent. established a separate corporation called JYP360 in 2021 to sell MD. The primary purpose of JYP360 is to internalize the commerce mall, and the secondary purpose is to utilize the database. Through the online mall, it is possible to accumulate data that estimates fandom size by region and artist, and using the collected data in key management strategies can yield greater effects. JYP360 contributed to achieving the highest quarterly MD sales, recording sales of 15.2 billion KRW and operating profit of 2.4 billion KRW. This phenomenon is attributed to the growing global fandom of major artists.

The active offline performances also had a positive impact. Concert sales doubled year-on-year due to the world tours of Stray Kids and ITZY. Sales from content and IP licensing were also steady. As influence expanded, revenue growth outpaced the increase in production costs, resulting in improved profitability.

JYP Ent.'s sales have shown growth every year, increasing from 194 billion KRW in 2021 to 346 billion KRW last year. Operating profit also rose from 58 billion KRW to 97 billion KRW during the same period. To support growth, the company explained that it has created an optimized label system. According to the quarterly report, "To organically respond to rapidly changing music industry trends and efficiently operate and manage artists, we restructured the existing function-centered vertical organizational structure into a horizontal organizational structure based on artists, establishing an optimized label system to efficiently operate and manage multiple artist lineups."

Each securities firm has raised its target price for JYP Ent. Samsung Securities raised it from 92,000 KRW to 128,000 KRW, and Eugene Investment & Securities also increased it from 98,000 KRW to 125,000 KRW. Hana Securities set a higher target price, raising it from 91,000 KRW to 130,000 KRW, and NH Investment & Securities increased it from 110,000 KRW to 140,000 KRW. Shinhan Investment Corp. also raised its target price to 120,000 KRW. Ji In-hae, a researcher at Shinhan Investment Corp., explained, "Entertainment has now evolved from stars to exporting intangible asset technology of 'training systems.' This is a momentum that will spread warmth across the industry in the second half, and JYP Ent., along with HYBE, is the leading company in this regard."

Limitless Growth Potential... Expectations for the Future

There is also analysis that the growth potential going forward is significant. Despite being in their eighth year since debut, TWICE's album sales continue to increase significantly, and their popularity in the United States remains strong.

Group Stray Kids. Photo by JYP Entertainment

Stray Kids, as a successor to BTS (Bangtan Sonyeondan), conducted a world tour including North America following BTS and BLACKPINK. Their new album '5-STAR,' scheduled for release in early June, has already recorded over 630,000 pre-orders through Chinese fan club group purchases alone, contrasting with the previous album's cumulative Chinese group purchase sales of about 910,000 copies. The U.S. fan club is also known to be encouraging purchases to ensure a stable Billboard entry for the new album through various group activities. As a result, sales are expected to far exceed the previous album's cumulative sales of 3 million copies.

There is also a trend of increasing guarantees per show for world tours. This is expected to positively impact TWICE and Stray Kids, who have secured Western fandoms. TWICE's world tour and Japanese single release are scheduled for the second quarter. Following this, there is a possibility that Stray Kids will begin an additional world tour in the third quarter. Lower-tier artists such as ITZY and NMIXX also have the potential to conduct at least one world tour activity in the second half of the year. Therefore, there is talk that further upward revisions of earnings estimates are possible due to the trend of increasing guarantees per show.

Additionally, having a debut cycle for rookie groups is considered a significant advantage. Since Stray Kids in 2018, the company has consistently debuted one group each year. In the second half of this year, the boy group 'LOUD Project' is preparing to debut domestically, and the boy group 'Project C' is preparing to debut in China.

Moreover, the U.S. girl group (A2K), which is attracting market attention, is also about to be unveiled. A2K stands for 'AMERICA 2 KOREA' and is a global English-based girl group debut project promoted by JYP Ent. in collaboration with Republic Records under Universal Music in the U.S. The audition process for A2K is expected to be revealed through online streaming this month. The debut is scheduled for the second half of this year.

Since the A2K project is the first localization group attempt in the Western market, there are claims that a successful debut could lead to a valuation rerating for JYP Ent. Seonhwa Lee, a researcher at KB Securities, explained, "If it is proven that a global artist can be produced through the systematized training process of a K-pop entertainment company, not only will fundamentals improve, but valuation rerating across the K-pop entertainment industry will also be possible."

There are also claims that if the artists grow and the A2K project succeeds, the current market capitalization of about 4.05 trillion KRW could increase to 6 trillion KRW. Ki-hoon Lee, a researcher at Hana Securities, stated, "Additional growth of existing artists and the success of rookie groups will lead to further upward revisions of earnings forecasts, which alone will bring the market capitalization close to the 4 trillion KRW level. Moreover, the expected operating profit contribution from the A2K project is estimated at around 50 billion KRW, which is not yet reflected in current earnings estimates." He added, "Depending on the success, there is a possibility of an additional corporate value increase of over 1.5 trillion KRW." Continuous global business model plans such as E2K and L2K could also act as positive factors.

Significant Impact Expected if Promising Rookie Artists Fail

Although rosy prospects dominate, JYP Ent. also has weaknesses. First, the large growth potential can be a double-edged sword. Due to the nature of the entertainment industry, it is difficult to predict the success of artists or projects like A2K. Hyunji Lee, a researcher at Eugene Investment & Securities, said, "Since the A2K project is doing something that has never been done before, no one can predict the outcome. If I had to point out a weakness of JYP Ent., it would be that if A2K does not perform as expected, it could pose a risk."

She added, "If a rookie artist about to debut performs worse than expected, that could also be a risk. The entertainment industry is a business that deals with people influenced by subjective factors like popularity, which can also be seen as a weakness."

Valuation pressure is also high. JYP Ent.'s price-to-earnings ratio (PER) is around 35 times, reflecting high expectations. Although this is lower than the 47 times of competitor HYBE, it is higher compared to YG Entertainment's 27 times and SM Entertainment's 22 times.

Additionally, although global concert tours have resumed with the COVID-19 endemic, there is a risk of delays due to resurgence. Last year, the company attempted to enter new businesses such as non-fungible tokens (NFTs) and the metaverse, and if progress in these new ventures slows, it could become a threat.

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