[Click eStock] "SM, Performance Improvement in Full Swing... Target Price Up"

Shinhan Investment Corp. forecasted on the 3rd that SM Entertainment (SM) will see a full-fledged 'low-high' earnings pattern with improved performance in the second quarter. The investment rating 'Buy' was maintained, and the target stock price was raised to 170,000 KRW.

Ji In-hae, a researcher at Shinhan Investment Corp., stated, "After a disappointing first quarter, where SM was the only entertainment company to fall short of expectations, the rebound began in the second quarter."

SM recorded a surprise with second-quarter sales of 239.8 billion KRW and operating profit of 35.7 billion KRW. Although sales decreased compared to the previous year due to a decline in sales of old albums (back catalog), album sales from its flagship IP reached 54.4 billion KRW, providing a solid cushion (steady revenue base). This was the result of a combination of the full-scale resumption of offline activities including 60 concerts, improved performance of subsidiaries in Japan and other performances, and remarkable growth in high-margin merchandise.

More welcome than the earnings was the establishment of the 'Multi-Production Center.' Researcher Ji explained, "This is an essential structural change of the new 'SM 3.0' that SM has emphasized," adding, "It consists of a total of five basic labels plus one virtual dedicated label." The production staff also increased from 165 in March this year to 207 in July.

Each label’s dedicated producers and artists are granted independent authority over concepts, genres, schedules, and promotion strategies, aiming for faster activities and debut cycles as well as process efficiency. This means moving away from the previous production system where most decision-making authority was concentrated in one person. As a result, all artists are fully operational from the third quarter, and the pipeline will increase by two in the second half of the year.

Researcher Ji said, "Under the multi-production center system, the boy group 'RIIZE' will launch in September, and 'NCT Tokyo (the final expansion)' will debut in the fourth quarter," adding, "Currently, a program to select the final members of NCT Tokyo is being broadcast simultaneously in Korea, the U.S., and Japan, which is definitely different from past strategies where trainees were never exposed to traditional media."

Additionally, SM unveiled a music publishing business capable of internalizing song supply and royalty income. As a strategic synergy with Kakao, starting with music distribution, SM and Kakao Entertainment plan to integrate their North American subsidiaries to support the U.S. debut of existing stars like aespa, and expand overseas label and management partnerships.

Researcher Ji emphasized, "There is an expected clear 'low-high' pattern among entertainment companies, supported by proven success cases of multi-labels through competitors, a somewhat enhanced U.S. entry strategy though not local artist development, and this forms the basis for a higher trailing multiple for the entertainment sector." This is the background for raising the target stock price.

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