[Click eStock] "SM Reflects Lowered Entertainment Industry Value... Target Price Down 19%"

Q4 Earnings 'Earnings Shock' and Entertainment Sector Value Downgrade
2024 Guidance, Operating Profit Down 60% from Previous
2024 1Q Operating Profit Expected at 31.1 Billion KRW

Hana Securities on the 8th lowered the target price for SM Entertainment (SM Entertainment) by 19%, from the previous 135,000 KRW to 110,000 KRW, considering the lowered valuation of the entertainment agency industry. The investment opinion 'Buy' was maintained. SM's closing price on the 7th was 73,200 KRW.

Researchers Kihoon Lee and Jiwon Hwang of Hana Securities said, "We present a target price of 110,000 KRW reflecting the downward revision of earnings per share (EPS) due to weak fourth-quarter performance and the lowered valuation of the entertainment agency industry," adding, "Among major artists, NCT Dream's comeback, which has uncertainty in album sales, remains, and risks related to the parent company (Kakao) are still ongoing."

SM's consolidated sales for the fourth quarter of 2023 were 250 billion KRW, and operating profit was 10.9 billion KRW. The operating profit was a significant 'earnings shock,' falling far short of the consensus (market average forecast) of 30.3 billion KRW. The two researchers said, "Considering that the cost of sales ratio on a separate basis rose to 66%, it is estimated that in addition to one-time incentives, the increase in small to medium-sized concerts caused a deterioration in profitability," adding, "The absence of activities in Japan and the lack of large-scale performances also contributed to the expansion of losses in related subsidiaries."

Operating profit for the first quarter of 2024 is forecasted at 31.1 billion KRW, a 70% increase compared to the same period in 2023. This reflects mini comebacks by Taeyong, Wendy, and NCT Dream, debuts such as NCTWISH, and approximately 700,000 concert attendees including 10 Japan dome tours (NCT127, SHINee, SM Town, etc.).

SM also announced a downward revision of its performance guidance for 2024 and 2025. For 2024 alone, sales and operating profit were lowered from the previous 1.4 trillion KRW and 400 billion KRW to 1.18 trillion KRW and 160 billion KRW, respectively, representing a 60% cut in operating profit within one year. Researchers Kihoon Lee and Jiwon Hwang said, "Even if concerns about Chinese group purchases or platform albums and strategies related to platform businesses have faltered, there was no industry change significant enough to warrant such a large downward revision," adding, "Although there was a somewhat illogical downward revision of guidance, the guidance itself is at a level similar to the consensus."

SM plans to release more than 35 albums annually this year and debut three teams, including NCTWISH (Japan) in the first quarter, a Korean female group, and a British male group.The mid- to long-term investment plan was lowered from the previous 1 trillion KRW to 500 billion KRW, and a dividend of 1,200 KRW per share (dividend payout ratio 34%) and cancellation of 240,000 treasury shares were also announced.

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