[Click eStock] SM, Earnings Estimates Raised... Target Price Upward Revised

원본보기 아이콘

NH Investment & Securities announced on the 24th that it has raised its annual earnings estimates for SM Entertainment (SM). The firm maintained a 'Buy' rating and raised the target price to 130,000 KRW.

Researcher Lee Hwajeong of NH Investment & Securities explained, "The basis for raising the annual earnings estimates includes improved profitability, top-line growth, and collaboration with Kakao."

Lee analyzed, "With the complete termination of the producing contract with Like Planning, a commission of approximately 30 billion KRW (up to 6% of separate sales) has been eliminated," adding, "A structural cost reduction effect is expected."

He evaluated, "Thanks to the introduction of a multi-production center, the business has become more systematized, which will prominently enhance operational efficiency," and "Shortened release cycles for new albums and increased frequency of rookie debuts are anticipated."

The impact of collaboration with Kakao is expected to be felt in the short-term performance of the performance (Dream Maker) sector. It was diagnosed that the agency benefits from world tours of Kakao-affiliated artists such as IVE and The Boyz are effective. In the mid to long term, it is expected that additional revenue related to artist IP will expand to webtoons and web novels, supported by the Kakao collaboration.

However, first-quarter earnings are expected to fall short of market consensus. Researcher Lee stated, "First-quarter sales are projected to increase by 27% year-on-year to 215.3 billion KRW, and operating profit is expected to rise by 9% to 20.9 billion KRW," adding, "This is due to one-time costs related to the management rights dispute."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.