[Click e-Stock] "SM Delivers Surprise Earnings for Three Consecutive Quarters"

On August 7, Hana Securities raised its target price for SM Entertainment from 170,000 won to 180,000 won, citing the continued strong performance and momentum both in the short and mid-to-long term. The firm noted that among the top three rookie male artist groups by album sales (RIIZE, BoyNextDoor, NCT Wish), two are from SM Entertainment. The investment opinion was maintained at 'Buy'.

In the second quarter, SM Entertainment recorded sales of 302.9 billion won (up 19% year-on-year) and operating profit of 47.6 billion won (up 92%), surpassing market expectations (operating profit of 39 billion won). DearU, which was consolidated for the first time, posted an operating profit of 7.4 billion won. Separate operating profit was 46 billion won (up 57%), driven by strong sales of albums and merchandise (MD).

Lee Kihun, a researcher at Hana Securities, explained, "Album sales reached approximately 5.9 million units thanks to comebacks from RIIZE, NCT Wish, and aespa. Despite a one-off digital music sales issue in China in the first quarter, digital music revenue was very positive at 26.7 billion won (up 21%). MD and licensing sales also hit a record high of 63.9 billion won (up 46%), boosted by tours attended by about 800,000 people, as well as NCT WISH exhibition pop-ups and RIIZE character pop-ups."

Among subsidiaries, SM C&C and KeyEast each posted a loss of 1.3 billion won due to sluggish advertising and a decrease in drama programming. However, the Japanese subsidiary achieved a sharp turnaround with a profit of 2.9 billion won, thanks to the expansion of concert scale and efficient content acquisition in the broadcasting sector.

Lee commented, "The most important investment points in K-pop currently are: large-scale world tours by major IPs such as Stray Kids, BLACKPINK, and BTS; and record-high performance driven by a sharp rise in MD sales following the stabilization of album sales. The fact that SM, which has been considered relatively weak in management in North America, has delivered surprise results for three consecutive quarters demonstrates not only the company's structural improvement but also that there is still significant upside potential in the monetization process of K-pop."

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