October 1, 2022

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SM Entertainment: No Bounds for Artist IP Expansion

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The writer is an analyst of KB Securities. She can be achieved at [email protected] — Ed.  

Retain Obtain and TP of KRW100,000       

We manage Buy and TP of KRW100,000 for SM Amusement (SM). We count on 2022E-2024E OP CAGR of 22.9% for SM. Our DCF-based TP assumes 9.81% WACC (9.82% COE 4.49% immediately after-tax COD 1.08 52w adj. beta), 2.1x EV/EBITDA exit several, and 2.30% implied terminal growth fee (from 2023E onwards). Our TP indicates 25.4x 12m fwd implied P/E and 2.86x P/B, and offers possible upside of 61.6% (vs. Jul 1 near). 

Faithful fandoms, prospective for artist exercise growth by using models, revenue diversification by means of platform businesses     

We forecast 2022E-2024E OP CAGR of 22.9% for SM, presented that: (1) the firm, synonymous with the record of idol groups in Korea, features very faithful fandoms that assist to make sure potent album income (2) growth of artist activity by using models, not only intra-group but also inter-team, should build synergies and (3) the organization has been diversifying its revenue foundation with the addition of its system businesses, operated by subsidiaries Beyond Live Corporation and DearU. 

Transparency secured pursuing shareholder activism       

Regardless of the boost to company value from the company’s artist management organization as effectively as its subsidiaries’ platform enterprises, shares in SM have traded at a price reduction because of to a governance concern relating to its largest shareholder. Namely, SM was deemed to be shelling out an abnormal volume of royalties to Like Setting up, a creation firm owned by SM’s largest shareholder and govt producer, Lee Soo-person. Having said that, in a move viewed to have improved management transparency, SM has just lately appointed an auditor advised by Align Partners Money Management. 

2Q22E OP of KRW20.1bn (-27.% YoY), in line with consensus 

We assume 2Q22E consolidated profits of KRW182.5bn (-2.1% YoY, +7.7% QoQ) and OP of KRW20.1bn (-27.% YoY, +4.4% QoQ 11.% OPM) our OP estimate is in line with the market place consensus of KRW20.8bn. Album gross sales ought to be bolstered by NCT DREAM’s 2nd repackaged album Beatbox, whilst advancement is probable to have been sustained by NCT 127’s world tour in Japan. There is hazard that there may well be a lag of one particular to 3 months until finally monetary settlements for the concert events in Japan are concluded, on the other hand.  

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