Korea Investment & Securities noted on the 27th that SME’s operating profit margin declined due to the decrease in sales of albums from last year’s existing high-year lineup and the expansion of losses in its subsidiary. However, it is expected that this year, separate profits will increase due to the expansion of fandom for the low-year lineup. Accordingly, the investment opinion has been adjusted to ‘buy,’ and the target stock price has been raised by 18% from 110,000 won to 130,000 won. The previous trading day’s closing price for SME was 105,000 won.
Research Institute member Ahn Do-young said, “SME is in the process of replacing its portfolio with a focus on the low-year debut lineup of 2020s from a portfolio centered on NCT that debuted in the late 2010s,” adding that “as Espa continues to perform well, the 2023 debut group Rise and the 2024 debut group NCT WISH are quickly forming fandom, contributing to an increase in the sales proportion of low-year groups.”
He continued, “Compared to the past, the schedules for album releases, performances, and merchandise launches have become very dense, and the intensity of monetization has also increased,” adding, “With Espa, Rise, NCT WISH, Hearts2Hearts, Mark, Do-young, and Kai expected to release albums this second quarter, an increase in album sales focused on the low-year lineup is anticipated.”
Ahn projected that “the results of streamlining the subsidiary will gradually become apparent this year,” suggesting that performance improvements are expected due to the expansion of synergies with performance and merchandise subsidiaries and the activation of activities for rookie groups from subsidiaries such as KMR and MIK.
He said, “Subsidiaries with small synergies with the entertainment business, such as KeyEast and SM C&C, are in the process of being sold,” adding, “As of the 24th, with the acquisition of equity in DearU, it will be reflected in the consolidated results from the second quarter, and DearU’s sales and operating profit last year were 74.9 billion won and 25.4 billion won, respectively.”