Shinhan Investment Corp. analyzed that the increasing weight of low-tier artists and high-margin intellectual property (IP) at SME is positive. It then raised its target price from 160,000 won to 180,000 won while maintaining an investment opinion of 'buy.' The closing price of SME on the previous trading day was 139,300 won.
In the second quarter of this year, SME's revenue increased by 19% year-over-year to 302.9 billion won, while operating profit recorded a 92% increase, reaching 47.6 billion won. The improvement in the mix of stable music source and merchandise business centered around low-tier artists such as aespa, RIIZE, and NCT WISH positively impacted the strong performance.
Ji In-hae, a researcher at Shinhan Investment Corp., said, "In the second quarter of this year, merchandise included tour MDs accompanying performances and other planned MDs, and while it may seem like a one-time event, the core aspect was establishing a 'perennial' sales structure through organized changes in line with industry growth trends."
The researcher also noted, "By concentrating on creator resources, we diversified the merchandise categories, and there was meticulous pre-planning of about a year's worth of domestic and international merchandise sales to match the artists' schedules, leading us to take the lead in brand collaborations."
The popular collaboration IP licensing of aespa x Battleground, Hearts2Hearts x SAMG Entertainment, and Mega Coffee is expected to start contributing to profits from the third quarter of this year.
The researcher said, "As low-tier IP grows alongside Dongbang's steady dome tours in Japan, the harmony of robust legacy IP, and under the management reform goal, cost control and subsidiary profit improvement are expected to continue throughout the year."
He added, "Considering that SME's revenue in the Greater China region has noticeably improved without performances in mainland China, there is no multiple burden, and it is necessary to respond by buying whenever there is a dip."