Meritz Securities on the 17th lowered its target price for SM Entertainment, saying earnings are expected to rise from the second quarter on the back of tours and comebacks by lower-tenure artists, but changes in artist contracts are likely to alter group contributions.
It maintained a "buy (BUY)" rating but cut the target price to 140,000 won from 180,000 won. The previous trading day's closing price was 97,000 won.
Meritz Securities estimated first-quarter consolidation revenue this year at 263 billion won and operating profit at 39 billion won. That is up 13.6% and 19.7%, respectively, from a year earlier and exceeds the market consensus (36.2 billion won).
Kim Min-young, an analyst at Meritz Securities, said, "In addition to strong album sales by EXO and the NCT JNJM unit, the incorporation of concert tours by Super Junior, RIIZE, and NCT DREAM helped defend profitability."
In the first quarter, one-off revenue from a music service renewal is included, creating a base burden, but even excluding this, a solid earnings trend (OPM 14.8%) is expected to continue.
From the second quarter, earnings growth is expected on the back of expanded tour and comeback schedules. In particular, among mid- and lower-tenure artists such as aespa, RIIZE, and NCT WISH, tour scale expansion and fandom growth are continuing.
Kim said, "Despite being a Japan-localized group, NCT WISH held a standalone Asia tour for 200,000 people, and RIIZE also entered the Tokyo Dome in the shortest time among boy bands in February, showing rapid growth in Japan."
However, changes in artist contracts were cited as a headwind. Recently, SM Entertainment said its exclusive contracts with BoA, and NCT members Mark and Ten, among others, have ended and that it decided not to renew.