The KOSPI index is hitting a record high again and extending its rally, but a cold wind is blowing through the domestic entertainment sector. Securities firms say first-quarter results for the entertainment sector will be weak and are lowering their target prices for related stocks one after another.
On the 22nd, according to the Korea Exchange (KRX), the KOSPI index has risen 52% since the start of the year, but the share prices of the four major entertainment companies have fallen more than 20%. Although the KOSPI, which plunged after the U.S.-Iran war, is again hitting a record high, entertainment stocks remain weak.
Since the start of the year, SM Entertainment has seen the largest share-price drop. SM Entertainment, which was about 130,000 won at the start of the year, closed at 92,700 won on the 22nd, down 31.33% over the past four months. Over the same period, HYBE (-24.24%), YG Entertainment (-21.47%), and JYP Entertainment (-12.67%) also fell, leaving them largely out of the broader market's rally.
It is not that there were no positives for the entertainment sector. On the 16th, shares broadly rebounded after news that the four entertainment companies would form a joint venture (JV). But the next day, the stocks turned lower again. The joint venture is pushing an event called "FANOMENON," a K-pop festival meant to surpass Coachella, the world's largest outdoor music festival.
In the securities industry, the view is that the issue's impact on earnings or share prices will be limited. Analysts say that in the entertainment sector, artists' performance has a greater impact on share prices than companies' business initiatives.
Park Jun-hyung, an analyst at SK Securities, said, "Even a joint venture ultimately represents an expense for the company, and since there have been no visible results yet, we have to see whether it will be a positive," adding, "In the entertainment sector, earnings visibility matters more than short-term, event-driven momentum."
On the 21st of last month, there was a BTS comeback concert at Gwanghwamun, but the audience fell short of expectations and the stock fell instead. On the 23rd, the next trading day, the stock plunged 53,500 won (15.55%), and from 344,000 won before the concert, it fell to 249,250 won at that day's close.
With positives failing to translate into share-price gains and the first quarter being a slow season with relatively fewer artist activities, the first-quarter outlook is bleak. Securities firms are also cutting target prices for entertainment stocks. So far this month, HYBE and SM Entertainment have seen 12 and 11 target price cuts, respectively, with securities firms lowering HYBE's target price to the 370,000–430,000 won range and SM Entertainment's to the 120,000–140,000 won range.
Lee Hyun-ji, an analyst at Eugene Investment & Securities, said of SM Entertainment, "Although the number of attendees per show is increasing, there is no major artist to open up scale," adding, "It needs to further prove performance in North America and its ability to draw crowds for concerts."
There is also an outlook that shares could rebound from the second quarter, when earnings are expected to improve. Still, given the entertainment sector's nature, uncertainty is high, and analysts say investors should exercise caution.
Analyst Park Jun-hyung said, "Given the disclosed schedules for artist comebacks and tours, second-quarter earnings should improve," but added, "Large expenses that could affect earnings may occur temporarily due to the debut of new artists, the establishment of overseas subsidiaries, or investments tied to business restructuring."