Kiwoom Securities on the 30th said that, excluding one-off accounting expense, HYBE delivered a substantive "earnings surprise" that beat market expectations. However, it said short-term profitability is likely to slow as artist royalty rates rose following BTS's contract renewal, and cut its target price to 370,000 won from 450,000 won. HYBE's previous session closing price was 245,500 won.
HYBE disclosed consolidated sales of 698.3 billion won and operating profit of 196.6 billion won for the first quarter of this year. Sales rose 39.5% from a year earlier, but operating profit swung to a loss.
Lim Su-jin, an analyst at Kiwoom Securities, said, "It reflects a one-off accounting expense of 255 billion won related to employee compensation stemming from a donation of equity by the largest shareholder," adding, "Given that it is an expense without actual net worth outflow, evaluating on the basis of adjusted operating profit of 58.5 billion won excluding this, both sales and operating profit beat market consensus."
Top-line growth was led by the albums and content institutional sectors. Lim said, "In the albums institutional sector, strong sales of BTS's premium LPs, which were not counted on the Circle Chart, contributed," and added, "The content institutional sector also drove results with live streaming of the Gwanghwamun concert, a Netflix documentary, and expanded sales of existing documentary DVDs."
However, there are burdens on the profitability side. Lim noted that short-term profitability declined as the higher artist royalty rate after BTS's contract renewal was fully reflected in cost of goods sold. Accordingly, despite a greater share of concert revenue in the second half, Lim conservatively reflected the profitability structure and cut the annual adjusted operating profit estimate to 463 billion won.
Lim maintained a positive view on mid- to long-term growth. Lim said, "From the second quarter, it will enter a full-fledged high-growth cycle," citing the contract renewals of BTS and SEVENTEEN and the steady performance of TOMORROW X TOGETHER as key drivers. Lim added that new IPs are also growing rapidly. Cortiz surpassed 2 million preorders, growing more than fourfold from the previous release, and TWS's metrics more than doubled.
Lim also said that the global localized group KATSEYE proved its potential as a mega IP in the North American market, taking the No. 1 spot in views of Coachella stage videos ahead of the headliners, and emphasized that "it is time to reappraise 'KATSEYE.'"