Shinhan Investment & Securities said on the 7th that although SM Entertainment has beaten market expectations for a year, this year's price-earnings ratio (PER) is at the floor at 15. It kept a Buy rating and a target price of 130,000 won.
SM Entertainment posted first-quarter revenue of 279.1 billion won, profit of 38.6 billion won, and an operating profit margin (OPM) of 13.8%. Revenue rose 20.6% year over year, and profit increased 18.5%. The company's results have topped market expectations for a year, it said.
Ji In-hae, an analyst at Shinhan Investment & Securities, said, "It was a quarter when legacy intellectual property (IP) EXO's comeback activities and concerts by Super Junior, NCT Dream, aespa, NCT Wish and Riize, and Hearts2Hearts coincided," adding it was "the impact of a perfect collaboration between legacy and early-year IP."
By segment performance, albums came to 26.8 billion won and digital music to 30.7 billion won.
Ji said, "Excluding the first quarter of last year, when one-off revenue was large due to the renewal of digital music contracts in China, it is the first time that high-margin digital music has surpassed albums," adding the company is "adding mainstream appeal to a solid fandom."
For concerts, per-show revenue is at a record as scale grows. It also noted that merchandise level-ups across concerts, planning, pop-ups, and new items are continuing, and steady profitability improvement is being confirmed thanks to management reforms and the effect of DearU consolidation.
From the second quarter, activities by affiliated artists are expected to ramp up. NCT Wish, aespa, and Riize plan to release new albums, EXO's Asia tour, aespa's global tour, and TVXQ!'s Japan stadium tour are expected to be reflected.
Ji said, "On the 29th, we opened 'SMTOWN Store Shanghai,' the first official K-pop merchandise (MD) offline store in China, reaffirming our presence in the country."
In particular, regarding SM Entertainment's PER of 15, Ji said, "Fifteen times is a multiple that held even during artists' incidents and accidents, the ban on the Korean wave, and the weak yen, so the downside is limited."