Heungkuk Securities said on the 10th that YG Entertainment(122870) posted an earnings surprise in the second quarter this year, beating market expectations on the back of strong sales of the girl group "BABYMONSTER" merchandise (MD). It kept its "buy (BUY)" rating and the target price of 58,000 won unchanged. The previous trading day's closing price of YG Entertainment was 41,550 won.
According to Heungkuk Securities, YG Entertainment's second-quarter consolidated revenue this year rose 27.2% on-year to 127.8 billion won, and operating profit increased 31.2% to 11 billion won (operating margin 8.6%). That topped the market consensus operating profit of 8.8 billion won by more than 25%.
Heungkuk Securities said BABYMONSTER led the earnings growth. In the second quarter this year, MD revenue jumped 46.9% on-year to 28.2 billion won, with about 80% coming from the BABYMONSTER fandom. Along with steady MD sales, strong sales of the popup store MD tied to the new release "CHOOM" drove the solid results.
Album revenue also surged to 19.3 billion won as combined sales of BABYMONSTER's third mini album and Treasure's fourth mini album reached about 1.83 million copies, up 873.7% on-year. Music streaming/download revenue came to 3.3 billion won, up 17.6% on-year, as back-catalog sales steadily expanded after the release of BABYMONSTER's new album in May. Performance revenue was 9.4 billion won as results from Treasure and BABYMONSTER world tours were reflected, despite a quarter-on-quarter decline due to a gap in Blackpink's touring schedule.
However, the high SG&A ratio (27.6%) and weak net profit attributable to controlling shareholders were seen as drawbacks. Increased advertising and promotion expenses related to BABYMONSTER and Treasure's new album promotions somewhat limited profit growth, and net profit attributable to controlling shareholders fell on-year to 5.4 billion won due to valuation losses related to TME, missing market expectations.
Heungkuk Securities noted that attention should be paid to the momentum from a rich artist lineup in the coming second half. In the third quarter, Big Bang's new album release and world tour are planned, along with BABYMONSTER's Japan world tour (11 shows), Treasure's fan-con tour (19 shows), and a new album release. In the fourth quarter, Big Bang's tour (20 shows), BABYMONSTER's tour (11 shows), new albums from Treasure and BABYMONSTER, and the debut of a new boy group will follow in sequence.
Song Ji-won, an analyst at Heungkuk Securities, said, "The second-quarter results confirmed the strong spending power of the BABYMONSTER fandom," and added, "We are raising our full-year estimates for MD and royalty revenue by about 15% from the previous level, centered on the third quarter when artist tour activities begin in earnest."