Entertainment A renewed look at entertainment stocks

Overweight (Maintain) Sector correction sparked by negative news is subsiding The combined market value of Korea’s three major entertainment firms – YG Industry Report Entertainment (122870 KQ/Buy/TP: W60,000/CP: W37,400); SM Entertainment ( 041510 April 24, 2019 KQ/Buy/TP: W59,000/CP: W41,300); and JYP Entertainment (035900 KQ /TP: W41,000/CP: W30,850) - hit a low of W2.5tr on March 15 th , which represented a roughly th 22% loss from the previous high of W3.2tr set on January 7 . This was primari ly due to several negative news events that took place all at once, including a series of celebrity Mirae Asset Daewoo Co., Ltd. scandals at YG Entertainment (February 26 th ) and SM Entertainment’s 4Q18 earnings shock (March 8 th ). [Media ] Since then, all three entertainment stocks have reboun ded. As of yesterday’s close, Jeong -yeob Park +822 -3774 -1652 their combined market value stood at W2.7tr, up 8% from the previous low. In the end, [email protected] the three stocks managed to defend their post-2011 valuation lows. Their most recent trough was similar to the lows recorded during previous negative events (P/B of

around 1.5x; EXO member departures in October 2014, YG Entertainment’s tax audit in

August 2016, THAAD backlash in March 2017, and Big Bang’s military enlistment in May 2018).

All three companies are heading into the 1Q19 earnin gs season (expected around May 14 th ) with their stocks in better places. Given artist schedules, we believe 1Q19 earnings variables were not noticeably strong for any of the three companies. Uncertainties also remain regarding YG Entertainment’s tax audit and SM Entertainment’s ability to sustain profits in 2019. Still, we believe it is important to take a closer look at key industry issues and potential income sources that paint a more positive picture for entertainment firms as we move into the 1Q19 earnings season.

Combined market cap of the three entertainment firms has risen 8% after falling 22% from the previous high

(Wtr) 2018 high (10/1) 2019 high (1/7) 4/23 closing price 3.6 combined market cap W3.4tr W3.2tr W2.7tr (+8.2% from low) 3.3

3.0

2.7

2.4

2.1 2019 low (3/15) W2.5tr 1.8 (-22% from previous high)

1.5 1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19

Source: Mirae Asset Daewoo Research

JYP’s market cap has remained solid, while those of SM and YG have fluctuated sharply

(Wtr) 1.4 SM JYP Ent. YG Ent. Low: -6.7% 1.2 JYP Ent. Rebound from low: +12.1%

1.0 SM Ent. Low: -22.8% rebound from previous low: +9.0% 0.8

0.6 Low: -23.5% Rebound from low: +6.4%

0.4 1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19

Source: Mirae Asset Daewoo Research

Entertainment April 24, 2019

Key points before and after 1Q19 earnings release: Growing profile of K- pop in the global market

Overall, the factors that drove the re-rating of the three major entertainment firms in 2018 remain intact or strengthening. Here is the reasoning behind our industry target P/E of 40x:

1) From a qualitative perspective, the profile of K-pop is growing in major markets. BLACKPINK and BTS, who made stellar comebacks in April, are expanding their fan base not only in Asia, but in the US and Europe, thus boosting investor sentiment. An upcoming major event is the Billboard Music Awards (BBMA) slated for May 1 st , with multiple K-Pop artists nominated for awards, including Top Social Artist (BTS, GOT7, and EXO) and Top Duo/Group (BTS).

In line with their increased profile, K-pop artists are engaging in global concerts and marketing activities (TV and festival appearances) in collaboration with local partners. BLACKPINK, NCT, and BTS made appearances in major ABC news shows. In addition, BLACKPINK (12 shows in the North America and Europe starting on April 17 th ) and BTS (US, Europe, and Japan starting on May 4 th ) are set to kick off global tour concerts. Of note, BLACKPINK (set to hold their first tour concert) is expected to attract strong concert attendance (versus BTS: four shows in 2015 ‰ five shows in 2017 ‰ 22 shows in 2018). Given steadily rising minimum guarantee for artists, we see a positive outlook for performance revenue in new markets.

Figure 1. 2019 Billboard Music Awards: BTS and Halsey to perform together; GOT7 and EXO nominated for the first time

Source: Billboard, Mirae Asset Daewoo Research

Figure 2. NCT and BLACKPINK are currently on US tours

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2 Entertainment April 24, 2019

2) From a quantitative perspective, global digital music revenue is steadily expanding. For 2019, we expect the combined YouTube revenue of Korea’s three major entertainment firms to increase 56% YoY to W27.1bn (W8.5bn for SM; W14bn for YG; 46 for JYP). In 1Q19, major K-Pop channels’ YouTube views increased 35% YoY, with YG Entertainment showing the strongest growth (+122% YoY). Both BLACKPINK (57mn views) and BTS (78mn views) have smashed YouTube’s record for the most views accrued in the first 24 hours of release with the singles they released in April. We believe that YouTube views are worth noting, as they are directly linked to ad revenue sharing for artists.

One of the key points to watch from 1Q19 earnings is whether the recent switch in SM Entertainment’s Chinese distributor has led to revenue growth. In February 2019, SM Entertainment signed an exclusive deal with Tencent Music Entertainment (its previous partner was Alibaba) for the distribution of its music in China (likely based on a minimum guarantee plus revenue sharing model, similar to YG Entertainment’s contract). In addition, the growth of JYP Entertainment’s digital music distribution arising from its global distribution partnership with The Orchard (entered on March 1st) is also worth noting. We forecast JYP Entertainment to increase its exposure to the global music service market, aided by its partnership with The Orchard with global networks.

Figure 3. Major K-Pop channels’ YouTube views are on the increase

(mn views) 600 SM (SMTOWN) JYP (JYP Entertainment + TWICE) YG (YG Entertainment + BLACKPINK + iKON + WINNER) Big Hit (ibighit + BangtanTV) 400

200

0 15.9 16.1 16.5 16.9 17.1 17.5 17.9 18.1 18.5 18.9 19.1

Source: YouTube, Mirae Asset Daewoo Research

Figure 4. Combined YouTube revenue of Korea’s three major entertainment firms to continue to grow

(Wbn) 40 YouTube (Google) net revenue 35

30 27

20 17

12 10

0 2017 2018F 2019F 2020F

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 3 Entertainment April 24, 2019

Shares of YG and SM to recover ahead of earnings announcements

Since February, the three major entertainment firms have displayed differenced valuations, as stability has come into greater focus amid rising uncertainties. JYP Entertainment with multiple positive events has outperformed the sector. The different valuations of the three major entertainment firms will likely be synchronized before and after the 1Q19 earnings announcements. We believe that valuation multiple synchronization will be driven by the growing profile of K-pop, which should be confirmed with related 1Q19 data, including: 1) unrivalled growth in YouTube views (YG); 2) the effects of partnerships with new digital music distributors (SM and JYP); and 3) North American tour concert attendances (YG, SM). Of note, 2019 Billboard Music Awards will likely be a symbolic event that points to the growing profile of K-Pop

Table 1.Market cap changes and valuations of the three major entertainment firms Market cap % from annual % from annual 19F P/E 20F P/E TT\P 1Q19 key points (Wbn ) low high W60,000 YouTube revenue, BLACKPINK YG 680 +6.4 -23.5 34.8 17.1 (Maintain) performances W59,000 Effects of the switch in the Chinese SM 953 +9 -22.8 29.8 20.7 (Maintain) distributor (Tencent) W41,000 (Lower Effects of the partnership with a new digital JYP 1093 +12.1 -6.7 31.8 24.3 TP) music distributor (Orchard) Global K -Pop fan base expansion, and 2019 Combined 2726 +8.2 -15.4 31.7 20.8 Billboard Music Awards Source : Mirae Asset Daewoo Research Figure 5. Combined OP and market cap of the three major entertainment firms

(Wbn) (Wbn) 200 5 Domestic/Japan earnings (▲▲ ) Domestic/Japan earnings (-) Domestic/Japan earnings (▲) Japan expectations ( ▲▲) Japan expectations (-) Global expectation (▲▲ ) 160 4 China expectations ( → ?) Domestic/Japan earnings (-) ▼ China expectations ( → ) 120 Combined OP ▲ ▼ 3 Combined market cap 80 2

40 1

0 0

-40 -1 08 09 10 11 12 13 14 15 16 17 18 19 20

Note: Based on FY1 / Source: Mirae Asset Daewoo Research Figure 6. Despite negative issues, the overall industry trend supports valuation increase

(x)

Domestic/Japan earnings (-) 90 3 co's combined P/E China expectations (▲ → ▼)

Domestic/Japan earnings (▲▲) Domestic/Japan earnings (-) Domestic/Japan earnings (▲) Japan expectations (▲▲) Japan expectations (-) Global expectations (▲▲) China expectations ( ▼ → ?) 60

Earnings growth + expectations Industry target P/E 40x

30

0 09 10 11 12 13 14 15 16 17 18 19 20

Note: Based on FY2; 2019-20 earnings are based on our estimates Source : Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 April 24, 2019 Entertainment

YG Entertainment (122870 KQ) Undervalued even after factoring out half of Big Bang

Entertainment 1Q19 preview: OP of W2.8bn For 1Q19, we expect YG Entertainment to post consolidated revenue of W70.4bn and operating profit of W2.8bn, which is below the consensus of W3.6bn. We believe 1Q19 (Maintain) Buy earnings will reflect: 1) digital music sales of the hit songs “Solo” and “Fiance” (released late last year); 2) a continued increase in YouTube traffic; and 3) concerts in Southeast Asia, Japan, and Korea by the company’s three next-generation groups (BLACKPINK, Target Price (12M, W) 60,000 iKON, and WINNER). We also estimate around 110,000 albums were sold in 1Q19 (including 70,000 for iKON and 20,000 for BLACKPINK). Share Price (04/23/19, W) 37,400 Global fan base will matter more than traditional earnings variables

Expected Return For 2019 as a whole, we expect operating profit of W21.4bn, assuming 720,000 album 60% sales and 870,000 Japanese concert attendees (including 300,000 for BLACKPINK, 240,000 for iKON, and 140,000 for WINNER; vs. 450,000 in 2018). OP (19F, Wbn) 21 Consensus OP (19F, Wbn) 23 Compared to rivals, we believe revenue from new platforms is more important to YG Entertainment’s overall earnings, as the company is seeing the fastest growth in new EPS Growth (19F, %) 9.7 platforms (most notably YouTube) among the three major entertainment firms, while its existing Korea/Japan-focused artist lineup is weakening. As such, we think global fan Market EPS Growth (19F, %) -16.2 base indicators (Southeast Asia, North America, and Europe) will matter more to the P/E (19F, x) 37.4 company’s outlook than traditional quantitative indicators like domestic album sales and Market P/E (19F, x) 12.0 Japanese concert attendees. KOSDAQ 761.42 Key points to watch: Global fan base and new boy group debut Market Cap (Wbn) 680 Entertainment stock prices are largely determined by the level of growth of overseas Shares Outstanding (mn) 20 digital music sales, new artist lineups, and existing artist lineups. YG Entertainment is enjoying strong growth in its overseas digital music sales and BLACKPINK fan base, and Free Float (%) 62.8 also has a new group, called Treasure 13, debuting in 3Q19. Foreign Ownership (%) 17.3 Beta (12M) 0.62 Given its perceived artist risks, we believe YG Entertainment needs to demonstrate its fundamental growth potential more visibly than others. In this sense, the large number 52-Week Low 27,050 of concerts (tours and Coachella) and promotions in the US being held in 1H19 through 52-Week High 48,950 the company’s partnership with Interscope look well-timed. We forecast YouTube revenue to grow 122% in 1H19 and digital/album sales to grow 27% in 2019. (%) 1M 6M 12M Absolute 6.4 -12.4 22.8 Maintain Buy and TP of W60,000 Relative 4.0 -17.3 41.8 We maintain our Buy call and target price of W60,000 on YG Entertainment. Visibility on Big Bang’s 2020 profit contribution is somewhat limited in the wake of the recent 180 YG Entertainment KOSDAQ scandals, and the tax audit on the company also remains a concern. However, we see 160 several tailwinds occurring at the same time, including the growing relevance of 140 BLACKPINK in the US market and potential valuation gains (around W10bn) from 120 Tencent Music Entertainment’s rally. 100 The recent scandals have pushed YG Entertainment’s market value down 24% from its 80 previous high. Even after assuming Big Bang’s profit contribution drops by half, the 60 stock is trading at a 2020F P/E of just 22x. In our view, the stock is undervalued, 4.18 8.18 12.18 4.19 considering the growing profile of K-pop and the robust potential of digital music sales. Once the tax audit is concluded, we expect the stock’s attractive valuation to come into focus. We view current share prices as a good entry point.

[Media ] FY (12) 12/15 12/16 12/17 12/18 12/19F 12/20F Revenue (Wbn) 193 322 350 286 302 433 Jeong -yeob Park OP (Wbn) 22 32 24 10 21 50 +822 -3774 -1652 OP margin (%) 11.4 9.9 6.9 3.5 7.0 11.5 [email protected] NP (Wbn) 28 19 18 18 20 40 EPS (W) 1,700 1,094 931 911 999 2,037 ROE (%) 14.7 7.7 5.7 5.1 5.3 10.1 P/E (x) 26.2 25.9 31.0 52.2 37.4 18.4 P/B (x) 3.6 1.8 1.6 2.6 1.9 1.8 Dividend yield (%) 0.8 0.7 0.5 0.3 0.4 0.4 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 5 April 24, 2019 Entertainment

Table 2. Quarterly and annual earnings forecasts (Wbn, %, mn copies, %p)

1Q18 2Q18 3Q18 4Q18 1Q19F 2Q19F 3Q19F 4Q19F 2018 2019F 2020F Revenue 77 63 65 81 70 72 78 82 286 302 433 Products 19 26 30 26 29 34 35 37 101 136 189 Albums/digital music 13 16 17 14 16 19 20 22 11 15 21 Goods 6 9 13 12 14 15 16 15 40 59 87 Management 58 37 35 55 41 37 43 45 185 166 243 Concerts 2 1 5 6 8 8 8 12 13 36 64 Advertising 7 8 7 8 7 8 7 8 30 30 30 Royalties 35 5 4 6 12 4 13 9 49 39 82 Appearance fees 3 5 4 5 3 4 3 4 16 15 18 Commissions 8 14 9 9 8 11 9 10 40 38 39 Production 3 0 1 12 2 2 2 2 17 8 10 Gross profit 20.5 21.7 21.5 21.3 20.4 23.6 26.3 27.2 85 97 142 OP 2.3 1.4 2.6 3.1 2.8 3.0 6.5 9.1 10 21 50 OP Margin (%) 3.0 2.3 4.0 3.9 4.0 4.2 8.3 11.1 3.3 7.1 11.5 Pretax profit 2.9 1.7 3.2 18.6 2.9 3.0 8.2 10.6 26 25 53 Net profit 0.8 -0.4 1.1 14.4 2.1 2.2 5.9 7.6 16 18 38 Net margin 1.0 -0.6 1.7 17.9 2.9 3.0 7.6 9.3 5.6 5.9 8.8 Net profit attributable to 2.3 -0.1 2.0 14.5 2.3 2.4 6.5 8.4 18.7 19.5 39.8 controlling interest YoY Revenue -27.7 -13.2 -13.3 -15.5 -8.9 14.1 19.9 1.7 -18.3 5.7 43.2 Products -26.9 -18.6 24.5 -48.8 51.4 32.9 18.1 44.8 -23.9 35.1 38.9 Management -28.0 -9.0 -31.1 21.3 -29.2 1.0 21.3 -18.4 -14.9 -10.3 46.7 Gross profit -37.8 -11.8 3.4 -4.3 -0.7 8.8 22.1 27.5 -15.5 14.6 46.1 OP -84.4 -67.2 77.8 -31.6 22.3 109.8 146.7 190.6 -62.3 125.3 131.9 Net profit -87.0 TTR -78.8 TTB 163.4 TTB 422.1 -47.2 33.9 11.4 113.5 Key assumption Concert ticket sales in Japan 0.1 0.0 0.2 0.2 0.1 0.3 0.2 0.3 0.4 0.9 2.2 Source : Company data ., Mirae Asset Daewoo Researc h

Figure 7. YG Entertainment’s YouTube revenue to grow rapidly

(Wbn) 40 YouTube (Google) net revenue 35

30 27

20 17

12 10

0 2017 2018F 2019F 2020F

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 April 24, 2019 Entertainment

Figure 8. YG Entertainment and Big Hit Entertainment show higher YouTube views than other firms

(mm views) 500 YG (YG Entertainment + BLACKPINK + iKON + WINNER) Big Hit (ibighit + BangtanTV) 400

300

200

100

0 15.9 16.1 16.5 16.9 17.1 17.5 17.9 18.1 18.5 18.9 19.1

Source: Mirae Asset Daewoo Research

Figure 9. Shares of Tencent Music have advanced 40% since end-2018

(US$) 20 Tencent Music's share price

18 Year-end closing price: US$13.20 16 Closing price on previous day: US$18.20 (+37.9%) 14

12

10 18.12 19.1 19.2 19.3 19.4

Source: Mirae Asset Daewoo Research

Figure 10. BLACKPINK performed at 2019 Coachella

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 7 April 24, 2019 Entertainment

YG Entertainment (122870 KQ/Buy/TP: W60,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/17 12/18 12/19F 12/20F (Wbn) 12/17 12/18 12/19F 12/20F Revenue 350 286 302 433 Current Assets 307 233 398 448 Cost of Sales 249 201 205 290 Cash and Cash Equivalents 99 59 222 203 Gross Profit 101 85 97 143 AR & Other Receivables 40 30 31 36 SG&A Expenses 77 75 76 93 Inventories 18 23 24 35 Operating Profit (Adj) 24 10 21 50 Other Current Assets 150 121 121 174 Operating Profit 24 10 21 50 Non-Current Assets 276 362 212 227 Non-Operating Profit 6 16 4 3 Investments in Associates 14 24 25 36 Net Financial Income 7 4 5 6 Property, Plant and Equipment 87 105 101 97 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 63 61 57 53 Pretax Profit 30 26 25 53 Total Assets 584 594 610 674 Income Tax 18 9 7 15 Current Liabilities 73 63 64 92 Profit from Continuing Operations 12 17 18 38 AP & Other Payables 47 32 32 47 Profit from Discontinued Operations 0 -2 0 0 Short-Term Financial Liabilities 2 3 3 3 Net Profit 12 16 18 38 Other Current Liabilities 24 28 29 42 Controlling Interests 18 18 20 40 Non-Current Liabilities 78 82 82 83 Non-Controlling Interests -6 -2 -2 -2 Long-Term Financial Liabilities 75 81 81 81 Total Comprehensive Profit 6 17 18 38 Other Non-Current Liabilities 3 1 1 2 Controlling Interests 13 19 16 35 Total Liabilities 151 145 146 175 Non-Controlling Interests -7 -2 1 3 Controlling Interests 343 359 376 414 EBITDA 34 19 30 57 Capital Stock 9 9 9 9 FCF (Free Cash Flow) -8 -3 25 4 Capital Surplus 209 209 209 209 EBITDA Margin (%) 9.7 6.6 9.9 13.2 Retained Earnings 124 140 156 193 Operating Profit Margin (%) 6.9 3.5 7.0 11.5 Non-Controlling Interests 89 90 88 86 Net Profit Margin (%) 5.1 6.3 6.6 9.2 Stockholders' Equity 432 449 464 500

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/17 12/18 12/19F 12/20F 12/17 12/18 12/19F 12/20F Cash Flows from Op Activities 22 22 25 4 P/E (x) 31.0 52.2 37.4 18.4 Net Profit 12 16 18 38 P/CF (x) 12.9 37.2 25.8 13.6 Non-Cash Income and Expense 31 9 11 16 P/B (x) 1.6 2.6 1.9 1.8 Depreciation 4 5 5 4 EV/EBITDA (x) 13.8 50.8 20.5 11.3 Amortization 6 4 4 3 EPS (W) 931 911 999 2,037 Others 21 0 2 9 CFPS (W) 2,245 1,277 1,448 2,752 Chg in Working Capital -7 3 -2 -41 BPS (W) 17,539 18,407 19,252 21,151 Chg in AR & Other Receivables -13 7 0 -2 DPS (W) 150 150 150 150 Chg in Inventories -4 -7 0 -11 Payout ratio (%) 22.7 17.0 15.2 7.1 Chg in AP & Other Payables 15 -16 0 5 Dividend Yield (%) 0.5 0.3 0.4 0.4 Income Tax Paid -22 -13 -7 -15 Revenue Growth (%) 8.7 -18.3 5.6 43.4 Cash Flows from Inv Activities -54 -66 1 -10 EBITDA Growth (%) -12.8 -44.1 57.9 90.0 Chg in PP&E -30 -26 0 0 Operating Profit Growth (%) -25.0 -58.3 110.0 138.1 Chg in Intangible Assets -5 -2 0 0 EPS Growth (%) -14.9 -2.1 9.7 103.9 Chg in Financial Assets 11 193 1 -10 Accounts Receivable Turnover (x) 10.7 9.5 13.2 17.8 Others -30 -231 0 0 Inventory Turnover (x) 20.1 13.7 12.9 14.9 Cash Flows from Fin Activities 71 1 -3 -3 Accounts Payable Turnover (x) 22.7 18.3 19.8 22.6 Chg in Financial Liabilities 10 7 0 0 ROA (%) 2.2 2.7 2.9 5.9 Chg in Equity 50 0 0 0 ROE (%) 5.7 5.1 5.3 10.1 Dividends Paid -4 -3 -3 -3 ROIC (%) 7.1 2.9 5.8 12.8 Others 15 -3 0 0 Liability to Equity Ratio (%) 35.1 32.2 31.4 35.0 Increase (Decrease) in Cash 37 -40 164 -20 Current Ratio (%) 419.4 371.2 625.1 486.7 Beginning Balance 62 99 59 222 Net Debt to Equity Ratio (%) -32.8 3.5 -31.7 -25.3 Ending Balance 99 59 222 203 Interest Coverage Ratio (x) 14.0 4.6 9.9 23.0 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 8 April 24, 2019 Entertainment

SM Entertainment (041510 KQ) Cheap valuation and hidden chance in China

Entertainment 1Q19 preview: OP of W7.9bn For 1Q19, we anticipate SM Entertainment to deliver consolidated revenue of W132.3bn (+19.6% YoY) and operating profit of W7.9bn (-23.7% YoY), which is below the consensus (Maintain) Buy of W9.2bn. We believe key earnings variables, including artist activities and album sales, were weak overall compared with 1Q18. Aside from a structural increase in overseas Target Price (12M, W) 59,000 digital music sales, we expect negative growth across all segments. We estimate the company recognized 80,000 album sales and 300,000 Japanese concert attendees in Share Price (04/23/19, W) 41,300 1Q19, the lowest levels in two years. Overseas digital music sales, NCT, and advertising to pick up the slack Expected Return 43% For 2019 as a whole, we expect operating profit of W52.7bn, assuming Japanese concert attendees of 1.75mn (including 610,000 for TVXQ!, 320,000 for EXO, and 220,000 for NCT; OP (19F, Wbn) 53 vs. 2.1mn in 2018). Artist activities, which reached record levels in 2018, will inevitably Consensus OP (19F, Wbn) 57 slow in 2019, given military enlistments (SHINee and EXO) and concert tour cycles (TVXQ!). The void left by the company’s existing artist lineup will likely be filled by NCT EPS Growth (19F, %) 1.1 (US promotions and beginning of monetization in Korea/Japan), overseas digital music Market EPS Growth (19F, %) -16.2 sales (structural growth), and the normalization of SM C&C’s advertising business. P/E (19F, x) 30.0 Market P/E (19F, x) 12.0 Key points to watch: Switch in Chinese distributor KOSDAQ 761.42 Entertainment stock prices are largely determined by the level of growth of overseas digital music sales, new artist lineups, and existing artist lineups. With its existing lineup Market Cap (Wbn) 953 set to slow in 2019, overseas digital music sales and new artists will become even more Shares Outstanding (mn) 23 important for SM Entertainment. Free Float (%) 76.3 Foreign Ownership (%) 17.7 1) Expectations on overseas digital music sales look well-supported, not only by the three Beta (12M) 0.94 major platforms (YouTube, Apple, and Spotify), but also by the recent switch in the company’s Chinese distributor. In February 2019, SM Entertainment signed an exclusive 52-Week Low 34,300 deal with Tencent Music Entertainment (its previous partner was Alibaba) for the 52-Week High 56,100 distribution of its music in China (likely based on a minimum guarantee plus revenue sharing model, similar to YG Entertainment’s contract). 2) Contrary to market concerns, (%) 1M 6M 12M we see ample potential for new artist debuts and “unit” acts formed by existing group Absolute 6.6 -20.1 11.9 members. While new artist momentum is often considered one of SM Entertainment’s Relative 4.1 -24.6 29.2 biggest weaknesses, we note that the company still has the largest pool of signed artists and trainees in the industry. 160 SM Entertainment KOSDAQ 140 Maintain Buy and TP of W59,000 120 We reiterate our Buy call and target price of W59,000 on SM Entertainment. The stock 100 has retreated 23% from its previous high, hurt by disappointing 4Q18 earnings and

80 celebrity scandals. We do think the company warrants a discount to its peers, given its limited visibility on 2019 profit growth. However, we also believe the stock is 60 4.18 8.18 12.18 4.19 approaching undervalued territory, as the growing profile of K-pop benefits the entire sector. With market expectations lowered on 1Q19 and 2019, we believe any signs of strength in overseas digital music sales could trigger upside to shares prices. We recommend taking advantage of share price weakness as a buying opportunity.

[Media ] FY (12) 12/15 12/16 12/17 12/18 12/19F 12/20F

Jeong -yeob Park Revenue (Wbn) 322 350 365 612 663 754 +822 -3774 -1652 OP (Wbn) 38 21 11 48 53 73 [email protected] OP margin (%) 11.8 6.0 3.0 7.8 8.0 9.7 NP (Wbn) 22 4 4 31 32 46 메일 @ miraeasset.com EPS (W) 1,048 169 199 1,361 1,376 1,973 ROE (%) 8.3 1.2 1.3 8.0 7.3 9.6 P/E (x) 41.0 153.0 174.4 38.4 30.0 20.9 P/B (x) 3.1 1.7 2.2 2.8 2.1 1.9 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 9 April 24, 2019 Entertainment

Table 3. Quarterly and annual earnings forecasts (Wbn, %, mn copies, %p) 1Q18 2Q18 3Q18 4Q18 1Q19F 2Q19F 3Q19F 4Q19F 2018 2019F 2020F Revenue 111 124 169 209 132 154 189 188 612 663 754 SM Ent. 59 61 66 96 68 63 80 80 282 292 340 SM Japan 26 16 20 32 14 19 20 25 95 78 95 Dream maker 7 12 18 21 9 16 16 15 58 56 70 SM C&C 38 52 44 63 36 43 50 68 197 197 211 KeyEast 38 21 19 29 41 22 59 110 117 OP 10.4 10.0 12.1 15.6 7.9 10.7 19.7 14.3 48 53 73 OP margin (%) 9.4 8.0 7.2 7.5 6.0 6.9 10.4 7.6 7.9 7.9 9.6 Pretax profit 15.1 11.1 10.9 8.8 8.1 12.7 18.7 10.0 46 49 71 Net profit 11.4 4.0 7.3 0.7 5.9 9.3 13.7 7.3 23 36 52 Net margin (%) 10.3 3.2 4.3 0.3 4.5 6.0 7.2 3.9 3.8 5.4 6.9 Net profit attributable to 11.2 5.1 6.4 0.8 5.6 8.3 11.3 6.7 23.4 32.0 46.0 controlling interests YoY Revenue 62.5 83.8 94.6 45.9 19.6 23.8 12.2 -10.0 67.6 8.3 13.7 SM Ent. 46.7 49.6 8.3 28.8 14.0 4.7 22.5 -16.7 30.3 3.5 16.5 SM Japan 102.3 33.6 74.4 45.7 -47.3 16.4 -1.7 -22.5 61.4 -18.2 22.0 Dream maker 19.6 -22.0 116.2 67.5 27.9 29.2 -10.9 -27.5 37.2 -4.0 25.3 SM C&C 151.4 361.7 338.0 20.0 -5.2 -17.5 12.2 8.6 122.5 -0.2 7.5 KeyEast ------6.0 6.0 - 85.5 6.0 OP 765.8 626.2 162.8 316.9 -23.7 6.7 62.4 -8.2 340.0 9.4 37.8 Net income TTB 6.3 -43.2 TTB -48.4 129.5 87.9 968.6 TTB 54.3 44.2 Key assumption Concert ticket sales in Japan 0.6 0.4 0.4 0.7 0.3 0.5 0.4 0.6 2.1 1.7 2.2 Notes: All figures are based on consolidated K-IFRS; concert ticket sales volume is based on actual timing of concert and includes our estimates Source: Company data., Mirae Asset Daewoo Research

Figure 11. SM Entertainment’s YouTube revenue to grow rapidly

(Wbn) 40 YouTube (Google) net revenue 35

30 27

20 17

12 10

0 2017 2018F 2019F 2020F

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 10 April 24, 2019 Entertainment

SM Entertainment (041510 KQ/Buy/TP: W59,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/17 12/18 12/19F 12/20F (Wbn) 12/17 12/18 12/19F 12/20F Revenue 365 612 663 754 Current Assets 441 537 613 725 Cost of Sales 249 410 444 496 Cash and Cash Equivalents 195 237 343 415 Gross Profit 116 202 219 258 AR & Other Receivables 121 124 112 129 SG&A Expenses 105 155 167 186 Inventories 9 12 10 12 Operating Profit (Adj) 11 48 53 73 Other Current Assets 116 164 148 169 Operating Profit 11 48 53 73 Non-Current Assets 357 465 388 378 Non-Operating Profit 13 -2 -4 -2 Investments in Associates 81 101 91 105 Net Financial Income 0 0 1 2 Property, Plant and Equipment 93 93 83 75 Net Gain from Inv in Associates 21 -6 0 0 Intangible Assets 113 186 151 130 Pretax Profit 24 46 49 71 Total Assets 798 1,002 1,001 1,104 Income Tax 29 23 13 19 Current Liabilities 330 394 359 406 Profit from Continuing Operations -5 23 36 52 AP & Other Payables 209 266 239 275 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 49 44 44 44 Net Profit -5 23 36 52 Other Current Liabilities 72 84 76 87 Controlling Interests 4 31 32 46 Non-Current Liabilities 31 32 30 33 Non-Controlling Interests -9 -7 4 6 Long-Term Financial Liabilities 11 10 10 10 Total Comprehensive Profit -12 27 36 52 Other Non-Current Liabilities 20 22 20 23 Controlling Interests -1 35 148 213 Total Liabilities 362 426 389 439 Non-Controlling Interests -10 -8 -112 -161 Controlling Interests 345 424 456 502 EBITDA 33 88 99 101 Capital Stock 11 12 12 12 FCF (Free Cash Flow) 67 110 71 96 Capital Surplus 170 219 219 219 EBITDA Margin (%) 9.0 14.4 14.9 13.4 Retained Earnings 134 174 206 252 Operating Profit Margin (%) 3.0 7.8 8.0 9.7 Non-Controlling Interests 91 152 156 162 Net Profit Margin (%) 1.1 5.1 4.8 6.1 Stockholders' Equity 436 576 612 664

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/17 12/18 12/19F 12/20F 12/17 12/18 12/19F 12/20F Cash Flows from Op Activities 77 120 71 96 P/E (x) 174.4 38.4 30.0 20.9 Net Profit -5 23 36 52 P/CF (x) 15.6 11.1 10.1 9.8 Non-Cash Income and Expense 53 83 59 46 P/B (x) 2.2 2.8 2.1 1.9 Depreciation 11 13 11 8 EV/EBITDA (x) 21.5 12.9 7.9 7.0 Amortization 11 27 35 21 EPS (W) 199 1,361 1,376 1,973 Others 31 43 13 17 CFPS (W) 2,218 4,725 4,078 4,198 Chg in Working Capital 46 52 -12 16 BPS (W) 16,077 18,465 19,601 21,574 Chg in AR & Other Receivables -83 2 12 -17 DPS (W) 0 0 0 0 Chg in Inventories -1 -1 1 -2 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables 97 46 -18 24 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid -17 -39 -13 -19 Revenue Growth (%) 4.3 67.7 8.3 13.7 Cash Flows from Inv Activities -111 -127 8 -11 EBITDA Growth (%) -25.0 166.7 12.5 2.0 Chg in PP&E -4 -10 0 0 Operating Profit Growth (%) -47.6 336.4 10.4 37.7 Chg in Intangible Assets -25 -26 0 0 EPS Growth (%) 17.8 583.9 1.1 43.4 Chg in Financial Assets 4 -33 8 -11 Accounts Receivable Turnover (x) 4.4 5.0 5.6 6.3 Others -86 -58 0 0 Inventory Turnover (x) 36.8 60.8 60.6 67.6 Cash Flows from Fin Activities 64 46 0 0 Accounts Payable Turnover (x) 3.3 2.7 2.6 2.9 Chg in Financial Liabilities 3 -5 0 0 ROA (%) -0.7 2.6 3.6 5.0 Chg in Equity 6 49 0 0 ROE (%) 1.3 8.0 7.3 9.6 Dividends Paid 0 0 0 0 ROIC (%) -1.2 13.0 21.1 37.7 Others 55 2 0 0 Liability to Equity Ratio (%) 83.1 74.0 63.6 66.1 Increase (Decrease) in Cash 26 42 106 72 Current Ratio (%) 133.4 136.3 170.6 178.4 Beginning Balance 170 195 237 343 Net Debt to Equity Ratio (%) -31.9 -39.5 -53.7 -61.2 Ending Balance 195 237 343 415 Interest Coverage Ratio (x) 9.1 18.7 21.1 28.9 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 11 April 24, 2019 Entertainment

JYP Entertainment (035900 KQ) A safe bet

Entertainment 1Q19 preview: OP of W6.4bn For 1Q19, we forecast JYP Entertainment to post revenue of W29bn (+25.8% YoY) and operating profit of W6.4bn (+366.1% YoY), in line with the market consensus. We believe (Maintain) Buy the global business (ex-Japan) included activities of GOT7, DAY6, Stray Kids, and ITZY, while the Japan business reflected 2PM and TWICE (dome tour tickets and merchandise Target Price (12M, W) ▼ 41,000 sales). For album revenue, the company recognized domestic sales of 130,000 copies (versus 450,000 copies in 1Q18). We estimate revenue from overseas digital music Share Price (04/23/19, W) 30,850 services at W2.9bn (+30% YoY), and revenue from YouTube at W1bn.

Expected Return 33% Upping concert estimate, reflecting success of TWICE’s Japanese dome tour For the full year, we expect JYP Entertainment to report operating profit of W45.4bn. OP (19F, Wbn) 45 TWICE’s Japan dome tour, which kicked off in early April, received an explosive response. Consensus OP (19F, Wbn) 43 We raised our full-year estimate for concert attendees, as additional concerts are likely in 2H19. We now estimate domestic album sales volume at 2.38mn copies and Japanese EPS Growth (19F, %) 41.6 concert attendees at 520,000 (versus 350,000 in 2018; TWICE’s concert attendance is Market EPS Growth (19F, %) -16.2 likely to increase from 180,000 in 2018 to 400,000 in 2019). P/E (19F, x) 31.8 Market P/E (19F, x) 12.0 Growth drivers: Overseas digital music sales, existing lineup, and new lineup KOSDAQ 761.42 Entertainment stock prices are largely determined by the level of growth of overseas digital music sales, new artist lineups, and existing artist lineups. We believe JYP Market Cap (Wbn) 1,093 Entertainment has all three drivers. In particular, overseas music sales are a key variable Shares Outstanding (mn) 35 to watch in 1Q19 earnings. The global distribution partnership with The Orchard Free Float (%) 74.7 (entered on March 1 st ) will likely help JYP Entertainment expand digital music revenue Foreign Ownership (%) 12.6 beyond the three major platforms (YouTube, Apple, and Spotify), which are structurally Beta (12M) 1.44 growing. We forecast JYP Entertainment to increase its exposure to the global music 52-Week Low 19,400 service market, aided by its partnerships with global service providers. 52-Week High 39,150 Regarding new artists, we highlight ITZY, a group that has performed impressively in the (%) 1M 6M 12M domestic and global digital music service markets since its debut. We expect ITZY to Absolute 4.8 -20.7 40.2 release its first regular album this year, supported by a strong YouTube following. Relative 2.4 -25.1 61.9 Meanwhile, we recommend monitoring the progress of a new boy group (China) and girl group (Japan) scheduled to debut in 2019 and 2020, respectively. 210 JYP Entertainment KOSDAQ Maintain Buy, but lower TP to W41,000 160 We lower our target price to W41,000 (from W46,500), applying a P/E of 36x to our 2019- 20F average net profit. Although the combined market value of the three major 110 entertainment companies has fallen 22% from its previous high in the wake of a scandal involving K-pop stars, JYP Entertainment remains fairly unscathed. The firm is gaining 60 4.18 8.18 12.18 4.19 attention as a safe bet, supported by healthy digital music revenue from overseas markets, a profitable lineup of existing artists, and promising new artists. Once the scandal peters out, we believe the stock will have less upside than its peers, but its stability will stand out whenever the entertainment sector is hit by negative issues. We expect the firm to maintain a valuation premium within the entertainment sector.

[Media ] FY (12) 12/15 12/16 12/17 12/18 12/19F 12/20F

Jeong -yeob Park Revenue (Wbn) 51 74 102 125 154 192 +822 -3774 -1652 OP (Wbn) 4 14 19 29 45 59 [email protected] OP margin (%) 7.8 18.9 18.6 23.2 29.2 30.7 메일 @ miraeasset.com NP (Wbn) 3 8 16 24 34 45 EPS (W) 94 246 471 685 970 1,268 ROE (%) 5.6 13.4 21.4 22.5 24.2 25.3 P/E (x) 48.9 20.0 29.2 44.2 31.8 24.3 P/B (x) 2.2 2.1 4.8 7.7 6.5 5.2 Dividend yield (%) 0.0 0.0 0.0 0.4 0.4 0.4 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 12 April 24, 2019 Entertainment

Table 4. Target price calculation (Wbn, x) Valuation - P/E 19F 20F 2019F-20F avg. Fair market cap 1,375 1,438 1,427 Net profit (controlling 34 45 40 interest) Target PE 40.0 32.0 36.0 Fair target price (W) 39,546 41,354 41,057 Source: Mirae Asset Daewoo Research

Table 5. Quarterly and annual earnings forecasts (Wbn, %, %p) 1Q18 2Q18 3Q18 4Q18 1Q19F 2Q19F 3Q19F 4Q19F 2018 2019F 2020F Revenue 23 32 34 36 29 31 42 52 125 154 192 Album/digital content 9 11 14 16 11 10 14 15 49 50 55 Management 9 14 10 13 12 13 16 18 46 59 75 Concerts 1 7 4 4 5 7 8 8 16 28 40 Advertising 5 5 4 4 4 4 5 6 17 20 22 Appearance fees 3 3 2 5 3 2 3 4 13 11 13 Other 4 7 11 12 7 8 12 19 34 46 62 Operating profit 1.4 9.1 8.5 9.9 6.4 8.4 12.2 18.5 29 45 59 OP margin (%) 5.9 28.7 25.0 27.1 22.0 26.6 29.2 35.3 23.0 29.4 30.9 Pretax profit 2.4 9.7 8.5 9.6 6.8 9.1 12.3 17.9 30 46 60 Net profit 1.9 7.3 6.7 8.4 5.2 6.9 9.3 13.6 24 35 46 Net margin (%) 8.1 23.2 19.9 23.0 17.9 21.9 22.4 26.0 19.4 22.7 23.8 Net profit attributable to 1.8 7.3 6.5 8.2 5.1 6.8 9.1 13.4 23.8 34.4 44.9 controlling interests YoY Revenue 5.0 10.6 93.9 5.9 25.8 -0.4 22.8 44.0 22.1 23.7 24.6 Album/digital content 9.5 41.2 163.5 21.4 11.8 -5.7 1.1 -2.0 44.2 0.7 11.9 Management -9.6 6.4 13.3 31.8 26.8 -7.7 69.1 41.8 9.9 29.1 27.4 Concerts -48.8 52.2 582.2 49.8 335.6 -0.7 102.1 115.0 61.7 75.4 43.3 Advertising 4.9 17.6 -12.4 -14.1 -7.1 -14.2 34.4 71.1 -1.4 17.5 12.1 Appearance fees -4.7 -46.0 -50.3 81.5 -23.7 -15.2 70.5 -33.1 -12.2 -13.3 13.8 Other 38.2 -12.0 177.1 5.8 53.3 23.3 8.9 51.9 29.7 33.1 34.7 Operating profit -64.1 30.9 664.0 29.4 366.1 -7.7 43.9 87.5 47.7 57.9 30.9 Net profit -36.0 7.6 603.4 46.6 179.3 -6.0 38.4 63.0 48.3 44.2 30.7 Net profit attributable to -37.2 7.5 592.2 48.3 177.1 -6.8 40.4 62.3 47.4 44.1 30.7 controlling interests Key assumptions Domestic album sales volume 454 565 769 947 130 756 525 970 947 970 1,004 (‘000) Ticket sales volume in Japan 73 108 83 94 100 150 150 120 357 520 814 (‘000) Notes: All figures are based on consolidated K-IFRS; concert ticket sales volume is based on actual timing of concert and includes our estimates Source: Company data., Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 13 April 24, 2019 Entertainment

Figure 12. Japanese concert attendance assumptions by artist

(mm persons) 900 ITZY Wooyoung 800 Junho Jun,K JYP Nation Stray Kids 700 DAY6 TWICE 600 GOT7 2PM 500

400

300

200

100

Source:0 Mirae Asset Daewoo Research 2015 2016 2017 2018F 2019F 2020F

Mirae Asset Daewoo Research 14 April 24, 2019 Entertainment

JYP Entertainment (035900 KQ/Buy/TP: W41,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/17 12/18 12/19F 12/20F (Wbn) 12/17 12/18 12/19F 12/20F Revenue 102 125 154 192 Current Assets 58 83 133 185 Cost of Sales 63 69 80 100 Cash and Cash Equivalents 25 45 79 120 Gross Profit 39 56 74 92 AR & Other Receivables 11 13 19 23 SG&A Expenses 20 27 29 33 Inventories 2 1 2 3 Operating Profit (Adj) 19 29 45 59 Other Current Assets 20 24 33 39 Operating Profit 19 29 45 59 Non-Current Assets 66 77 71 70 Non-Operating Profit 2 1 1 1 Investments in Associates 0 0 0 0 Net Financial Income 0 0 1 1 Property, Plant and Equipment 25 37 35 33 Net Gain from Inv in Associates -1 0 0 0 Intangible Assets 29 29 29 29 Pretax Profit 21 30 46 60 Total Assets 124 159 204 255 Income Tax 5 6 11 14 Current Liabilities 35 31 44 54 Profit from Continuing Operations 16 24 35 46 AP & Other Payables 12 9 13 16 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit 16 24 35 46 Other Current Liabilities 23 22 31 38 Controlling Interests 16 24 34 45 Non-Current Liabilities 4 1 1 1 Non-Controlling Interests 0 0 1 1 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 16 24 35 46 Other Non-Current Liabilities 4 1 1 1 Controlling Interests 16 24 34 45 Total Liabilities 39 31 45 54 Non-Controlling Interests 0 0 1 1 Controlling Interests 85 127 157 198 EBITDA 22 30 47 61 Capital Stock 17 18 18 18 FCF (Free Cash Flow) 2 10 41 50 Capital Surplus 55 71 71 71 EBITDA Margin (%) 21.6 24.0 30.5 31.8 Retained Earnings 27 48 79 120 Operating Profit Margin (%) 18.6 23.2 29.2 30.7 Non-Controlling Interests 1 1 2 3 Net Profit Margin (%) 15.7 19.2 22.1 23.4 Stockholders' Equity 86 128 159 201

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/17 12/18 12/19F 12/20F 12/17 12/18 12/19F 12/20F Cash Flows from Op Activities 27 22 41 50 P/E (x) 29.2 44.2 31.8 24.3 Net Profit 16 24 35 46 P/CF (x) 18.8 30.6 23.2 18.0 Non-Cash Income and Expense 9 10 12 15 P/B (x) 4.8 7.7 6.5 5.2 Depreciation 0 1 2 1 EV/EBITDA (x) 19.6 33.8 21.1 15.6 Amortization 3 0 0 0 EPS (W) 471 685 970 1,268 Others 6 9 10 14 CFPS (W) 731 988 1,330 1,712 Chg in Working Capital 5 -4 4 3 BPS (W) 2,859 3,930 4,777 5,931 Chg in AR & Other Receivables -3 -3 -6 -4 DPS (W) 0 122 122 122 Chg in Inventories 0 0 -1 0 Payout ratio (%) 0.0 16.6 11.5 8.8 Chg in AP & Other Payables 4 -2 2 1 Dividend Yield (%) 0.0 0.4 0.4 0.4 Income Tax Paid -4 -8 -11 -14 Revenue Growth (%) 37.8 22.5 23.2 24.7 Cash Flows from Inv Activities -29 -14 -7 -5 EBITDA Growth (%) 37.5 36.4 56.7 29.8 Chg in PP&E -25 -13 0 0 Operating Profit Growth (%) 35.7 52.6 55.2 31.1 Chg in Intangible Assets -1 0 0 0 EPS Growth (%) 91.5 45.4 41.6 30.7 Chg in Financial Assets -7 1 -7 -5 Accounts Receivable Turnover (x) 13.1 10.6 9.8 9.4 Others 4 -2 0 0 Inventory Turnover (x) 67.6 79.6 85.4 81.7 Cash Flows from Fin Activities 2 11 -4 -4 Accounts Payable Turnover (x) 12.8 12.6 15.8 15.2 Chg in Financial Liabilities 0 0 0 0 ROA (%) 15.5 17.1 19.3 19.9 Chg in Equity 2 16 0 0 ROE (%) 21.4 22.5 24.2 25.3 Dividends Paid 0 0 -4 -4 ROIC (%) 38.7 42.4 57.4 81.8 Others 0 -5 0 0 Liability to Equity Ratio (%) 45.1 24.5 28.4 27.1 Increase (Decrease) in Cash 1 20 34 41 Current Ratio (%) 167.7 267.9 298.9 345.8 Beginning Balance 25 25 45 79 Net Debt to Equity Ratio (%) -46.1 -47.4 -63.7 -73.4 Ending Balance 25 45 79 120 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 15 April 24, 2019 Entertainment

APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price YG Entertainment (122870) 10/24/2018 Buy 65,000 10/24/2018 Buy 60,000 08/15/2018 Buy 54,000 08/12/2018 Buy 43,000 04/24/2018 Buy 47,000 07/22/2018 Trading Buy 43,000 03/11/2018 Buy 50,000 05/13/2018 Trading Buy 30,000 11/14/2017 Buy 44,000 02/22/2018 Trading Buy 32,000 09/05/2017 Buy 37,000 12/05/2017 Buy 39,000 01/02/2017 No Coverage 09/05/2017 Buy 35,000 JYP Entertainment (035900) 01/02/2017 No Coverage 04/23/2019 Buy 41,000 SM Entertainment (041510) 10/24/2018 Buy 46,500 03/10/2019 Buy 59,000 11/14/2018 Buy 70,000

(W) YG Entertainment (W) SM Entertainment (W) JYP Entertainment 80,000 80,000 50,000

40,000 60,000 60,000

30,000 40,000 40,000 20,000

20,000 20,000 10,000

0 0 0 Apr 17 Apr 18 Apr 19 Apr 17 Apr 18 Apr 19 Apr 17 Apr 18 Apr 19

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price ( ─), Target price (▬), Not covered ( ■), Buy ( ▲), Trading Buy ( ■), Hold ( ●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 83.52% 8.24% 8.24% 0.00% Investment Banking Services 82.61% 4.35% 13.04% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2019)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. is acting as a financial advisor to SM Entertainment for its treasury share buyback and cancellation. As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates own 1% or more of YG Entertainment`s shares outstanding.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Mirae Asset Daewoo Research 16 April 24, 2019 Entertainment

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

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Mirae Asset Daewoo Research 17 April 24, 2019 Entertainment

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