SM Entertainment (041510 KQ ) Two Expectations
SM Entertainment (041510 KQ ) Two expectations Entertainment Watch for new artist growth and enhanced shareholder returns; Maintain Buy and TP of W59,000 Company Report SM Entertainment’s stock has struggled since the start of 2019, weighed by May 30, 2019 disappointing 1Q19 earnings, industry-specific risks, and limited visibility on 2019 profit growth. However, we see two tailwinds materializing moving forward. First, we expect the company to see greater artist effects on the back of the growth of new groups . Both NCT and WayV are set to release new albums , building upon their increasing popularity. NCT expanded its global fan base by launching its first world tour just 30 (Maintain) Buy months after its debut, while WayV’s first mini album Take Off has topped the charts . WayV is growing rapidly in China, in terms of both music activities (album/digital Target Price (12M, W) 59,000 music/concerts) and management (ads/broadcasting). Second, we expect talks of shareholder returns to take shape . Several major Share Price (05/29/19, W) 37,650 institutional investors have disclosed stake acquisitions in SM Entertainment this year. Altogether, we believe these institutions hold a roughly 20% stake in the company. Due Expected Return to the continued decline in its share price, the company’s long-term issues (cost 57% savings through the internationalization of outsourced services , shareholder returns through dividend distribution, etc.) have come into focus more frequently and more intensely. Given recent changes in the ownership structure and expectations of strong OP (19F, Wbn) 49 profit improvement (+30% YoY), we think the debate about management efficiency and Consensus OP (19F, Wbn) 54 shareholder returns is more relevant than ever.
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