January 4, 2012 Company Report SM Entertainment (041510 KQ) Entertainment Daewoo Securities Co., Ltd. Japanese concert ticket sales to reach 500,000 in 1H12 Chang-kwean Kim +822-768-4321 Raise TP to W70,000; Maintain Buy call
[email protected] We maintain our Buy call on SM Entertainment and raise our target price to W70,000 Jee-hyun Moon (from W57,000). As the companyÊs 4Q11 results are forecast to exceed our previous +822-768-3615 projections, we adjusted up our 2011 and 2012 EPS estimates by 4.6% and 3.3%,
[email protected] respectively. Also, we are in the process of getting a clearer picture of the companyÊs 2012 earnings variables (e.g., concert schedules are being firmed up). We arrived at our target price by applying a P/E of 19.12x (a 20% discount to the domestic music industryÊs average 2012F P/E of 23.9x) to our 2012F EPS. Japanese concert ticket sales likely to double YoY in 2012 to 1.2mn tickets We estimate that SM EntertainmentÊs artists drew 588,000 fans to Japanese Buy (Maintain) concerts in 2011 (based on maximum capacity figures), vs. 374,000 fans in 2009 and Target Price (12M, W) 70,000 13,000 fans in 2010. The company is believed to have sold 2.53mn CDs in 2011 in Share Price (01/03/12, W) 47,500 Japan, vs. 1.16mn copies in 2009 and 1.76mn copies in 2010. We assume that Expected Return (%) 47.4 100,000 concert ticket sales lead to W6~7bn in royalty income, while 100,000 CD EPS Growth (11F, %) -10.8 sales result in W700~800mn in royalty income.