May 31, 2012 Company Report
SM Entertainment (041510 KQ) Entertainment
Daewoo Securities Co., Ltd. Spread of smart devices to lead to increased music consumption Chang-kwean Kim +822-768-4321 Digital music revenues to expand on launch of iTunes and improved pricing [email protected]
We expect the global and domestic digital music markets to show robust growth until 2015 (at CAGRs of 11.6% and 14.9%, respectively). AppleÊs launch of iTunes in Korea should boost digital music demand. And the governmentÊs anticipated introduction of a pay-per-streaming/download system should lead to unit price hikes.
The growth of the smart TV (e.g., Apple TV) market should boost traffic to music videos as well as help facilitate the development of SM EntertainmentÊs drama Buy (Maintain) business. In 2011, SM generated W4bn in advertising revenues related to its YouTube music videos and W6.2bn in digital music revenues. The gross margin of Target Price (12M, W) 57,400 Share Price (05/30/12, W) 40,500 the digital music business came in at a whopping 80%. Expected Return (%) 41.7 EPS Growth (12F, %) 151.5 Maintain Buy call with TP of W57,400 Market EPS Growth (12F, %) 19.1 We maintain our Buy call on SM Entertainment with a target price of W57,400. We P/E (12F, x) 13.0 raised our 2012 and 2013 EPS estimates by 2.4% and 10.4%, respectively, to Market P/E (12F, x) 9.3 reflect the companyÊs 1Q results. We project the companyÊs 2012 revenues and KOSDAQ 469.62 operating profit to soar by 71.2% YoY and 249.4% YoY, respectively. Market Cap (Wbn) 827 Shares Outstanding (mn) 20 SMÊs valuation burden has significantly eased, as its shares have undergone Avg Trading Volume (60D, '000) 238 corrections due to the companyÊs rights offering and bonus issue. With the growth Avg Trading Value (60D, Wbn) 11 prospects of mobile game companies brightening amid the spread of mobile Dividend Yield (12F, %) 0.0 devices, related shares are trading at 2012F P/Es as high as 20~50x. And, since SM Free Float (%) 78.5 52-Week Low (W) 17,400 is likely to also be a key beneficiary of mobile device penetration (and the resulting 52-Week High (W) 62,000 growth of the digital content market) in 2H, we expect the companyÊs shares to Beta (12M, Daily Rate of Return) 0.6 rise. Price Return Volatility (12M Daily, %, SD) 3.9 Foreign Ownership (%) 17.7 Major Shareholder(s) Lee, Soo-man et al (21.5%) NPS (7.63%) Partners Venture Capital et al. (6.61%) Price Performance (%) 1M 6M 12M Absolute -0.1 2.6 157.6 Relative 6.8 2.8 169.5 Key Business An entertainment company that produces and sells music.
§ Earnings & Valuation Metrics Share price OP EV/EBITD 390 KOSDAQ FY Revenues OP NP EPS EBITDAFCF ROE P/E P/B Margin A 340 (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 290 240 12/10 86 26 29.8 24 1,345 28 25 31.6 11.2 3.2 8.2 190 12/11 110 21 18.9 17 894 26 17 16.5 45.5 7.3 27.8 140 12/12F 188 72 38.3 62 3,105 77 43 30.6 13.0 2.8 9.1 90 12/13F 242 94 39.0 82 4,106 100 69 24.1 9.9 2.2 6.4 40 5/11 9/11 1/12 5/12 12/14F 270 106 39.2 93 4,636 111 81 21.5 8.7 1.7 5.1 Note: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. May 31, 2012 SM Entertainment
I. Investment strategy
Likely to benefit from the growth of the digital content market in 2H iTunes to be available in We expect SM EntertainmentÊs valuation premium to rise going forward, as: 1) the Korea in 3Q; Apple TV is companyÊs earnings improvement is likely to accelerate on the back of success in Japan, anticipated to be rolled and 2) the company should be considered a major beneficiary of the expansion of the digital out in 2H content (e.g., video footage, digital music) market. The global digital music market is likely to show significant growth. And, in 2H, we anticipate the domestic digital music distribution environment to improve. The Ministry of Culture, Sports, and Tourism (MCST) is pushing to revamp digital music pricing schemes. More specifically, the MCST is working to raise the minimum price for music downloads to W120 (from W60) and introduce a new policy that would prevent newly released songs from being included in package products for a certain period of time.
We anticipate that Apple will launch iTunes in Korea in 3Q. The rollout of the service should bring convenience and high quality to Apple device users. We believe that the launch of iTunes will improve the domestic digital music distribution environment, as: 1) we forecast that Apple will offer new domestic song downloads for US$0.99, twice the price of local distributors (W600), and 2) Apple distributes 70% of its digital music revenues to copyright holders (vs. 40~50% for domestic platforms).
We also expect SM to benefit from the emergence of smart TVs (e.g., Apple TV, which is slated to be rolled out in 2H). In 2011, SM generated advertising revenues of W4bn related to the companyÊs YouTube music videos. Along with the penetration of mobile devices (e.g., smartphones and tablet PCs), the emergence of Apple TV (which is likely to facilitate the distribution of high-resolution footage) should boost the consumption of music content (e.g., music videos).
Meanwhile, SM is slated to expand into the drama production business in 2H by acquiring BT&I Korea (a listed company). In our view, this move appears aimed at bolstering partnerships with overseas media and entertainment peers, especially in China and Japan. In light of the companyÊs extensive global networks and strong capital power, SM should be able to make new inroads in drama production (e.g., independent production).
Table 1. Global music market outlook (Wbn, %) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2011-2015 CAGR Global music market 38,852 35,827 32,001 29,457 27,192 25,650 25,237 25,119 25,288 25,668 -1.1 Digital 4,210 5,979 7,127 7,806 8,342 9,255 10,453 11,740 13,061 14,409 11.6 CD 34,643 29,848 24,874 21,651 18,850 16,395 14,784 13,379 12,227 11,259 -9.8 Percentage Digital 10.8 16.7 22.3 26.5 30.7 36.1 41.4 46.7 51.6 56.1 CD 89.2 83.3 77.7 73.5 69.3 63.9 58.6 53.3 48.4 43.9 Source: PwC, KDB Daewoo Securities Research
Table 2. Domestic music market outlook (Wbn, %) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2011-2015 CAGR Domestic music market 217 235 256 353 419 487 557 626 698 770 13.0 Digital 123 159 195 300 375 450 526 600 675 751 14.9 CD 94 77 61 52 44 37 31 27 23 20 -14.9 Percentage Digital 56.7 67.7 76.2 85.0 89.5 92.4 94.4 95.8 96.7 97.5 CD 43.3 32.8 23.8 14.7 10.5 7.6 5.6 4.3 3.3 2.6 Source: PwC, KDB Daewoo Securities Research
KDB Daewoo Securities Research 2 May 31, 2012 SM Entertainment
Figure 1. Mobile service usage breakdown Figure 2. iPhone usersÊ mobile service usage breakdown
Internet Others Game Others Internet 3% 3% Music 3% 3% 9% 2% Game E-mail 4% 8% Voice call SMS 44% Music 15% 10%
Voice call E-mail 70% 12% SMS 14% Daily average usage time: 40 mins Daily average usage time: 60 mins
Source: iSuppli Consumer Trak survey, KDB Daewoo Securities Research Source: iSuppli Consumer Trak survey, KDB Daewoo Securities Research
Table 3. Earnings forecasts and valuations of global major music companies (2011) (local currency, %, x) Company Sales OP NP Share price ROE EPS EPSG P/E OP margin NP margin SM 109.9 20.8 16.5 40,500 16.5 893 -33.5 45.5 18.9 15.0 YG 78.1 17.3 12.9 40,500 52.0 3,322 114.7 12.2 22.2 16.5 Loen 167.2 26.6 21.4 11,300 19.7 882 128.3 12.8 15.9 12.8 Neowiz Internet 47.5 7.1 7.6 17,000 17.3 567 -16.6 30.0 14.9 15.9 KT Music 31.4 -2.3 -2.4 2,080 -11.0 -80 TTR -- -7.4 -7.6 Avex (JP) 112 11 5 1,152 17.3 124 -6.9 8.2 9.8 4.5 Amuse (JP) 26 2 1 996 10.0 123 71.1 7.4 7.7 3.8 Real Networks (US) 336 -10 -27 8.81 -7.9 -0.79 TTR -- -3.0 -8.0 Pandora (US) 138 0 -2 10.59 -- -1.03 RR -- 0.0 -1.4 Korean average 18.9 25.1 16.0 12.9 Overseas average 6.5 7.8 4.8 0.1 Global average 12.7 16.5 9.9 6.6 Note: YG is on a consolidated basis under K-IFRS; Other Korean companies are on non-consolidated basis under K-IFRS All units are in billions (Korea, Japan) and millions (others) except for per share data Source: Bloomberg, KDB Daewoo Securities Research
Table 4. Earnings forecasts and valuations of global major music companies (2012F) (local currency, %, x) Company Sales OP NP Share price ROE EPS EPSG P/E OP margin NP margin SM 188.2 72.1 62.1 40,500 30.6 3,105 247.3 13.0 38.3 33.0 YG 141.1 34.1 30.4 40,500 50.8 3,046 135.7 13.1 24.2 21.5 Loen 205.7 33.0 36.6 11,300 22.9 1,052 16.4 10.7 16.0 17.8 Neowiz Internet 72.0 12.0 10.8 17,000 27.1 838 56.9 18.7 16.7 15.0 KT Music 44.5 1.9 1.9 2,080 -- 65 흑전 32.0 4.2 4.4 Avex (JP) 116 11 5 1,152 16.1 125 -7.7 9.1 9.5 4.3 Amuse (JP) 31 3 2 996 13.8 192 -14.7 5.2 9.7 6.5 Real Networks (US) 281 -33 -43 8.81 -- -0.87 RR -- -11.7 -15.3 Pandora (US) 276 -9 -5 10.59 -- -0.03 RR -- -3.3 -1.8 Korean average 32.9 17.5 23.5 21.8 Overseas average 15.0 7.2 2.5 -1.5 Global average 23.9 12.3 13.3 10.9 Note: KDB Daewoo Securities estimates under non-consolidated K-IFRS for SM; Consolidated K-IFRS for YG; FnGuide consensus under non-consolidated K- IFRS for the other Korean companies; All units are in billions (Korea, Japan) and millions (others) except for per share data Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 3 May 31, 2012 SM Entertainment
II. Earnings forecasts
Earnings momentum from Japan to continue into 2013
In 2012, revenues and SM EntertainmentÊs 1Q revenues and operating profit surged by 98.8% and 378.4% YoY, operating profit are respectively, driven by overseas sales (up 402.4% YoY), including the recognition of income forecast to rise by related to 2Q~3Q11 albums and concerts in Japan (e.g., GirlsÊ Generations full Japanese 71.2% and 249.4% YoY, album (released in June), TVXQÊs full album (released in August), merchandise sales at SM respectively TownÊs September Tokyo Dome concert). 1Q Operating profit under consolidated IFRS came in at W16bn (including earnings at SM Japan).
Given the companyÊs confirmed concert schedule, SM is likely to attract 1.03mn fans to shows in Japan between January~August of this year (based on the maximum capacities of venues). In 2011, the company sold 230,000 high-margin dome concert tickets in Japan (out of a total of 580,000). In 2012, the number has already reached 580,000 based on the confirmed concert schedule.
SMÊs Japanese album-related royalty income is recognized six months after an albumÊs release, while concert-related royalty income is recognized four to five months following a concert. As such, SMÊs 2Q earnings should reflect 230,000 ticket sales for concerts (including 80,000 tickets for dome concerts) held in December 2011 and January~Febuary of 2012. And 3Q earnings are likely to reflect 660,000 ticket sales for concerts held in March~May (including 480,000 tickets for dome concerts). The companyÊs earnings momentum will likely strengthen toward 2H.
In 2012, revenues are forecast to rise by 71.2% YoY to W188.2bn. Overseas revenues are expected to soar by 147.8% YoY to W119bn, 90% of which should be generated in the Japanese market.
Table 5. Annual trends of CD and concert ticket sales in Japan (copies, seats) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F CD 177,140 1,692,267 1,534,170 901,971 1,408,932 885,182 913,728 914,085 1,161,662 1,769,738 2,686,457 462,684 Concert - - 37,424 171,000 106,000 41,400 159,520 337,039 374,126 13,000 588,441 1,033,000 Note: 1) Concert sales are based on the maximum seating capacity of the venues 2) 2012F CD sales reflect confirmed sales until August 5th, 2012Fconcert sales reflect the performances until August 5th 3) Above figures are unofficial Source: KDB Daewoo Securities Research
Figure 3. Annual trend of CD sales in Japan Figure 4. Annual trend of concert ticket sales in Japan
('000) ('000) 3,000 # of CDs sold 1,200 # of concert seats 1,050 2,400 900
750 1,800 600
1,200 450
300 600 150
0 0 01 03 05 07 09 11 01 03 05 07 09 11
Note: 1) Concert sales are based on the maximum seating capacity of venues 2) 2012F concert sales reflect the performances until August 5th; 2012F CD sales reflect confirmed sales until May 20th 3) Above figures are unofficial Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 4 May 31, 2012 SM Entertainment
Figure 5. Quarterly trends of CD and concert ticket sales in Japan Figure 6. Annual trends of CD and concert ticket sales in Japan
('000) ('000) 1,500 # of concert seats 3,500 # of concert seats # of CDs sold # of CDs sold 1,200 2,800
900 2,100
600 1,400
300 700
0 0 1Q01 1Q03 1Q05 1Q07 1Q09 1Q11 01 03 05 07 09 11
Note: 1) Concert sales are based on the maximum seating capacity of venues 2) 2012F concert sales reflect the performances until August 5th; 2012F CD sales reflect confirmed sales until May 20th 3)Above figures are unofficial Source: KDB Daewoo Securities Research
Japanese royalty income In forecasting SMÊs 2012 earnings, we assumed SM would sell 3mn CDs and draw 1.5mn estimated at fans to concerts in Japan. Although the company has a Japanese subsidiary, Japanese W700~800mn on CD agents are in charge of the distribution of music and concerts. SM receives fixed royalties sales of 100,000 copies from music distribution, and singers receive performance fees from agents. Contracts with and W6~7bn on 100,000 Japanese agents for GirlsÊ Generation (Universal Records) and TVXQ (Avex) are scheduled to concert attendees expire in 2H12.
We assume SM gains about W700~800mn in royalties on CD sales of 100,000 copies
As for concerts, 70% of ticket sales, excluding expenses for venue rental and stage setting, are recorded as SMÊs royalty income
KDB Daewoo Securities Research 5 May 31, 2012 SM Entertainment
Figure 7. Revenue recognition of CD sales in Japan
SalesSales ofof 10,00010,000 CDsCDs AssumeAssume musicmusic downloaddownload revenuesrevenues atat W900mn:W900mn: :: W3bn W3bn inin retailretail revenuesrevenues TheThe JapaneseJapanese musicmusic marketmarket breaksbreaks downdown intointo CDsCDs (70%)(70%) == 10,000 10,000 X X ASPASP 30,00030,000 andand digitaldigital musicmusic (30%);(30%); AssumeAssume digitaldigital musicmusic revenuesrevenues areare 30%30% ofof CDCD revenuesrevenues
JapaneseJapanese agentsagents
SMSM JapanJapan
Copyright holder (SM) profit sharing ratio: 15% Copyright holder (SM) profit sharing ratio: 30% W450mn= W3bn X 15% Digital music-related royalty income W270mn = W900mn X 30%
SM: Royalty recognized 6 months later (Overseas revenues)
Source: KDB Daewoo Securities Research
Figure 8. Concert revenue recognition in Japan
ConcertConcert withwith 100,000100,000 audienceaudience GoodsGoods salesale :: Revenues Revenues fromfrom ticketticket sales:sales: W12bnW12bn = = 100,000 100,000 X X ASPASP ASPASP of of goodsgoods soldsold isis 20~30%20~30% ofof ticketticket pricesprices Key Key chainchain W120,000;W120,000; TicketTicket pricesprices inin JapanJapan areare JPY8,000~13,000JPY8,000~13,000 JPY500,JPY500, T-shirtT-shirt JPY3,000,JPY3,000, toweltowel JPY5,000 JPY5,000
JapaneseJapanese agentsagents
SMSM JapanJapan
After excluding marketing expenses and other Most of the revenues from goods sold are operating costs, revenues are divided into 7 (SM) : 3 recognized as SM royalties (agent): Assume SMÊs share of revenues is 1/3 of ticket prices W4bn = W12bn X 33%
SM: Royalties recognized 4-5 months later (overseas revenue)
Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 6 May 31, 2012 SM Entertainment
Table 7. Annual earnings trends and forecasts (Wbn, %) 2005 2006 2007 2008 2009 2010 2011 2012F 2013F Revenues 21 29 31 40 62 86 110 188 242 Album 8 9 9 11 15 15 19 20 21 Digital 2 4 4 5 10 9 6 10 13 Overseas 6 5 6 9 16 37 48 119 168 Album exports 0 0 1 1 1 1 2 3 3 Overseas royalties 6 5 5 8 15 36 46 116 166 Management 5 12 12 16 22 26 36 39 40 Revenue breakdown Album 36.2 29.9 28.4 26.9 23.7 17.3 17.4 10.7 8.7 Digital 9 13.7 14 11.9 15.3 9.8 5.6 5.5 5.4 Overseas 28.8 16.5 18 21.4 25.5 42.6 43.7 63.2 69.5 Management 26 39.9 39.6 39.8 35.5 30.3 32.9 20.6 16.5 Total album sales volume (Â000) 1010 1180 1200 1280 1740 1780 2280 2400 2500 ASP(W) 7400 7400 7400 8400 8400 8400 8400 8400 8400 Digital/Album (%) 24.9 45.7 49.4 44.3 64.8 57 32.2 51.3 62.2 Management/Album (%) 72 133 140 148 150 175 189 192 190 Royalties from Japan 4 3 4 5 10 28 37 101 137 Revenues from Japan 18 15 17 26 49 142 185 214 231 Revenues from other countries 2 2 2 3 6 9 11 18 32 Cost 16 25 29 36 42 49 73 94 121 Gross profit 7 5 4 8 20 38 37 93 118 Gross margin 29.4 15.1 12.5 17.5 32.3 43.6 33.5 49.7 49.3 Operating profit 1 -2 -4 -2 9 26 21 73 94 OP margin 5.6 -7.7 -11.2 -3.9 15 29.5 18.9 39 39.5 Pretax profit 1 -3 -7 5 6 23 21 80 104 Pretax margin 5.2 -9.6 -21.4 10.4 9.9 26.2 19.6 42.8 43.6 Net profit 1 -4 -8 4 5 22 17 62 82 NP margin 5.4 -13.5 -23 9.8 7.2 25.2 15 33.4 34.4 YoY growth Revenues 41.6 7.1 27.9 54.1 39.9 27.2 71.2 28.8 Album 17 1.6 21.3 35.7 2.1 28.3 5.2 4.2 Digital 115.1 9.7 8.9 98.1 -10.2 -27.4 67.6 26.3 Overseas -19 17 52 84.1 133.1 30.6 147.8 41.5 Management 117.5 6.3 28.4 37.3 19.6 38 7.1 3.2 Operating profit TTR RR RR TTB 174.9 -19.2 249.4 30.1 Net profit TTR RR TTB 4.5 387.7 -32.5 276.5 32.4 Note: All figures are based on K-GAAP until 2010. From 2011 all figures are based on non-consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research
Table 8. 2012~2013 Earnings forecast revisions (Wbn, W, %) Previous Revised % Diff. 2012F 2013F 2012F 2013F 2012F 2013F Revenues 167 186 188 242 12.6 30.1 Operating profit 70 83 72 94 2.9 13.3 Net profit 61 75 62 82 1.6 9.3 EPS 3,032 3,721 3,105 4,106 2.4 10.4 OP margin 42.1 44.8 38.3 39.0 Net margin 36.4 40.1 33.0 33.9 Note: All figures are based on non-consolidated K-IFRS Source: KDB Daewoo Securities Research
KDB Daewoo Securities Research 7 May 31, 2012 SM Entertainment
III. CD sales and concerts in Japan
Table 9. CD sales volume of SMÊs major performing artists in Japan (copies) Release date BoA TVXQ GirlsÊ Generation SHINee Super Junior Title 5/30/01 40,470 ID; Peace B 7/25/01 59,450 Amazing Kiss 12/5/01 77,220 氣持ちはつたわる 1/17/02 179,590 LISTEN TO MY HEART 3/13/02 84,430 Every Heart-ミンナノキモチ 3/13/02 931,742 ALBUM1: LISTEN TO MY HEART 5/29/02 20,580 Don't start now 8/28/02 202,000 VALENTI 9/19/02 122,440 奇蹟ㆍNO.1 12/11/02 151,485 JEWEL SONG-BESIDE YOU-僕を呼ぶ声- 1/29/03 1,249,197 ALBUM2: VALENTI 5/14/03 144,264 Shine We Are! : Earthsong 10/22/03 82,395 DOUBLE 12/3/03 58,314 Rock With You 1/15/04 653,630 ALBUM3: LOVE & Honesty 2/11/04 24,292 Be the one 9/1/04 82,614 QUINCY 11/25/04 4,710 HUG 12/1/04 136,725 メリクリ 2/2/05 1,099,720 ALBUM: BEST1 3/30/05 169,542 DO THE MOTION 4/27/05 10,166 Stay With Me Tonight 7/13/05 10,496 Somebody To Love 8/31/05 54,453 make a secret 11/23/05 58,436 抱きしめる 11/2/05 16,615 My Destiny 1/18/06 74,744 Everlasting 2/15/06 427,871 ALBUM4: OUTGROW 3/8/06 11,484 明日は 來るから 3/23/06 59,055 ALBUM1: Heart, Mind and Soul 4/5/06 90,936 七色の明日∼brand new beat∼-Your Color 4/19/06 7,672 Rising Sun-Heart,Mind and Soul 6/21/06 17,283 Begin 8/9/06 40,943 KEY OF HEART-DOTCH 8/16/06 26,890 Sky 11/1/06 99,078 Winter Love 11/8/06 29,226 Miss you, O-正-反-合 1/17/07 348,093 ALBUM5: MADE IN 20 1/24/07 29,144 Step by Step 3/7/07 28,116 Choosey Lover 3/14/07 86,677 ALBUM2: Five in the Black 4/25/07 42,789 Sweet Impact 6/13/07 50,074 Lovin' you 8/1/07 124,829 SUMMER ~Summer Dream-Song for you-Love in the Ice~ 9/19/07 41,978 SHINE-Ride on 9/26/07 43,524 LOVE LETTER 11/14/07 50,781 Forever Love 12/12/07 28,128 LOSE YOUR MIND 12/19/07 39,595 Together 1/16/08 48,543 Purple Line 1/23/08 158,524 ALBUM3: T 2/6/08 27,116 Two hearts-WILD SOUL 2/13/08 32,983 Runaway 2/20/08 15,636 Be with you
KDB Daewoo Securities Research 8 May 31, 2012 SM Entertainment
Release date BoA TVXQ GirlsÊ Generation SHINee Super Junior Title 2/27/08 185,338 ALBUM6: THE FACE 2/27/08 32,939 If Rainy Night 3/5/08 21,037 Close to you 3/12/08 29,122 Keyword-Maze 4/23/08 121,771 Beautiful you-千年恋歌 6/4/08 28,916 Vivid ~Kissing you,Sparkling,Joyful Smile~ 7/16/08 120,890 どうして君を好きになってしまったんだろう? 10/15/08 91,270 呪文-MIROTIC- 1/21/09 110,717 Bolero-Kiss The Baby Sky-忘れないで 2/18/09 22,354 永遠／UNIVERSE 3/11/09 100,313 Survivor 3/18/09 132,570 ALBUM: BEST2, BEST&USA 3/25/09 317,314 ALBUM4: The Secret Code 4/22/09 180,826 Share The World! 7/1/09 233,057 Stand by U 10/28/09 13,898 BUMP BUMP! 12/9/09 50,613 まもりたい ~White Wishes~ 1/27/10 289,412 BREAK OUT! 2/10/10 59,408 ALBUM7: IDENTITY 2/17/10 560,113 ALBUM: BEST SELECTION 2010 3/24/10 228,448 時ヲ止メテ 7/21/10 12,459 WOO WEEKEND 8/11/10 138,302 New Beginning of Girls' Generation 9/8/10 146,540 Single1: Genie 10/20/10 200,392 Single2: Gee 12/22/10 134,664 Hoot license 1/26/11 285,051 Single: Why? 4/27/11 169,798 Single3: Mr.taxi, RDR 6/1/11 850,000 ALBUM1: Girls' Generation 6/8/11 100,000 Single1: Bonamana 6/22/11 112,603 Single1: Replay 7/20/11 182,012 Superstar 8/23/11 DVD: The 1st ASIA TOUR 'Into The New World' 8/24/11 Mini album: Super Junior-M, Perfection 8/29/11 69,620 Single: Juliet 9/28/11 282,552 ALBUM: TONE 10/12/11 52,334 Single: Lucifer 10/19/11 Digital Single: Mr. Simple (iTunes) 10/21/11 69,687 ALBUM: The Boys (Imported from Korea and sold in Japan) 11/16/11 DVD: Super Show3 in Japan 11/30/11 146,623 Single: Winter 12/7/11 98,018 Single: Mr. Simple 12/7/11 81,868 ALBUM: the First 12/7/11 DVD Single: Milestone (the 10th anniversary) 12/14/11 DVD: JAPAN FIRST TOUR 12/15/11 3,447 ALBUM: 2011 SM Town 12/23/11 DVD: The 3rd Asia Tour - Super Show3 12/28/11 30,086 ALBUM1: Girls' Generation (Repackage) 1/11/12 DVD: 1st Concert "SHINee World" 2/22/12 DVD: SM Town Live in Tokyo (N/A) 3/07/12 DVD:BoA The Live 3/14/12 DVD: BoA THE LIVE 2011 X'mas -The 10th Anniversary Ed 4/14/12 157,156 Single: STILL 5/9/12 74,329 Single: Oppa, Oppa 5/10/12 171,299 Single: Opera 5/16/12 10,910 Single: Taetiseo 1st Mini Album 5/16/12 48,990 Single: sherlock 2012 *f(x) to make debut in Japan 2012 TBC * BoA to release album during the summer in Japan Note: Unofficial figures; Only includes CDs released and sold in Japan Source: Company data, RIAJ, Oricon Japan, Wikipedia Korea, Bestiz.net, All Kpop (allkpop.com), Daum Blog (music25, enhw4295-), Egloos Blog (yurui), KDB Daewoo Securities Research
KDB Daewoo Securities Research 9 May 31, 2012 SM Entertainment
Table 10. Concerts of SMÊs major artists in Japan and overseas (seats) Date BoA TVXQ GirlsÊ Generation SHINee Super Junior Joint concert City 3/27/03 2,700 Osaka 3/28/03 2,700 Osaka 3/30/03 3,012 Nagoya 3/31/03 3,012 Nagoya 4/5/03 13,000 Tokyo 4/6/03 13,000 Tokyo 3/20/04 37,000 Saitama 3/21/04 37,000 Saitama 3/26/04 10,000 Nagoya 3/27/04 10,000 Nagoya 4/3/04 11,000 Fukuoka 4/10/04 16,000 Osaka 4/11/04 16,000 Osaka 4/17/04 17,000 Yokohama 4/18/04 17,000 Yokohama 4/2/05 15,000 Fukuoka 4/7/05 13,000 Tokyo 4/9/05 13,000 Tokyo 4/10/05 13,000 Tokyo 4/16/05 16,000 Osaka 4/17/05 16,000 Osaka 4/23/05 10,000 Nagoya 4/24/05 10,000 Nagoya 5/13/06 500 Sapporo 5/18/06 1,500 Osaka 5/20/06 1,500 Osaka 5/21/06 1,700 Yokohama 5/22/06 1,700 Yokohama 5/23/06 800 Fukuoka 5/24/06 1,000 Nagoya 5/25/06 600 Niigata 5/26/06 700 Tokyo 5/27/06 2,700 Tokyo 5/28/06 2,700 Tokyo 9/29/06 2,000 Nagoya 9/30/06 2,000 Nagoya 10/7/06 2,000 Fukuoka 10/8/06 2,000 Fukuoka 10/13/06 2,000 Osaka 10/14/06 2,000 Osaka 10/17/06 2,000 Tokyo 10/18/06 2,000 Tokyo 10/21/06 2,000 Sendai 10/22/06 2,000 Sendai 10/28/06 2,000 Sapporo 10/29/06 2,000 Sapporo 11/5/06 2,000 Tokyo 3/31/07 17,000 Yokohama 4/1/07 17,000 Yokohama 4/7/07 15,000 Fukuoka 4/14/07 16,000 Osaka 4/15/07 16,000 Osaka 4/21/07 10,000 Nagoya 4/22/07 10,000 Nagoya
KDB Daewoo Securities Research 10 May 31, 2012 SM Entertainment
Date BoA TVXQ GirlsÊ Generation SHINee Super Junior Joint concert City 5/10/07 2,222 Nakano 5/12/07 2,400 Osaka 5/13/07 2,400 Osaka 5/16/07 1,730 Niigata 5/18/07 2,084 Tokyo 5/19/07 2,084 Tokyo 5/23/07 1,000 Sapporo 5/27/07 1,300 Sendai 5/29/07 2,100 Kobe 5/31/07 1,800 Shiga 6/2/07 2,500 Nagoya 6/3/07 2,500 Nagoya 6/15/07 2,300 Fukuoka 6/16/07 2,300 Fukuoka 6/18/07 14,900 Tokyo 6/19/07 14,900 Tokyo 3/19/08 17,000 Yokohama 3/20/08 17,000 Yokohama 3/26/08 16,000 Osaka 3/27/08 16,000 Osaka 3/29/08 16,000 Osaka 3/30/08 16,000 Osaka 4/1/08 11,093 Fukuoka 4/12/08 10,000 Hiroshima 4/13/08 10,000 Hiroshima 4/15/08 10,000 Nagoya 4/16/08 10,000 Nagoya 4/19/08 7,000 Sendai 4/20/08 7,000 Sendai 4/26/08 11,500 Sapporo 5/3/08 37,000 Saitama 5/5/08 37,000 Saitama 5/6/08 37,000 Saitama 5/8/08 1,527 Ichihara 5/10/08 2,488 Kanagawa 5/11/08 2,488 Kanagawa 5/15/08 3,012 Nagoya 5/16/08 3,012 Nagoya 5/21/08 1,730 Niigata 5/23/08 2,200 Toyama 5/28/08 2,001 Hiroshima 5/30/08 2,754 Osaka 5/31/08 2,754 Osaka 6/5/08 2,336 Shizuoka 6/6/08 2,112 Kobe 6/13/08 2,372 Sendai 6/17/08 1,966 Oita 6/18/08 2,316 Fukuoka 6/20/08 2,001 Kagawa 6/22/08 1,848 Shiga 6/26/08 2,505 Saitama 6/28/08 5,012 Tokyo 6/29/08 5,012 Tokyo
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Date BoA TVXQ GirlsÊ Generation SHINee Super Junior Joint concert City 5/4/09 9,000 Kobe 5/5/09 9,000 Kobe 5/9/09 37,000 Saitama 5/10/09 37,000 Saitama 5/16/09 7,063 Sendai 5/17/09 7,063 Sendai 5/23/09 12,000 Hokkaido 5/24/09 12,000 Hokkaido 5/30/09 15,000 Fukuoka 5/31/09 15,000 Fukuoka 6/6/09 10,000 Hiroshima 6/7/09 10,000 Hiroshima 6/10/09 16,000 Osaka 6/11/09 16,000 Osaka 6/13/09 16,000 Osaka 6/14/09 16,000 Osaka 6/18/09 10,000 Nagoya 6/20/09 10,000 Nagoya 6/21/09 10,000 Nagoya 7/4/09 50,000 Tokyo Dome 7/5/09 50,000 Tokyo Dome 12/7/10 13,000 Tokyo 1/25/11 13,000 Tokyo 1/26/11 13,000 Tokyo 2/18/11 12,000 Yokohama 2/19/11 12,000 Yokohama 2/20/11 12,000 Yokohama 5/31/11 16,000 Osaka 6/1/11 16,000 Osaka 6/4/11 37,000 Saitama 6/5/11 37,000 Saitama 6/17/11 13,000 Tokyo 6/18/11 13,000 Tokyo 6/28/11 13,000 Tokyo 6/29/11 13,000 Tokyo 7/2/11 10,000 Hiroshima 7/3/11 10,000 Hiroshima 7/6/11 10,000 Nagoya 7/7/11 10,000 Nagoya 7/17/11 11,000 Fukuoka 7/18/11 11,000 Fukuoka 7/22/11 450 Fukuoka 7/23/11 2,000 Kansai 7/27/11 2,000 Tokyo 7/28/11 2,000 Tokyo 8/8/11 700 Sapporo 8/11/11 2,291 Nagoya 9/3/11 50,000 Tokyo Dome 9/4/11 50,000 Tokyo Dome 9/5/11 50,000 Tokyo Dome 10/27/11 10,000 Nagoya 11/24/11 16,000 Osaka 11/25/11 16,000 Osaka 12/10/11 5,000 40,000 Osaka 12/11/11 5,000 40,000 Osaka 12/24/11 15,000 Tokyo
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Date BoA TVXQ GirlsÊ Generation SHINee Super Junior Joint concert City 1/18/12 17,000 Yokohama 1/19/12 17,000 Yokohama 1/25/12 10,000 Nagoya 1/26/12 10,000 Nagoya 1/27/12 10,000 Nagoya 2/11/12 15,000 Fukuoka 2/12/12 15,000 Fukuoka 2/18/12 10,000 Niigata 2/19/12 10,000 Niigata 2/23/12 10,000 Sapporo 2/24/12 10,000 Sapporo 3/3/12 10,000 Hiroshima 3/4/12 10,000 Hiroshima 3/9/12 8,000 Fukui 3/10/12 8,000 Fukui 3/13/12 16,000 Osaka 3/14/12 16,000 Osaka 3/17/12 37,000 Saitama 3/18/12 37,000 Saitama 3/20/12 37,000 Saitama 4/14/12 50,000 Tokyo Dome 4/15/12 50,000 Tokyo Dome 4/16/12 50,000 Tokyo Dome 4/21/12 40,000 Osaka Dome 4/22/12 40,000 Osaka Dome 4/23/12 40,000 Osaka Dome 4/25/12 11,000 Fukuoka 4/29/12 11,000 Hokkaido 5/3/12 10,000 Nagoya 5/4/12 10,000 Nagoya 5/8/12 16,000 Osaka 5/9/12 16,000 Osaka 5/12/12 10,000 50,000 Hyogo 5/13/12 10,000 50,000 Hyogo 5/30/12 13,000 Tokyo 5/31/12 13,000 Tokyo 6/2/12 13,000 Tokyo 6/3/12 13,000 Tokyo 6/23/12 13,000 Tokyo 6/24/12 13,000 Tokyo 6/30/12 10,000 Hiroshima 7/1/12 10,000 Hiroshima 8/4/12 50,000 Tokyo Dome 8/5/12 50,000 Tokyo Dome 2012 GirlsÊ Generation Arena Tour Note: Unofficial figures; Concert scales are based on maximum seating capacity of the venues; Concert hall seating capacities can vary by seating plan (Osaka Hall's maximum capacity is 6,200 seats for A type, 11,200 seats for B type, and 16,000 seats for C type); Source: Wikipedia Korea, JNTO, SHINee Japanese official website (shinee.jp), Naver Blog (guduri44, forgotten_13), Egloos Blog (yurui), KDB Daewoo Securities Research
KDB Daewoo Securities Research 13 May 31, 2012 SM Entertainment
SM Entertainment (041510 KS/Buy/TP: W57,400)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 110 188 242 270 Current Assets 83 186 262 343 Cost of Sales 73 96 125 139 Cash and Cash Equivalents 13 83 142 215 Gross Profit 37 92 118 131 AR & Other Receivables 16 27 34 38 SG&A Expenses 16 20 23 25 Inventories 2 3 3 4 Operating Profit (Adj) 21 72 94 106 Other Current Assets 16 27 35 39 Operating Profit 21 72 94 106 Non-Current Assets 71 189 221 248 Non-Operating Profit 0 8 10 12 Investments in Associates 3 30 30 30 Net Financial Income -2 -2 -5 -7 Property, Plant and Equipment 4 4 3 3 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 6 6 6 6 Pretax Profit 21 80 104 118 Total Assets 154 376 483 591 Income Tax 4 18 22 25 Current Liabilities 44 73 94 104 Profit from Continuing Operations 17 62 82 93 AP & Other Payables 28 49 63 70 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 3 3 3 3 Net Profit 17 62 82 93 Other Current Liabilities 13 22 28 31 Controlling Interests 17 62 82 93 Non-Current Liabilities 2 4 5 6 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 16 66 86 97 Other Non-Current Liabilities 2 4 5 6 Controlling Interests 16 66 86 97 Total Liabilities 46 78 99 110 Non-Controlling Interests 0 0 0 0 Controlling Interests 108 298 384 481 EBITDA 26 77 100 111 Capital Stock 8 12 12 12 FCF (Free Cash Flow) 17 43 69 81 Capital Surplus 55 176 176 176 EBITDA Margin (%) 23.2 40.8 41.1 41.0 Retained Earnings 45 107 189 282 Operating Profit Margin (%) 18.9 38.3 39.0 39.2 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 15.0 33.0 33.9 34.4 Stockholders' Equity 108 298 384 481
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 21 32 72 83 P/E (x) 45.5 13.0 9.9 8.7 Net Profit 17 62 82 93 P/CF (x) 35.0 12.1 9.3 8.3 Non-Cash Income and Expense 9 15 18 18 P/B (x) 7.3 2.8 2.2 1.7 Depreciation 1 1 1 0 EV/EBITDA (x) 27.8 9.1 6.4 5.1 Amortization 4 4 5 5 EPS (W) 894 3,105 4,106 4,636 Others -1 6 5 5 CFPS (W) 1,303 3,337 4,366 4,880 Chg in Working Capital 1 -28 -6 -3 BPS (W) 5,563 14,314 18,537 23,270 Chg in AR & Other Receivables -9 -11 -8 -4 DPS (W) 0 0 0 0 Chg in Inventories 1 -1 -1 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables 12 20 14 7 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid -6 -18 -22 -25 Revenue Growth (%) 27.2 71.2 28.8 11.2 Cash Flows from Inv Activities -19 -86 -12 -10 EBITDA Growth (%) -7.6 201.2 29.8 11.0 Chg in PP&E -1 0 0 0 Operating Profit Growth (%) -19.2 246.9 31.0 11.9 Chg in Intangible Assets -4 -4 -4 -4 EPS Growth (%) -33.5 247.3 32.2 12.9 Chg in Financial Assets 0 -43 0 0 Accounts Receivable Turnover (x) 10.9 9.7 8.6 8.1 Others -13 -39 -8 -6 Inventory Turnover (x) 59.7 90.2 80.4 75.3 Cash Flows from Fin Activities 1 124 0 0 Accounts Payable Turnover (x) 6.6 6.8 6.1 5.7 Chg in Financial Liabilities 0 0 0 0 ROA (%) 12.0 23.4 19.1 17.3 Chg in Equity 1 124 0 0 ROE (%) 16.5 30.6 24.1 21.5 Dividends Paid 0 0 0 0 ROIC (%) 92.4 233.2 219.0 219.9 Others 0 0 0 0 Liability to Equity Ratio (%) 42.4 26.0 25.8 22.8 Increase (Decrease) in Cash 3 70 59 73 Current Ratio (%) 189.9 254.5 279.9 330.2 Beginning Balance 10 13 83 142 Net Debt to Equity Ratio (%) Ending Balance 13 83 142 215 Interest Coverage Ratio (x) Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 14 May 31, 2012 SM Entertainment
Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
Buy Relative performance of 20% or greater (W) SM Entertainment Stock Trading Buy Relative performance of 10% or greater, but with volatility 80,000 Ratings Hold Relative performance of -10% and 10% 60,000
Sell Relative performance of -10% 40,000
Overweight Fundamentals are favorable or improving 20,000 Industry Neutral Fundamentals are steady without any material changes Ratings 0 6/10 11/10 5/11 11/11 5/12 Underweight Fundamentals are unfavorable or worsening * 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 Daewoo Securities, 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 analystÊs 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.
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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted 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 Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. („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 from sources believed to be reliable and in good faith, but such information has not been independently verified and 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. If this report is 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. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. 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 and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and 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 Daewoo. 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. 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. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
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