YG Entertainment (122870.KQ) Global Recognition Confirmed by New Records

YG Entertainment (122870.KQ) Global recognition confirmed by new records

Company Note │Jun 30, 2020

BLACKPINK’s How You Like That has set new records on Spotify and ※ Refer to page 2 for YouTube, confirming increased global awareness of the group. The group is ESG index/event tables also expected to set a new K-pop record for the Billboard Hot 100 chart, which is based on popularity. We raise our TP on the firm to W48,000 Buy (maintain) (+29.7%), and continue to recommend it as a sector top pick. TP (12-mth) W48,000 (raise) CP (’20/06/29) W37,000 Sector Entertainment BLACKPINK confirms strong global awareness Kospi/Kosdaq 2,093.48 / 734.69 Market cap (common) US$561.80mn BLACKPINK’s new single How You Like That (released on Jun 26) from its Outstanding shares (common) 18.2mn upcoming album is setting new records in digital channels. Both the time 52W high (’20/06/29) W37,000 required to reach 100mn views on YouTube (32 hours) and reaching second in low (’19/08/26) W19,450 Average trading value (60D) US$10.68mn Spotify’s daily global rankings are new K-pop records. Demand for the group’s Dividend yield (2020E) 0.00% album and merchandise to be released on Jul 17 is expected to be high. We Foreign ownership 12.9% believe that future releases will continue to be successful based on the firm’s Major shareholders high global recognition. HS Yang & 5 others 21.0% NAVER 9.1% Pay particular attention to growth of digital channels in NA market Share perf 3M 6M 12M Absolute (%) 51.6 38.3 27.8 BLACKPINK’s How You Like That recently ranked eighth on the North Relative (%p) 7.9 24.5 20.1 American (NA) Spotify chart, which is a record for the group. We also expect 2019 2020E 2021F 2022F BLACKPINK to break the K-pop record for the Billboard Hot 100 entry (33rd). Sales 264.5 272.7 384.5 423.3 Considering that both charts are based on popularity, we believe that public Chg -1.7 3.1 41.0 10.1 awareness of the group is expanding in NA. Such demand should serve as a OP 0.9 19.1 41.8 47.9 growth driver for digital music sales regardless of Covid-19. In addition, concert Chg -95.5 2,022.2 118.8 14.6 revenue is likely to level up once tours resume. OPM 0.3 7.0 10.9 11.3 NP -21.5 17.8 29.1 52.6 Maintain as sector top pick considering differentiated momentum EPS -1,184 978 1,597 2,891 Chg -222.3 -182.6 63.3 81.0 We maintain our Buy rating and raise our TP from W37,000 to W48,000. When P/E N/A 37.8 23.2 12.8 previously calculating our TP, we applied a 25% discount rate considering the P/B 1.5 1.9 1.8 1.5 financial market and external environment uncertainty related to Covid-19. EV/EBITDA 29.1 15.5 10.5 9.1 However, we have now lifted this discount to reflect the company’s ROE -6.2 5.1 7.9 12.8 differentiated momentum in NA. Debt/equity 22.5 24.3 24.3 22.2 Regardless of Covid-19, we expect the firm to benefit from: 1) the growth Net debt -37.1 -48.7 -91.4 -135.4 Unit: Wbn, %, won, x potential of digital channels; and 2) its lineup expansion (newcomers, Note 1: NP excludes minority interests BIGBANG). When the external environment improves, focus on the company is Note 2: EPS, P/E, P/B, ROE based on NP (excl minority interests) predicted to increase given its lineup of two large groups (BIGBANG, Source: NH I&S Research Center estimates BLACKPINK) that are capable of conducting global dome tours. Short-term momentum is likely to be driven by Treasure 12’s debut → BLACKPINK’s single release → BLACKPINK’s album release.

2Q20 preview (Units: Wbn, %) 2Q20E 2Q19 3Q19 4Q19 1Q20 3Q20F Est y-y q-q Prev Consen Sales 78.1 63.7 58.0 52.8 50.0 -36.0 -5.4 50.3 54.2 79.4 OP 0.2 -3.0 3.1 -2.1 0.7 -41.8 TTP 0.9 -0.7 8.0 OPM 0.3 -4.7 5.4 -4.0 1.4 1.7 -1.3 10.1 Pre-tax profit -9.2 -7.5 -2.6 -5.7 2.2 TTP TTP 2.4 1.2 9.5 Hazell Lee, Analyst 822)768-7535, [email protected] NP (excl min int) -6.1 -4.8 19.0 -12.7 2.8 TTP TTP 2.9 0.2 11.9 Note: K-IFRS consolidated; Source: FnGuide, NH I&S Research Center estimates YG Entertainment www.nhqv.com

Summary

Established in Feb 1998, YG Entertainment is an entertainment firm that plans, produces, and distributes albums and manages artists. It also engages in other businesses via subsidiaries. The company plans to dispose of businesses unrelated to music (eg, cosmetics and exports) by end-2020. Major artists include BLACKPINK, BIGBANG, iKON, and WINNER. In 2H20, two new groups, including Treasure, are slated to debut. By business, 2019 sales broke down as: 1) albums 5%, digital tracks 21%, artist merchandise 8%, concerts 9%, royalties (Japan) 7%, and others 50%. In light of its higher earnings visibility and growth potential, we present a Buy rating and TP of W48,000 for YG Entertainment, offering the play as our sector top pick.

Share price drivers/earnings momentum Downside risks

Improvement in Korea-China relations to enable firm to obtain Governance risks approval for concerts in China for BIGBANG and BLACKPINK Failure to secure successful new artist lineups Concerts in regions where K-pop has yet to enjoy popularity Uncertainties regarding contract renewals with major artists

Cross valuations (Unit: x, %) Historical valuations (Unit: x, %)

P/E P/B ROE Company Valuations 2018 2019 2020E 2021F 2022F 2020E 2021F 2020E 2021F 2020E 2021F JYP Ent. 20.4 16.3 3.6 3.1 17.8 19.0 P/E 49.1 N/A 37.8 23.2 12.8 SM Entertainment 44.8 15.1 1.1 1.1 2.5 7.1 P/B 2.6 1.5 1.9 1.8 1.5 Cube Entertainment N/A N/A N/A N/A N/A N/A P/S 3.2 1.9 2.5 1.8 1.6 J Contentree 560.0 15.3 1.5 1.4 0.3 9.0 ROE 5.1 -6.2 5.1 7.9 12.8 ROIC 6.8 0.4 4.9 12.4 15.7 Source: FactSet, NH I&S Research Center Source: NH I&S Research Center

ESG index (Unit: %, Wbn, years, hours, ‘000TJ, mn tCO2e, mn tons)

BOD composition Human resources 2017 2018 2019 Hwang Bo-kyung CEO and BOD chair Inside Portion of female employees 50.7 53.6 52.6 Yang Min-seok YG PLUS CEO Inside Portion of contract workers 5.9 5.2 1.9 Choi Sung-joon Inside Avg service period per employee 2.8 3.3 4.0 Yu Hae-min Inside Avg training hours per employee N/A N/A N/A Kim Ro-sean Inside Lee Ho-sang Outside Environment 2017 2018 2019 Tang Xiao Ming Outside Energy consumption N/A N/A N/A Cho Young-bong Outside Greenhouse gas emissions N/A N/A N/A Recycled water consumption N/A N/A N/A Recycled waste N/A N/A N/A Source: YG Ent, NH I&S Research Center

ESG events

E – N/A 2019.6 – Investigations began over former CEO Yang Hyun-seok’s alleged cover-up of drug purchase by firm’s artist S – Investigations began over alleged violation of the Act on the Punishment of Arrangement of Commercial Sex Acts by a former 2019.2 Big Bang member during his operation of a club – Faced a fine of W3.5bn regarding remittance to overseas branches and income taxes that were unreported by subsidiaries and 2016.8 G overseas branches 2009.12 – Three employees were prosecuted for embezzling W2.5bn from artists’ performance fees Source: YG Ent, NH I&S Research Center

2 YG Entertainment www.nhqv.com

BLACKPINK has high global recognition BLACKPINK’s BLACKPINK’s new single How You Like That (released on Jun 26) from its upcoming record-setting album is setting new records in digital channels. Both the time required to reach 100mn results confirm its views on YouTube (32 hours vs 36 hours for BTS’s ON) and reaching second in global recognition Spotify’s daily global rankings (vs third place for BTS’s Boy With Luv (Feat Halsey)) are new K-pop records.

High initial hits on As the general public tends not to follow information on artists’ comeback dates or video YouTube prove that releases, we believe that initial hits on YouTube mainly come from fans. Based on its artists boast strong high number of YouTube hits, BLACKPINK appears to have a strong fan base. fan base Accordingly, we expect to see strong demand for the group’s album and merchandise to be released on Jul 17. Future releases will likely continue to be successful given the firm’s high global recognition.

Ranking high on We draw particularly attention to BLACKPINK’s success in NA. How You Like That Spotify recently ranked eighth on the NA Spotify chart, which is a new record for the group. We also expect BLACKPINK to break the K-pop record for the Billboard Hot 100 entry (33rd). Considering that both charts are based on popularity, we believe that public awareness of the group is increasing in NA. In our view, YG Ent’s partnership with Interscope Records and the group’s appearance at Coachella Valley Music and Arts Festival have helped the group achieve these results. Future digital track sales should be boosted by demand from NA fans. Also, concert revenue is likely to level up once tours resume.

Google Trends for BLACKPINK (US, YouTube): Trends up following new song release

(Index) BLACKPINK Ariana Grande Taylor Swift BTS 120

100

80 'How You Like That' release

0 '18.6 '18.8 '18.10 '18.12 '19.2 '19.4 '19.6 '19.8 '19.10 '19.12 '20.2 '20.4 '20.6

Source: Google Trends, NH I&S Research Center estimates

3 YG Entertainment www.nhqv.com

Records set by How Do You Like That Details – The music video garnered 100mn views within 32 hours of its release YouTube – Backed by the success of the new song, views for the group’s 2018 song DDU-DU DDU- DU surpassed 1.2bn at around 8am on Jun 29 (Korean time)—a first for a K-pop song – The song ranked first on Apple iTunes in 60-plus countries—the largest number of first Apple iTunes places for a Korean girl group – The song ranked second in Spotify’s daily global rankings on Jun 27, the second day after its release (this ranking is higher than the group’s Kill This Love’s fifth place and Boy with Spotify Luv’s third place) – The song ranked eighth on the US chart—the first K-pop song to make the top-10 list beside Sour Candy (collaberation with Lady Gaga) Major digital music – The song ranked first in domestic, Japanese, and Chinese digital music platforms platforms in Korea, – More than 330,000 digital sales on QQ within 15 minutes Japan, and China – On the Billboard Hot 100 chart, the group’s Kill This Love ranked 41st and Sour Candy Billboard chart (collaberatoin with Lady Gaga) ranked 33rd – Expectations are mounting that the new song will set a record high Variety – On Variety, the song was chosen as one of the best singles of the week

Source: Media reports, NH I&S Research Center

Global streams on Spotify two days following release US streams on Spotify two days following release

(mn streams) First day from release Second day from release (mn streams) First day from release Second day from release

7 6.2 2.0 6 1.5 4.9 1.5 5 4.1 3.7 4.0 4 1.0 0.8 0.8 0.8 0.8 3 2.5 2.5 0.7 0.6 2 1.4 0.5 0.3 1 0.0 0 How You LIke Sour Candy Kill This Love ON How You LIke Sour Candy Kill This Love ON That (2020.05.28) (2019.04.04) (2020.02.21) That (2020.05.28) (2019.04.04) (2020.02.21) (2020.06.26) (2020.06.26) BLACKPINK BTS BLACKPINK BTS

Source: Spotify, NH I&S Research Center Source: Spotify, NH I&S Research Center

4 YG Entertainment www.nhqv.com

Maintain as sector top-pick on differentiated momentum Maintain Buy We maintain a Buy rating on YG Entertainment, and recommend the firm as a sector top rating and continue pick. While it remains uncertain when offline concerts will resume, we believe the to recommend as a company’s differentiated mid/long-term momentum will be sufficient to make up for sector top pick such uncertainties. Over the near term, scheduled events for 2020, including: 1) Treasure 12’s debut in July; 2) BLACKPINK’s single release in August; and 3) BLACKPINK’s album release in September), should proceed as planned.

Raise TP to We raise our TP by 29.7% from W37,000 to W48,000. While our base year (2021F) and W48,000 target P/E (30x) remain unchanged, we removed a 25% discount previously applied to our TP calculation due to Covid-19. As BLACKPINK’s recent performances prove, YG’s differentiated capabilities in terms of market expansion (NA, mainly) should be sufficient to make up for Covid-19-related uncertainties.

We note that the firm’s differentiated earnings momentum is based on the following.

1) Digital sales 1) Strong digital sales growth based on market expansion: In our view, the global success growth potential of BLACKPINK’s latest song How You Like That well confirms the group’s strong global fan base. In particular, the song’s strong Spotify rankings (second on the global chart and eighth on the US chart) show that the group has mass appeal in the global market. Based on its growing popularity, we expect BLACKPINK to enjoy bullish digital sales going forward. Though it remains uncertain when the group can resume its global concerts, stable digital music sales growth should support YG’s earnings in the meantime.

2) New artist 2) New artist addition: New artist lineups should also drive YG’s overall album and addition digital music sales growth. The firm’s new boy group Treasure 12 is set to make its debut at end-July. Moreover, the comeback of its major K-pop group BIGBANG could push up digital music sales significantly—over 2014~2015, when BIGBANG was the center of YG’s album sales, YG’s annual digital music sales amounted to W20~27bn. Meanwhile, as Japanese members represent a large portion of the group members, the new boy group Treasure 12 will likely target the Japanese market once it establishes itself in Korea.

3) Two major K-pop 3) Two major K-pop groups capable of global dome tours: YG manages two major K- groups capable of pop groups (BIGBANG and BLACKPINK) which are capable of global dome tours. dome tours Both groups enjoy strong popularity in both China and the US, and in particular, it appears that BLACKPINK will be capable of conducting dome tours in both countries. Accordingly, we believe YG is well positioned to benefit from a resumption of global concert tours upon the subsiding of the Covid-19 pandemic, and also from a resumption of dome tours in China upon the lifting of the Chinese government’s restrictions on Korean content and culture.

5 YG Entertainment www.nhqv.com

Target P/E valuation (Unit: Wbn, x, won, shrs) 2021F Multiple (x) Value Note At a 25% discount to its average P/E during global expansion NP (excl minority interests) 29.2 P/E 30.0 872.2 period (2012~2014) Total EV 872.2 Fair value/share 47,913 TP 48,000 Upside 29.7% Total shares 18,203,809 Source: NH I&S Research Center

Earnings forecasts (IFRS consolidated) (Unit: Wbn, won, x, %) 2019 2020E 2021F 2022F Sales - Revised 264.5 272.7 384.5 423.3 - Previous 278.1 365.6 408.2 - Change -1.9 5.2 3.7 OP - Revised 0.9 19.1 41.8 47.9 - Previous 20.4 42.9 53.7 - Change -6.4 -2.6 -10.8 OPM - Revised 0.3 7.0 10.9 11.3 EBITDA 18.8 45.5 63.1 65.8 NP (excl minority interests) -21.5 17.8 29.1 52.6 EPS - Revised -1,184 978 1,597 2,891 - Previous 1,045 1,642 3,178 - Change -6.4 -2.7 -9.0 P/E N/A 34.6 21.2 11.7 P/B 1.5 1.7 1.6 1.4 EV/EBITDA 29.1 14.2 9.6 8.3 ROE -6.2 5.1 7.9 12.8 Note: EPS, P/E, P/B, and ROE based on NP (excluding minority interests) Source: NH I&S Research Center estimates

6 YG Entertainment www.nhqv.com

Quarterly earnings forecasts (Unit: Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20E 3Q20F 4Q20F 2018 2019 2020E 2021F Sales 76.7 61.7 64.2 66.4 64.7 78.1 63.7 58.0 52.8 50.0 79.4 90.5 269.0 264.5 272.7 384.5 Products 19.4 25.8 29.9 25.7 18.9 25.6 23.2 22.0 16.6 19.9 40.2 45.8 100.9 89.6 122.5 176.9 Album/DVD 2.1 3.4 2.6 2.4 2.2 4.4 2.7 2.2 1.7 2.2 5.9 5.5 10.5 11.4 15.2 23.3 Digital content 11.3 13.0 14.1 11.5 9.6 11.6 9.8 9.9 9.9 9.2 24.3 29.9 49.9 41.0 73.2 120.8 Merchandise 6.0 9.4 13.3 11.7 7.0 9.6 10.7 10.0 5.0 8.5 10.1 10.5 40.5 37.3 34.2 32.8 (Others) Concert 1.8 1.2 4.8 5.6 8.7 6.4 2.5 3.1 1.9 - - 2.9 13.3 20.6 4.8 51.6 Ad 7.3 7.9 7.0 8.0 8.9 10.2 10.7 12.1 9.4 7.4 15.1 10.6 30.1 41.8 42.4 48.4 Royalty 34.7 5.0 4.0 5.7 5.4 4.9 4.7 5.1 7.9 5.4 4.7 8.6 49.3 20.0 26.6 27.4 Performance fee 3.2 4.7 3.7 4.8 3.8 4.7 5.5 4.6 3.3 2.3 4.5 5.3 16.4 18.6 15.4 17.3 Production 3.3 0.4 1.3 11.9 0.0 0.1 0.0 0.1 0.0 0.1 0.1 0.1 16.9 0.3 0.3 0.3 Commission 7.4 14.2 9.0 8.8 7.1 13.9 7.1 8.9 4.9 6.8 6.4 8.7 39.5 37.0 26.8 29.0 Music service - 3.6 5.5 10.2 8.8 10.0 8.0 9.6 8.8 8.2 8.4 8.4 19.3 36.4 33.9 33.7 (for reference) 6.7 13.1 8.6 24.9 24.0 41.3 31.2 38.2 19.3 21.4 22.7 25.5 53.4 134.8 89.0 84.8 YGPLUS Sales y-y (%) -28% -15% -15% -31% -16% 27% -1% -13% -18% -36% 25% 56% -23% -2% 3% 41% COGS 56.5 40.4 43.1 38.9 47.3 55.7 45.6 35.5 35.5 31.5 52.2 60.5 179.0 184.1 179.8 264.6 Album 11.0 18.0 21.5 25.0 13.5 16.1 17.3 11.3 10.9 12.9 26.2 29.8 75.5 58.2 79.7 115.0 Concert 2.2 1.4 4.4 5.0 7.3 5.4 2.1 3.1 1.7 - - 2.5 13.0 17.8 4.2 44.8 Service 36.4 18.9 14.8 17.3 23.2 31.9 25.7 25.6 22.4 18.3 25.8 27.9 87.5 106.4 94.4 103.6 Production 7.2 2.7 3.0 12.1 0.6 0.6 0.6 0.5 0.5 0.3 0.3 0.3 24.9 2.4 1.4 1.2 COGS-to-sales 74% 65% 67% 59% 73% 71% 72% 61% 67% 63% 66% 67% 67% 70% 66% 69% ratio COGS y-y (%) -24% -15% -21% -47% -16% 38% 6% -9% -25% -43% 14% 71% -28% 3% -2% 47% GP 20.2 21.3 21.1 27.4 17.3 22.5 18.1 22.5 17.3 18.4 27.1 30.0 90.0 80.4 92.9 119.9 GPM 26% 35% 33% 41% 27% 29% 28% 39% 33% 37% 34% 33% 33% 30% 34% 31% GP y-y (%) -39% -14% 1% 23% -14% 6% -14% -18% 0% -18% 50% 33% -11% -11% 16% 29% OP 2.3 1.2 2.6 3.1 -2.3 0.2 -3.0 7.1 -2.1 0.7 8.0 12.4 9.3 2.0 19.1 41.8 OPM 3% 2% 4% 5% -3% 0% -5% 12% -4% 1% 10% 14% 3% 1% 7% 11% OP y-y (%) -84% -72% 79% -31% TTL -82% TTL 125% RR 228% TTP 76% -63% -78% 842% 119% NP (excl minority 2.3 -0.1 2.0 13.6 8.4 -6.1 -4.8 -19.0 -4.2 2.0 8.5 11.6 17.8 -21.5 17.8 29.1 interests) NPM (cont.) 3% 0% 3% 20% 13% -8% -8% -33% -8% 4% 11% 13% 7% -8% 7% 8% NP (excl minority -68% -102% -68% TTP 264% RR TTL TTL TTL TTP TTP TTP 0% TTL TTP 63% interests) %y-y Note 1: Service = Ad+royalty+performance fee+commission Note 2: 2019 sales and COGS breakdown reflects effects related to discontinued operations (consolidated: YG Goods, non-consolidated: production unit) throughout all quarters, but 1Q19~3Q19 sales and COGS figures left unchanged; accordingly, 2019 sales and COGS figures are different from the simple sum of breakdown figures Source: YG Ent, NH I&S Research Center estimates

7 YG Entertainment www.nhqv.com

STATEMENT OF COMPREHENSIVE INCOME Valuation / Profitability / Stability (Wbn) 2019/12A 2020/12E 2021/12F 2022/12F 2019/12A 2020/12E 2021/12F 2022/12F Sales 264.5 272.7 384.5 423.3 Price/ Earning (X) N/A 37.8 23.2 12.8 Growth (%) -1.7 3.1 41.0 10.1 Price/ Book Value (X) 1.5 1.9 1.8 1.5 COGS 184.1 179.8 264.6 294.7 Price/ Gross Cash Flow (X) 28.6 15.5 11.7 11.7 Gross Profit 80.4 92.9 119.9 128.6 Price/ Sales (X) 1.9 2.5 1.8 1.6 Gross margin (%) 30.4 34.1 31.2 30.4 EV/ EBITDA (X) 29.1 15.5 10.5 9.1 SG&A 79.5 73.9 78.1 80.7 EV/ EBIT (X) 617.1 36.9 15.8 12.5 Operating Income 0.9 19.1 41.8 47.9 Fully diluted EPS (W) -1,184 978 1,597 2,891 Growth (%) -95.5 2,022.2 118.8 14.6 BVPS (W) 18,508 19,478 21,075 23,966 Operating margin (%) 0.3 7.0 10.9 11.3 Sales PS (W) 14,535 14,980 21,122 23,250 EBITDA 18.8 45.5 63.1 65.8 ROE (%) -6.2 5.1 7.9 12.8 Non-Operating Profits -2.8 -0.1 -2.0 -2.0 ROA (%) -4.4 2.3 5.2 6.0 Financial Income(Costs) 2.2 -0.1 -2.0 -2.0 ROIC (%) 0.4 4.9 12.4 15.7 Other Non-Operating Profits -5.0 0.0 0.0 0.0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Gains(Losses) in Associates, Subsidiaries and JVs 0.0 0.0 0.0 0.0 Payout Ratio (%) 0.0 8.4 0.0 7.6 Pre-tax Profit from Cont. Op. -2.0 19.0 39.8 45.9 Total Cash Dividend (Wbn) 0.0 1.5 0.0 4.0 Income Taxes 11.6 6.9 10.8 10.1 Cash DPS (W) 0 0 0 0 Profit from Continuing Op. -13.6 12.1 29.1 35.8 Net debt(cash)/ equity (%) -8.8 -11.2 -19.7 -27.2 Net Profit -24.6 12.1 29.1 35.8 Debt/ equity (%) 22.5 24.3 24.3 22.2 Growth (%) -254.7 -149.2 140.5 23.0 Interest-Bearing Debts (Wbn) 12.4 14.4 15.2 14.2 Net margin (%) -9.3 4.4 7.6 8.5 Current Ratio (%) 209.3 224.2 263.7 319.7 Net Profit of Parent -21.5 17.8 29.1 52.6 Total shares (mn) 18 18 18 18 Net Profit to Non-Controlling -3.1 -5.7 0.0 -16.8 Par value (W) 500 500 500 500 Other Comprehensive Income 0.9 0.0 0.0 0.0 Share price (W) 27,350 37,000 37,000 37,000 Total Comprehensive Income -23.8 12.1 29.1 35.8 Market Cap (Wbn) 497.7 673.6 673.6 673.6

STATEMENT OF FINANCIAL POSITION CASH FLOW STATEMENT (Wbn) 2019/12A 2020/12E 2021/12F 2022/12F (Wbn) 2019/12A 2020/12E 2021/12F 2022/12F Cash and Cash Equivalents 47.8 61.4 104.9 148.0 Operating Cash Flow 59.6 25.2 43.5 47.4 Accounts Receivables 15.3 16.8 18.5 20.4 Net Profit -24.6 12.1 29.1 35.8 Total Current Assets 160.5 195.5 247.5 294.7 Depreciation&Amortization 17.9 26.4 21.3 17.9 Tangible Assets 149.1 140.9 122.7 110.9 + Loss(Gains) from Subs -1.1 0.0 0.0 0.0 Investment Assets 142.1 139.1 142.6 142.6 + FC translation loss(profit) 0.0 0.0 0.0 0.0 Non-Current Assets 355.9 343.5 327.8 314.9 Gross Cash Flow 17.4 43.5 57.6 57.4 Assets 516.3 539.0 575.3 609.6 - Incr. (Decr.) in WC 43.3 -13.3 -6.8 -6.3 Short-Term Debt 13.3 15.6 21.2 21.9 Investing Cash Flow 12.2 -14.0 -5.5 -5.0 Account Payables 12.8 10.9 12.0 9.6 + Decr. In Tangible Assets 0.1 0.0 8.0 0.0 Current Liabilities 76.7 87.2 93.9 92.2 - Incr. In Tangible Assets(CAPEX) -40.6 -17.0 -10.0 -5.0 Long-Term Debt 16.7 16.7 16.7 16.7 + Disp.(Acq.) of Inv. Assets 45.9 3.0 -3.5 0.0 Long-Term Allowance 0.0 0.0 0.0 0.0 Free Cash Flow 19.0 8.2 33.5 42.4 Non-Current Liabilities 18.0 18.1 18.6 18.8 Net Cash Flow 71.7 11.3 37.9 42.4 Liabilities 94.7 105.3 112.5 110.9 Financing Cash Flow -83.4 2.4 5.6 0.7 Capital Stock 9.3 9.3 9.3 9.3 Equity Financing 0.4 0.0 0.0 0.0 Capital Surplus 209.9 209.9 209.9 209.9 Debt Financing -83.8 2.4 5.6 0.7 Retained Earnings 115.2 133.0 162.1 214.7 Incr.(Decr.) in Cash -10.8 13.6 43.5 43.1 Non-Controlling Interests Equity 84.9 79.2 79.2 62.3 Ending Cash and Cash Equivalents 47.8 61.4 104.9 148.0 Shareholders' Equity 421.7 433.8 462.8 498.6 Net Debt (Cash) -37.1 -48.7 -91.4 -135.4 Note 1: YG Ent repaid W65bn in relation to redeemable convertible preferred stocks held by Great World Music Investment (LVMH's subsidiary, including interests) in Oct 2019 Note 2: Investment (W55bn) for new headquarters construction (completed in 2019), with some remaining balance to be paid in 2020 Source: NH I&S Research Center

8 YG Entertainment www.nhqv.com

Rating and TP update YG Entertainment (122870.KQ) Disparity ratio (%) Date Rating TP Avg Max/Min (won) 2020.06.30 Buy W48,000(12M) - - Closing Price Target price(12M) 60,000 2020.04.08 Buy W37,000(12M) -17.8% -8.5% 2020.02.25 Buy W40,000(12M) -37.4% -20.0% 48,000 2020.01.07 Buy W36,000(12M) -7.8% -0.6% 36,000 2019.08.19 Hold W24,000(12M) 2.4% - 24,000 2019.05.13 Buy W50,000(12M) -42.7% -28.3% 2018.12.13 Buy W56,000(12M) -26.4% -12.6% 12,000 2018.10.30 Buy W48,000(12M) -14.7% -5.1% 0 '18.6 '18.10 '19.2 '19.6 '19.10 '20.2 '20.6

NH Investment & Securities stock ratings 1. Rating based on a stock’s forecasted absolute return over a period of 12 months from the date of publication.

l Buy: Greater than +15% l Hold: -15% to +15% l Sell: Less than -15% 2. Regarding listed companies under NH I&S’ coverage, our stock ratings break down as follows (as of Jun 26, 2020).

l NH I&S’ stock rating distribution Buy Hold Sell 76.2% 23.3% 0.5%

- The stock rating on an individual company can change at irregular intervals. Our stock rating distribution is calculated on a weekly basis.

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l NH I&S does not have a stake greater than or equal to 1% in YG Entertainment as of the preparation date. l NH I&S has not provided this material to any institutional investor or other third party in advance. l The analyst and his/her spouse do not own any securities of YG Entertainment as of the preparation date. l The report is a reflection of the analyst’s opinion, and has been drawn up independent of any external influence.

Disclosures The research is based on current public information that NH I&S considers reliable, but NH I&S does not represent it as accurate or complete and it should not be relied on as such. Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and NH I&S is in no way legally responsible for future returns or loss of original capital. All materials in this report are the intellectual property of NH I&S. Copying, distributing, transmitting, transforming or lending of this material without NH I&S' consent is prohibited.