Company Note SM Entertainment (041510.KQ) BUY / TP KRW50,000 July 22, 2019 Travel/Casino/Entertainment/Small-cap Peter Yoo +822-3787-2574
[email protected] Time for a change of tune Share price (KRW, Jul 19) 36,750 1) Investment highlights Upside (%) 36.1 - We maintain BUY on SM Entertainment but reduce our target price to KRW50,000. Market cap (KRW bn) 860 - We believe parent earnings were modest thanks to new albums released by a string of artists including Shares outstanding (’000) 23,398 Red Velvet as well as NCT127’s world tour. Paid-in capital (KRW bn)/Face value (KRW) 12/500 - Unprofitable subsidiaries have continued to remain in the red. 52-week high/low (KRW) 56,100/35,900 - SM is expected to respond to the request of activist funds to enhance shareholder value. 60-day avg. daily T/O (KRW bn) 13 Foreign ownership (%) 15.97 2) Major issues and earnings outlook Major shareholders (%) Lee Su Man and - SM’s 2Q19 results will likely miss consensus expectations, with sales coming in at KRW145.4bn (+17% 7 others 19.26 YoY) and operating profit at KRW9.5bn (-5.6% YoY). Price performance 1M 3M 6M - The parent unit SME likely sold more than 1.1mn albums as Red Velvet, SNSD’s Taeyeon, and Exo’s Chen Absolute (%) -16.9 -10.4 -22.7 released new albums. In addition, the full recognition of NCT127’s US/European tour and digital album Relative (%p) -11.5 1.4 -20.2 sales in China helped keep parent earnings modest.