July 13, 2011 Company Report SM Entertainment (041510 KQ) Entertainment Key earnings indicators to provide investors with clues Chang-kwean Kim +822-768-4321
[email protected] Raise TP to W35,000 on success in Japan Jee-hyun Moon We maintain our Buy call on SM Entertainment and raise our target price to +822-768-3615 W35,000 (from W30,000). We revised up our 2011F and 2012F EPS by 13.9% and
[email protected] 16.1%, respectively, to reflect the companyÊs greater-than-expected success in Japan. Sales volume for GirlsÊ GenerationÊs (SNSD) first full Japanese album st (released on June 1 ) has significantly exceeded our forecast. Indeed, the album achieved double-platinum status (certified by the Recording Industry Association of Japan), which means that its sales volume reached 500,000 copies. We raised our assumptions for the companyÊs 2011 and 2012 Japanese album sales (key variables for royalty income forecasts) to 630,000 copies (from 550,000) and to 2.19mn copies (from 2.02mn), respectively. We were conservative in our Buy (Maintain) 2011 forecast, as a portion of album sales for the year may be deferred to 2012 Target Price (12M, W) 35,000 (given that SNSDÊs album was released in June). Share Price (07/12/11, W) 26,950 We derived our target price by applying a target P/E of 11.3x (30% discount to the Expected Return (%) 29.9 average 2012F P/E of the music industry) to our 2012F EPS of W3,062 (earthquake EPS Growth (11F, %) -23.5 effects should dissipate next year, in our view).