HYBE Corporation Buy (352820 KS ) (Maintain)
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[Korea] Entertainment May 6, 2021 HYBE Corporation Buy (352820 KS ) (Maintain) Foreign buying is happening for a reason TP: W340,000 Upside: 42.0% Mirae Asset Securities Co., Ltd. Jeong -yeob Park [email protected] 1Q21 review : Above our Revenue of W178.3bn (+28.7% YoY), OP of W21.7bn (+9.2% YoY) expectations and in line with While there were no offline performances or album releases (except for TXT in Japan) in the consensus quarter, merchandising/licensing revenue was strong. Direct revenue was W67.5bn (-24.1% YoY), not far off from our estimate (W70.8bn), affected by a lull in artist activities. Indirect revenue surprised at W110.8bn (+123.4% YoY), as merchandising sales remained steady even in the absence of activities. Despite a 12%p QoQ rise in the indirect revenue mix, OP margin declined to 12.2% (-2.2%p YoY, -5.6% QoQ). This was largely due to the absence of activities and one-off expenses related to the company’s office relocation, name change, and M&A, and is thus not a cause for concern. Establishing no. 1 platform Global fan platforms: Pioneering the development of fandom communities and position artist/celebrity merchandising market In 2020, Weverse recorded revenue of W219.1bn (+180% YoY) and operating profit of W15.6bn (turning to profit YoY). MAU in 1Q21 reached 4.9mn. Platform indicators to improve: With the resumption of label activities in 2Q21 and the upcoming inclusion of Ithaca Holdings/YG Entertainment artists, we expect Weverse/Weverse Shop traffic to improve in both quantity and quality (increases in MAU and ARPPU). Expectations outweigh concerns in the long run: Artist activities to resume In 2Q21, BTS will release a new single (“Butter”; May 21), and TXT, Enhypen, NU'EST, and Seventeen will resume album activities. Ithaca Holdings will be consolidated from 2Q21. Offline live performances could resume in 2H21 or be replaced by online shows if necessary. That said, higher costs related to labor, acquisition, and new talent development should limi t the extent of improvement in quarterly and full-year OP margins. The company dismissed the possibility of selling its equity stake in Big Hit Music (label), confirming its commitment to maintaining the independence of its multi-label system. Valuation and recommendation Focus on imminent no. 1 platform status and income model expandability We reaffirm our Buy rating on HYBE Corporation with a target price of W340,000, which is based on a P/E of 60x and our 2021-22F average net profit attributable to owners of the parent. We continue to believe that the company can be compared to Nasdaq-listed social network/content platforms and deserves a multiple consistent with these peers. User inflow following new artist inclusion could trigger significant upside. Key data Current price (5/4/21, W) 239,500 Market cap (Wbn) 8,532 160 HYBE Corporation KOSPI 140 OP (21F, Wbn) 260 Shares outstanding (mn) 39 120 Consensus OP (21F, Wbn) 244 Free float (%) 41.5 100 EPS growth (21F, %) 70.4 Foreign ownership (%) 8.6 80 P/E (21F, x) 50.0 Beta (12M) 1.48 60 40 Market P/E (21F, x) 12.0 52-week low (W) 140,580 5.20 9.20 1.21 5.21 KOSPI 3,147.37 52-week high (W) 273,240 Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2018 2019 2020 2021F 2022F Absolute -0.4 62.4 0.0 Revenue (Wbn) 301 587 796 1,323 1,862 Relative -1.5 21.6 0.0 OP (Wbn) 80 99 146 260 381 OP margin (%) 26.6 16.9 18.3 19.7 20.5 NP (Wbn) -70 74 86 180 254 EPS (W) -2,536 2,574 2,811 4,791 6,559 ROE (%) -80.8 56.5 12.5 14.0 16.9 P/E (x) - - 56.3 50.0 36.5 P/B (x) - - 4.8 6.7 5.7 Div. yield (%) - - 0.0 0.0 0.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Securities Research estimat es Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. May 6, 2021 HYBE Corporation Valuation and earnings forecasts Table 1. HYBE: TP calculation (Wbn) Valuation (P/E) 20 21F 22F 21F-22F avg. Notes No. of shares increased 8.7% Target market value 13,010 13,010 13,010 13,010 due to rights offering NP 86 180 254 217 Target P/E 151.8 72.4 51.2 60.0 Global peer group P/E Fair price (W) 336,058 336,058 336,058 336,058 TP: W340,000 (42.0% upside) Note: Reflected increase in no. of shares due to rights offering Source: Mirae Asset Securities Research estimates Table 2. HYBE: Quarterly and annual earnings (Wbn, %, mn copies) 1Q20 2Q20 3Q20 4Q20 1Q21P 2Q21F 3Q21F 4Q21F 2019 2020 2021F 2022F Revenue 139 155 190 312 178 279 324 542 587 796 1,323 1,862 Direct 89 64 64 155 68 90 83 189 319 371 430 771 % of revenue 64.2 41.5 33.7 49.5 37.9 32.3 25.6 35.0 54.4 46.6 32.5 41.4 Albums 81 52 47 141 54 76 69 124 108 321 323 452 Live performances 0 1 3 0 0 0 0 50 191 3 50 250 Ads/appearance fees 8 11 14 14 13 14 14 16 20 47 57 68 Indirect 50 91 126 158 111 139 181 302 268 425 733 1,092 % of revenue 35.8 58.5 66.3 50.5 62.1 49.8 55.9 55.8 45.6 53.4 55.4 58.6 Merchandise/licensing 34 57 100 67 65 78 101 151 170 259 395 592 Content 8 27 16 81 37 52 70 140 78 133 300 450 Other (fan club, etc.) 7 7 10 10 9 9 10 10 20 33 39 50 Ithaca, etc. 0 0 0 0 0 50 60 50 0 0 160 240 OP 20 30 40 56 22 45 66 127 99 146 260 381 OP margin 14.4 19.2 21.1 17.8 12.2 16.0 20.3 23.5 16.8 18.3 19.6 20.5 NP 21 26 38 42 24 47 68 130 0 126 269 386 Net margin 14 18 25 29 16 32 46 86 74 86 180 254 YoY 10.1 11.5 13.3 9.1 8.8 11.4 14.1 15.9 12.6 10.8 13.6 13.6 Revenue Direct NA NA NA NA 28.7 79.5 70.6 73.4 94.9 35.6 66.1 40.8 Indirect NA NA NA NA -24.1 39.5 29.8 22.5 54.0 16.1 15.9 79.2 OP NA NA NA NA 123.4 52.9 43.6 91.6 185.1 58.9 72.3 48.9 NP NA NA NA NA 9.2 49.3 63.9 129.1 23.5 47.4 78.3 46.9 Key assumptions NA NA NA NA 12.3 78.2 81.4 202.3 TTB 16.2 109.7 41.3 Album sales Revenue 4.5 0.8 0.6 4.4 1.7 2.5 2.0 4.0 6.6 10.3 10.2 13.3 Source : Company data, Mirae Asset Securities Research estimates Table 3. HYBE: Earnings forecast revisions (Wbn , %) Previous Revised % chg. Notes 21F 22F 21F 22F 21F 22F Revenue 1,115 1,701 1,323 1,862 18.7 9.5 - Reflected Ithaca Holdings acquisition effects OP 232 374 260 381 11.9 1.9 NP 159 269 180 254 13.1 -5.6 - Higher labor costs and one -off expenses (M&A, OP margin 20.9 22.0 19.6 20.5 -1.3 -1.5 office relocation, etc.) Net margin 14.2 15.8 13.6 13.6 -0.6 -2.2 Source: Mirae Asset Securities Research Mirae Asset Securities Research 2 May 6, 2021 HYBE Corporation Figure 1. 2021F P/E comparison: HYBE appeals to millennials and Gen Z (x) 80 Global platforms appealing to millennials and Gen Z are suitable comps given HYBE's status as the industry’s 298.3 614.1 leading fan platform operator 60 40 20 0 Facebook Twitter Snap Netflix Match Bumble HYBE YG Ent. JYP Ent. SM Ent. WMG Group Social networking/content/platform Fan platform Entertainment/content Source : Bloomberg , Mirae Asset Securities Research Table 4. Comparison of Weverse with other global platforms (mn , Wtr , W. x) Marke 20 21F Market cap Revenue 20 21F 20 21F Platform type Similarities with Weverse Company Users t cap revenue per user per user P/S P/E Fan community - Weverse 35 8.6 1.2 245,714 34,286 7.0 50.6 Social networking Content sourcing: Free user-generated content Facebook 2,797 1,016.4 128.4 363,389 45,906 7.9 22.8 Business model: Channeling user traffic to commerce sites Twitter 330 48.9 5.4 148,182 16,212 9.1 69.5 User demographics: Mostly millennials and Gen Z-ers Snap 265 95.7 4.4 361,132 16,453 21.8 298.3 Business model: ( Subscription fees ) - (fixed cost of content Content Netflix 208 251.2 33.2 1,207,692 159,615 7.5 46.5 production) Leverage Business model: ( Subscription fees ) - (platform/label profit Spotify 345 51.6 12.6 149,565 36,551 4.1 - sharing) Limited leverage Dating Value provided: Emotional fulfillment Match Group 67 42.2 3.2 629,851 47,463 13.2 65.8 Business model: Partial monetization Bumble 20 11.5 0.8 575,000 40,000 14.1 614.1 (tiered pricing depending on service) Note: User count is based on MAU (redundancies included) for HYBE (V Live + Weverse ); MAU for Facebook; 1Q19 MAU (recent data not released) for Twitter ; DAU for Snap ; paid subscribers for Netflix; subscribers for Match Group (Tinder); and MAU for Spotify/Bumble.