HYBE
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
Adhering to a Buy rating, we raise our TP to W310,000 for HYBE, our sector top pick. In addition to ongoing solid quarterly earnings thanks to its successful multi-label system, HYBE’s status as a platform operator is strengthening once again on the entry of SM artists.
Boasts operating stability under multi-label business + growth potential from platform business
We maintain a Buy rating on HYBE, our sector top pick. In addition to enhanced earnings stability from the successful establishment of a multi-label structure, the firm is displaying solid growth engines thanks to its strengthening status as a platform operator.
Multi-label: HYBE is securing a number of independently operated labels based on its robust key figure-centered strategy. As a result, regular new album releases (more than three per quarter) are guaranteed, and its hit ratio is climbing. In 1Q23, the company rolled out four new albums, including from NewJeans (sold 1.3mn copies, ADOR label) and TXT (2.9mn copies, BigHit), all of which were successful. Groups scheduled to release new albums in 2Q23 include Seventeen (Pledis), Le Sserafim (Source), and Enhypen (Belift Lab).
Platform: Backed by the upcoming launch of the Weverse subscription membership in 3Q23, full-fledged revenue generation is expected. Moving ahead, with SM artist entry confirmed, Weverse is finally securing its position as the largest K-pop fandom platform. Currently, the number of paying users on Weverse is estimated at around 1mn, and rapid growth is anticipated on the joining of SM artists, as 40% of the subscribers (1.8mn) of the Bubble paid platform are known to be subscribers of SM artists. Additional room for growth exists on the entry of Japanese and American artists in the future.
We raise our TP by 24% from W250,000 to W310,000. We apply a target P/E of 50x to 2023E EPS of W6,099 (PPA adjusted). Our target P/E is at a 22% discount to the historical (2020~2022) P/E average for global peers (Netflix, Amazon, UMG, WMG, Live Nation). Although both the multi-label and platform businesses have entered a stabilization phase, we apply a 22% discount, considering the relatively limited effective market (limited to K-pop fandom).
1Q23 preview: What ‘off-season’?
HYBE is forecast to post consolidated 1Q23 sales of W474.7bn (+67% y-y) and OP of W50.7bn (+37% y-y), beating consensus. Despite the absence of concerts, album sales for NewJeans, TXT, BooSeokSoon (BSS; Seventeen sub-unit), and Jimin (BTS) exceeded expectations.
We anticipate further sound results in 2Q23. Concerts for Suga (BTS) and the TXT World Tour are expected to attract around 670,000 attendees, and Seventeen’s new album should see sales comparable to those of BTS (more than 4mn copies).