SM Entertainment
The author is an analyst for NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
We raise our TP on SM Ent to W170,000. With the full-fledged launch of the SM 3.0 era, the frequency of the firm’s new releases has increased, and sales volume per album is on the rise. Accordingly, we hike our earnings estimates. More than two promising new groups are waiting to debut. We adhere to a Buy rating.
Dedicated artists & loyal fans
We maintain a Buy rating on SM Entertainment (SM Ent). With its SM 3.0 strategy in full swing, both the existing and new lineups are blossoming as significant growth engines. In addition to confirmation of shortened comeback cycles for major artists such as NCT and aespa, debuts of new artists are going smoothly. The NCT Tokyo audition program is currently airing, and the members of upcoming team RIIZE (to debut in September) have also been revealed.
We raise our TP by 19% from W143,000 to W170,000 on a hike in earnings estimates, considering tighter release schedules and higher sales volumes per album. In detail, we push up our forecast for the number of major new releases in 2H23 to four, as aespa and NCT 127 have confirmed their returns—up from our last assumption of two (NCT Dream and NCT’s full group) in the second half. Of note, in the case of NCT, considering the recent surprise in first week album sales, we have upped our sales per album projections for future works.
2Q23 review: Awaiting full-fledged new album effects in 2H23
SM Ent posted consolidated 2Q23 sales of W239.8bn (+30.0% y-y) and consensus-beating OP of W35.7bn (+84.0% y-y), buoyed by new releases from NCT DoJaeJung (790,000 copies) and aespa (2.02mn copies), as well as brisk sales of world tour-related merchandise and strong new release-driven pop-up store performances.
In 2H23, the firm’s main lineups are to remain active, and the effects of new releases should be more pronounced. Both the EXO regular album (1.56mn copies in first week) and NCT Dream regular album (3.65mn copies in first week) released in July set all-time first-week sales records for SM Ent. Upcoming albums to be launched are to come from NCT as a whole, NCT 127 (regular album), and aespa (regular). In the case of new group RIIZE, its debut album sales will likely be limited. However, given the securing of existing fandom for two former NCT members, the group should enjoy relatively brisk growth.