Artists Expected to Ramp up Activities Through Virtual Concerts
The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. -- Ed.
Initiate coverage with BUY for a target price of KRW55,000
We initiate our coverage of YG Entertainment with BUY for a target price of KRW55,000, based on 2021F EPS of KRW1,369 and a target PER of 40x. We applied a 10% discount to the average PER high of 2014-2018 on expectations for album sales growth, although no concerts have been held since the outbreak of COVID-19. Offline concerts in the domestic and overseas markets have been hit hard by the pandemic. However, earnings are forecast to improve on rising album/download sales with the comeback of BLACKPINK and launch of a new boy group. The company’s artists are expected to ramp up activities through virtual concerts going forward.
Effects of new group debut and album sales growth expected in 2H20
Treasure made their long-awaited debut on August 7, the first boy band from YG Entertainment in over four years. Pre-orders for their debut album released on August 12 have been exceptionally strong. Orders were received from end-July and already exceeded 170,000 copies by August 3. Sales from albums will likely increase in 2H20, including a regular album by BLACKPINK (August-September) and solo albums by AKMU and other groups. Artists remained inactive due to negative issues in 2019 and the pandemic in 1H20. With recovery expected from 2H20, we pay attention to YG Entertainment.
Consolidated OP outlook: KRW1.9bn loss in 2020, KRW35.9bn profit in 2021
For full-year 2020, we forecast consolidated operating loss of KRW1.9bn (negative swing YoY) on sales of KRW216.1bn (-18.0% YoY), reflecting the drop in concert revenue caused by COVID-19. Sales are likely to decline across the board, including those from albums and downloads. With album releases concentrated in the second half, the company should be able to turn profitable in 2H from a loss in 1H. Operating loss came in at KRW2.1bn (continued loss YoY) 1Q and should have deepened to KRW4bn (negative swing YoY) in 2Q. We project a profit of KRW900mn (+1,777% YoY, low base effect) in 3Q and KRW3.4bn (+237% YoY) in 4Q. Assuming a rebound in revenues from concerts, albums, downloads, and royalties, consolidated operating profit is expected to reach KRW35.9bn (positive swing YoY) in 2021, a new record high since 2016.