Albums/downloads to Drive Earnings Growth
The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. -- Ed.
4Q20 consolidated OP reported at KRW10.5bn (-22% YoY)
JYP Entertainment posted consolidated operating profit of KRW10.5bn (-22% YoY) on sales of KRW41.7bn (-6% YoY) for 4Q20, falling short of the market consensus of KRW12bn and our estimate of KRW11.1bn. Sales dropped YoY due to the absence of offline concerts amid the COVID-19 pandemic, but the decline was mostly offset by growth in content sales. Sales from albums/downloads jumped 47% YoY in 4Q20, with domestic sales driven up by the release of Stray Kids’ repackage album, TWICE’s second regular album, and GOT7’s third regular album. NiziU, an all-Japanese girl group, generated KRW5bn in sales from albums/downloads and YouTube. One-off Optimus fund losses of KRW2.5bn were booked as financial expenses.
2021outlook: Consolidated OP to reach KRW47.3bn (+7% YoY)
Opportunities to hold offline concerts could remain limited with COVID-19 still a threat in 2021. However, JYP Entertainment will likely see growth continue in sales from online concerts, album releases, and music downloads. Sales growth should be driven by the comeback of Stray Kids amid growing popularity in the Americas, ITZY’s continuing album/single releases, individual projects by TWICE members, 2PM/NiziU comebacks, and the NiziU-Boy debut project. We thus believe consolidated operating profit will easily reach KRW47.3bn (+7% YoY) in 2021. The company may see stronger earnings growth depending on the restart of offline concerts, expansion of its platform business, and increase in digital content sales.
Retain BUY for a target price of KRW42,000
Our target price for JYP Entertainment remains unchanged at KRW42,000, based on 2021F consolidated EPS of KRW1,050 and a target PER of 40x. Despite continuing difficulties in holding offline concerts, our valuations reflect just a 10% discount to the average PER high of 2015-2019 on forecasts for sales growth from albums/downloads. We retain our BUY rating in view of: 1) artist comebacks and new group debut planned at home and abroad for 2021; and 2) high expectations for growth in content sales.