Solid Revenue Growth Driven by Superb Artist IP

The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.  

 

Maintain BUY, target price of KRW360,000       

We maintain BUY and our TP of KRW360,000 for HYBE. The company reported solid revenue growth driven by superb artist IP and strong performance on global music charts. However, OP eroded slightly YoY because of one-off losses of ~KRW10bn related to the Ithaca Holdings acquisition and ~KRW5bn for amortization of other intangible assets. Going forward, Ithaca Holdings earnings contribution should offset the amortization. Accordingly, we maintain 2021E-23E NP (attributable to controlling interests) CAGR and our TP.   

2Q21 review: OP of KRW28.0bn  (-6.2% YoY) in line with consensus   

HYBE reported 2Q21 consolidated revenue of KRW278.6bn (+79.2% YoY, +56.2% QoQ) and OP of KRW28.0bn (-6.2% YoY, +23.0% QoQ; 10.1% OPM), which was in line with the market consensus (KRW30.6bn) and our estimate (KRW28.6bn). 

Slight drop in OPM     

For 2Q21, revenue from direct contributions by artists (46.2%) came in at KRW128.6bn while revenue from indirect contributions by artists (53.8%) reached KRW150.0bn. OPM slid to 10.1% (-9.1pp YoY, -2.7pp QoQ) because of a decline in high-margin indirect contributions (-4.7pp YoY, -8.7pp QoQ) and expenses of ~KRW15bn related to Ithaca Holdings (i.e., one-off losses including rights offering, amortization of intangible assets).   

2Q21 merchandise pre-orders to be recognized in 3Q21

Despite the somewhat disappointing margins, album sales more than doubled, ballooning 105.4% YoY thanks to BTS, Seventeen and TXT. Content revenue surged 236.9% YoY on BTS’ online fan meeting event Sowoozoo. That said, merchandising/licensing revenue contracted 12.5% YoY, as merchandise pre-orders received in 2Q21 are to be recognized as 3Q21 revenue on delivery completion. Meanwhile, contract liability arising from difference in time of purchase (e.g., merchandise, albums, advertising model fees) and delivery date rose from KRW98.0bn in 1Q21 to KRW160.0bn in 2Q21 (consolidated basis); notably, ~KRW50bn in merchandise sales are expected to be recorded after delivery as 3Q21 revenue. 

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