Expanding into NFT, Other Areas
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY, raise target price 16.3% from KRW430,000 to KRW500,000
We maintain BUY and raise our TP by 16.3% from KRW430,000 to KRW500,000 on HYBE. OP reached a record high in 3Q21, as core businesses continue to see steady growth. With plans for active forays into new markets (e.g., NFTs), HYBE should also secure inorganic growth going forward. Accordingly, we revise up 2021E-23E OP CAGR from 40.1% to 44.2%, justifying the increase in TP.
3Q21 review: OP of KRW65.6bn (+63.3% YoY) in line with consensus
HYBE announced 3Q21 consolidated revenue of KRW341.0bn (+79.5% YoY, +22.4% QoQ) and OP of KRW65.6bn (+63.3% YoY, +134.1% QoQ; 19.2% OPM). OP, which hit a historical high, was in line with the market consensus (KRW70.5bn) and our estimate (KRW66.1bn).
Record-high OP on utilization of entire artist lineup
In 3Q21, revenue from direct contributions by artists came in at KRW163.4bn (47.9% of total revenue; +155.5% YoY) while revenue from indirect contributions reached KRW177.6bn (52.1%; +40.9% YoY). Major earnings drivers include robust album sales (approx. 5mn copies; +432.4% YoY) and strong content revenue growth (+438.2% YoY) on Seventeen’s online fan meeting and BTS/Seventeen’s In the Soop. Also, merchandise sales from BTS’ deal with McDonald's and the Muster Sowoozoo fan meeting were reflected in earnings. However, delays in the delivery of Memories of 2020 merchandise generated contract liabilities of KRW160.0bn, resulting in a 23.5% YoY decline in Merchandising/Licensing revenue.
Expanding into NFT, other areas
Before the market opened, HYBE announced financing plans worth KRW1.1tn (KRW400bn from CB issuance, KRW700bn from third party allotment rights offering). Of the newly raised funds, management plans to spend KRW500bn to acquire a stake in Dunamu in its bid to launch an NFT platform utilizing artist IP via a JV in the U.S. In addition, management plans to launch a new platform integrating Weverse and V-Live and release original stories (e.g., webtoons, web novels) in 1H22. Derivative content produced in various media forms (e.g., webtoons, films and games) should help HYBE expand business scope. With regard to the metaverse business, the company launched the Interactive Media division after merging with its subsidiary Superb; there are plans to publish a game developed through open development methodology (in collaboration with fans and artists) in 1H22. Capitalizing on the IP of its labels, HYBE continues to expand its businesses, making inroads into solutions and platforms.