Earnings Momentum to Accelerate in 2Q22
The author is an analyst of KB Securities. She can be reached at leesunhwa@kbfg.com. -- Ed.
Maintain BUY, target price of KRW430,000
We maintain BUY and TP of KRW430,000 on HYBE. The stock is trading at 37.6x 12m fwd P/E (vs. 44.3x historical P/E average) on the pending issue of military service for BTS members as well as investors avoiding growth stocks amid rising interest rates. We view the recent price correction as a buying opportunity given the upcoming BTS Las Vegas concert, album releases by major artists and the company’s expansion into new areas (e.g., games, NFT).
1Q22 review: OP of KRW37.0bn (+62.7% YoY) in line with consensus
HYBE posted 1Q22 consolidated revenue/OP of KRW285.0bn (+59.8% YoY, -37.8% QoQ)/KRW37.0bn (+62.7% YoY, -49.8% QoQ; 13.0% OPM), falling 15.5% short of the OP consensus of KRW43.8bn. Excluding one-offs, OP was in line (KRW37-40bn).
1Q22 hit with unfavorable seasonality, small concert audience due to social distancing rules
1Q22 was hit with unfavorable seasonality, as no albums were released by key artists and the BTS PTD Seoul concert (offline) attracted only 45k fans because of social distancing rules. Revenue from the first batch of By BTS was booked in 1Q22; second-/third-batch revenue will be booked in 2Q22 after orders are shipped.
Earnings momentum to accelerate in 2Q22:
(1) BTS Las Vegas concert + increase in merch sales
We see earnings momentum growth in 2Q22. The BTS Las Vegas concert (early April) attracted 200k offline fans (624k incl. fans via live play, online streaming). Additional momentum should be generated from deferred booking of merch sales and the addition of merch sales related to BTS’ “The City” project.
(2) Album releases by key artists (e.g., Le Sserafim, TXT, Seventeen, BTS)
Also, HYBE should benefit from the release of albums by key artists. Le Sserafim’s first mini album sold 180k copies on its debut day (May 2). Upcoming albums include TXT’s fourth mini album (1.44mn preorders; May 9 release), Seventeen’s fourth EP (1.74mn preorders; May 27 release) and BTS’ new album (Jun 10). The no. of albums sold in 2Q22 should be much higher than the 2.45mn sold in 1Q22 (+35.5% YoY).
(3) New business ventures (e.g., games, NFTs, Weverse 2.0)
HYBE plans to launch BTS Island: In the SEOM in late June. We note that the game recorded 1mn pre-registrations in only three days. In addition, the company is set to open its NFT exchange (JV with Dunamu) in 3Q22. Lastly, Weverse is scheduled to merge with Naver’s V Line near year-end.