Korea’s big music label stocks set for rebound in H2: analyst

2022.01.20 15:45:26 | 2022.01.20 15:45:56

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Shares of South Korea’s big music labels sluggish amid monetary tightening environment are expected to go up higher from the second half on expectations for upbeat performance on expanded business using their K-pop artists-based intellectual properties.

According to eBest Investment & Securities on Thursday, the country’s four K-pop producing majors – Hybe, SM Entertainment, JYP Entertainment and YG Entertainment – are estimated to have earned a combined operating profit of 120.5 billion won ($101.3 million) in the final quarter of last year, surging 93.3 percent on year, with sales up 19.6 percent to total 739.9 billion won.

Their operating margin are projected to have lost 13.5 percentage points to 16.3 percent.

“In the fourth quarter of last year, each label’s major artists came back to stage with new albums with record quarterly sales. But some of them delayed their comeback schedule and cancelled offline concerts and thus, we’ve revised down revenue estimates for some divisions,” said Ahn Jin-ah, an analyst at eBest Investment & Securities.

Entertainment stocks have been on a downward spiral during recent two months amid soured investment sentiment from hawkish messages by the Fed, not due to the fundamental causes such as the industry’s growth potential and corporate earnings performance.

Outlook for this year remains upbeat on positive momentum with business related to non-fungible tokens, metaverse and resumption of offline concerts.

“Entertainment stocks are among the majors that represent the NFT, metaverse and platform industries. If the local economy is under heavier burden from protractive virus spread and the Fed’s tightening by the end of 2023, the stocks will be able to gain a greater growth momentum,” added Ahn.

Hybe is expected to be the biggest winner based on its IP rights related to popular K-pop icons like BTS. Its shares have lost more than 30 percent since the peak at 421,500 won on Sept. 17, 2021.

“Hybe’s business area based on K-pop artists will go beyond current entertainment to media, game and even virtual sphere this year,” said Ahn, maintaining the “buy” opinion.

By Kim Geum-yi and Lee Ha-yeon

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