According to a researcher, SM Entertainment's stock price might increase if the agency would clear up the insolvency, a type of financial distress, from its subsidiaries.
About SM Entertainment
Founded in 1995, SM Entertainment is currently home to idol groups such as EXO, Red Velvet, NCT, SHINee, TVXQ, Girls' Generation, Super Junior, SuperM, and aespa, as well as solo artists like BoA, J-Min, Zhou Mi, and more. Other artists that the company represented were S.E.S, f(x), Fly to the Sky, Shinhwa, and others.
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Because of its successful artists, SM has become one of the top-earning entertainment companies in Korea. However, SM Entertainment saw a significant decrease in both sales and profits last year. But recently, a researcher shared what can be the factor that could improve the stock price of the agency.
Researcher Says SM Entertainment's Stock Price Would Increase If Indebted Subsidiaries Will be Settled
On April 21, a researcher of Korea Investment & Securities, named Park Ha Kyung, told JoyNews24 what component would help SM Entertainment enhance its share price.
The share price is the amount it would cost to purchase a share in a company. The price depends on market conditions, hence there is no fixed amount. It will likely climb if the agency is doing well in the market, or declines if the label fails to meet buyers' expectations.
The Korea Investment & Securities lowered SM's target price from 44,000 KRW to 40,000 KRW. The researcher said that although SM Entertainment's whole business continues to stay strong in the industry, it is essential to resolve the bankruptcy of its subsidiaries. Park said that the key to a rise in share price is doing efforts to improve management efficiency, such as attempting restructuring.
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At present, SM Entertainment has more than 10 subsidiaries, including SM C&C, Mystic Story, KeyEast Entertainment, Dream Maker Entertainment, SM Japan, and SM USA.
The researcher went on to discuss the sales of the label. Park said that SM's sales in the first quarter of this year decreased by 10 percent compared to the previous year, earning only 131.1 billion won. On the contrary, the operating profit increased by 95 percent to 3.3 billion won. It is expected to reach 10.8 billion won this year, which is 38 percent higher than last year, through album sales.
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Moreover, SME's separate sales increased by 21 percent compared to the same period last year. The company has earned 82.9 billion won due to high album sales. Ha Kyung then said that the album sales of SM in the first quarter of 2021 were 1.3 million, which is 270,000 higher than the same period in 2020.
Even though SM Entertainment is doing well, its subsidiaries' deficit continues. SM C&C expects an operating loss of three billion won, similar to 2020, due to the off-season for advertising. Meanwhile, an actor under KeyEast was recently involved in a bullying controversy.
SMJ is predicted to lose an operating profit of three billion won due to the absence of performances. The same thing would happen to Dream Maker Entertainment as the activities would be carried out in the fourth quarter of 2021.
The researcher further stated that SM Entertainment would continue to earn high sales due to comebacks of EXO and NCT in the second quarter. Meanwhile, the shortfall of the subsidiaries would narrow with the reinforcement of drama line-up, resumption of performances, and the arrival of a peak advertising season.
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Written by Mhaliya Scott
