K-pop shares rebound on return to offline concerts

Shares of major South Korean entertainment companies are on an upward trend this month. The rebound is thanks to eased COVID-19 restrictions leading to more offline concerts worldwide.

Stocks of HYBE Co. finished Wednesday’s trade 2.93% higher at 281,500 won ($235) per share. So far this month, HYBE shares rose 18.78%. 

Formerly Big Hit Entertainment, the company is best known for the creation and management of BTS. It operates as a record label, talent agency, and music publishing house. 

Other K-pop juggernauts are also enjoying the upward trend.

SM Entertainment Co. shares rose 21.56% this month. JYP Entertainment Inc. and YG Entertainment Inc. jumped 18.41% and 26.33%, respectively. 

Entertainment stocks had been on a downward trend for a few months since last November. 

Prior to the slide, the shares were supported by expectations that the entertainment industry will benefit from the adoption of non-fungible tokens (NFTs).

When the entertainment companies’ NFT projects failed to present a clear path to monetization, coupled with news of possible interest rate hikes by the US Federal Reserve, shares plummeted.

HYBE's price to earnings ratio (P/E ratio,) which indicates the valuation of the stocks, stands at 42.96. The ratio for SM Entertainment is 23.83. 

REASONS FOR REVERSAL

JYP Entertainment’s Twice is currently holding a concert in the United States.

Come next month, HYBE’s BTS and Red Velvet from SM Entertainment will hold concerts in Seoul. 

“Most of the upcoming concerts will be hybrids of on- and offline performances happening simultaneously,” said Choi Min-ha, an analyst at Samsung Securities Co. Choi forecasts the hybrid format to “encourage outward growth and profitability.”

The better-than-expected Q4 earnings are also supporting the entertainment stocks. 

In the fourth quarter of 2021, HYBE posted sales of 459.8 billion won, with an operating profit of 73.9 billion won. The consensus estimate was 72.1 billion won. 

YG Entertainment’s Q4 operating profit of 24.4 billion won was more than four times that of the consensus estimate of 4.9 billion won.

Still, some caution against the bullish market sentiment. 

“The optimistic projections for the four major entertainment companies are under the assumption that offline concerts will be back in full swing and don’t reflect the impact of the Omicron variant of COVID-19,” said Lee Hyo-jin, an analyst with Meritz Securities Co. 

Write to Sul-Gi Lee at surugi@hankyung.com
Jee Abbey Lee edited this article.