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Korean music labels

Entertainment shares to soar in Q2 following BTS, Blackpink comeback

By Apr 16, 2021 (Gmt+09:00)

BTS performs its hit Dynamite during an online charity concert Music On A Mission in March.
BTS performs its hit Dynamite during an online charity concert Music On A Mission in March.

South Korean entertainment labels are expected to see their earnings momentum back in full swing in the second quarter as popular K-pop groups such as BTS, Seventeen, Blackpink, Twice and NCT prepare for a comeback.

On Apr. 15, HYBE Co., the label behind BTS, saw its share price close at 250,000 won ($223), up by 6.16% from the previous session. It marked the expiry date of the six-month lock-up period for the company's initial public offering shares, unlocking around 14 million shares that account for 39% of the total shares.

Typically when the IPO lock-up period expires, share prices tend to plunge with new shares flooding the market. Due to such concerns, HYBE's share price had dropped around 15% in total over the past five trading days.

But on Thursday -- the day the lock-up period ended -- HYBE's share price jumped as investors flocked to buy shares and participate in the company's rights offering, deemed attractive enough to outweighs concerns over share prices dropping from the termination of the lock-up period.

Earlier this month, HYBE had announced plans to carry out a rights offering, in which investors would need to purchase the company's shares by Apr. 15 to qualify to subscribe to the rights issue. New shares are estimated to be issued at 200,000 won apiece, about 20% lower than the current share price.

Investors rushed to partake in HYBE's rights offering because they believe that the company's share price will jump in the future -- a belief supported by the label's promising earnings.

According to FnGuide, HYBE’s operating profit this year is projected at 29.1 billion won in Q1, 50.5 billion won in Q2 and 71.3 billion won in Q3 – heralding steady growth throughout the year.

Graphics by Jerry Lee
Graphics by Jerry Lee

Starting in May, HYBE's consolidated financial statements will reflect earnings from Ithaca Holdings, a US-based label recently acquired by the company. Ithaca Holdings manages popular artists such as Ariana Grande and Justin Bieber.

HYBE's quarterly earnings may see a sharp rise considering that Justin Bieber is set to go on tour in the US and Canada from June -- on expectations that herd immunity will be achieved. The tour's earnings will also be reflected in the company's financial disclosure.

Another important variable is the possibility of HYBE being added to the Morgan Stanley Capital International (MSCI) index. If the label is added, it will be reflected in the MSCI index after the market closes on May 27.

“HYBE’s fundamental enterprise value will be steered by the growth strategy of its fan community platform Weverse as well as the synergy effect from onboarding other artists like Blackpink, Justin Bieber and Ariana Grande in May,” said Lee Ki-hoon, a researcher at Hana Financial Investment.

JYP TARGET PRICE REVISED UP ON NIZIU EFFECT

Other leading K-pop labels such as JYP Entertainment Inc. and SM Entertainment Co. also expect their earnings to improve significantly starting in Q2.

Recently Hana Financial Investment adjusted its target price upwards to 51,000 won for JYP based on its girl group NiziU's stellar performance in Japan. The group’s second single, launched on Apr. 7, has topped Japan's Oricon weekly music chart.

“NiziU's earnings make up for most of JYP Japan's operating profit -- which is expected to exceed 10 billion won this year,” said Lee Hyo-jin, a researcher at Meritz Securities.

JYP's girl group NiziU has been topping the charts in Japan.
JYP's girl group NiziU has been topping the charts in Japan.

While other entertainment companies are estimated to have posted weaker-than-expected earnings during Q1, SM Entertainment has fared well, accounting for the highest market share in record sales among the country's four major labels. Yet, despite strong record sales, SM is likely to post around 8 billion won in losses from its subsidiary.

“Once concert tours resume in Q4 and the company's key subsidiaries stabilize, then SM's operating profit may reach 20 billion won driven by rapid growth from its actor management label KeyEast," said Lee from Hana Financial.

Write to Jae-yeon Ko at yeon@hankyung.com

Danbee Lee edited this article.

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