K-Pop Stocks Soar Amid Semiconductor Slump: Will the Trend Continue into 2024?

Entertainer stocks performed well in a sharp decline… Stock price fluctuates despite Hive's highest performance, profitability gap despite increased performance and goods sales... Growth expected in 2027

While the stock market, led by semiconductor stocks, has plummeted, the domestic entertainment industry is receiving attention again. Following the rise of the four major entertainment companies all at once the previous day, some stocks showed relatively solid trends on the 6th. Hive recorded its highest quarterly performance ever thanks to BTS' global tour, but SM's report cards were mixed, with operating profit falling 26%. Attention is focused on whether the increase in sales of performances and goods will lead to improved profitability next year.

Entertainment stocks are an industry that has been relatively neglected in the stock market this year. As performance forecasts for major companies were lowered and doubts about their growth potential grew, stock prices fell sharply. Recently, global tours and expectations for the growth of new artists are emerging again.

#### Hive plummets despite record-high performance… What the market was worried about

Hive (352820)'s consolidated sales in the third quarter amounted to KRW 1.5257 trillion, an increase of 109.8% compared to the same period last year. Operating profit turned into a surplus at KRW 188.5 billion, exceeding the market estimate of KRW 166 billion compiled by Yonhap Infomax by 13.6%. Both sales and operating profit are the highest ever on a quarterly basis.

BTS's world tour in Europe and North America led the growth. Performance sales amounted to KRW 726.8 billion, accounting for 47.6% of total sales, and MD/licensing sales also reached KRW 334.6 billion. The combined sales of the two divisions amounted to KRW 1.0614 trillion, which is approximately 3.8 times the sales of albums and music sources of KRW 282.8 billion.

During the BTS North American tour, approximately 2 million MD products were sold in 12 cities over 45 days. According to Yuanta Securities, North American tour MD sales alone amounted to KRW 107 billion, equivalent to approximately 32% of Hive's total MD and licensing sales. Expanding local production also contributed to lowering logistics costs and tariff burden.

However, on the 4th, the day after the earnings announcement, Hive's stock price plummeted 11.48%. Unlike operating profit, consolidated net profit was only 11.3 billion won. Non-operating expenses, such as valuation losses on foreign currency assets due to exchange rate declines, had an impact. The fact that BTS's activity schedule for the second half of next year was not specifically presented also disappointed investors.

The outlook for the fourth quarter is also not optimistic. Song Ji-won, a researcher at Heungkuk Securities, predicted that the average ticket price and MD purchasing power of BTS' South American tour is lower than in North America, and Asian performances are recognized as net sales, so sales growth will slow. The possibility of a decline in profitability due to logistics costs and the burden of customs and value-added taxes was also mentioned.

#### SM profit decreased by 26%... JYP and YG are also a testbed for profitability

SM (041510) recorded consolidated sales of 291.1 billion won and operating profit of 35.5 billion won in the third quarter. It decreased by 9.5% and 26.4%, respectively, compared to the same period last year. There was also a net loss of 1.1 billion won due to foreign exchange-related losses due to the strong won.

This was largely due to a decrease in domestic new album activities and an increase in relatively small-scale performances overseas. Sales of albums, music, and performances decreased, and the profitability of some subsidiary companies also worsened.

On the other hand, MD and licensing sales increased by 23.5% to 62.1 billion won. Sales from artist appearances also increased by 21.3% to 29.2 billion won. While album and performance performance were sluggish, additional businesses utilizing fandom maintained growth.

JYP Entertainment (035900), which will announce its third quarter earnings on the 11th, is also expected to see a slight decrease in profits compared to the previous year. SK Securities estimated that sales would be 225.8 billion won and operating profit of 39.6 billion won, respectively, a 2.9% decrease compared to the same period last year. Stray Kids' album sales and tour MD sales support its performance, but the decline in concert sales and the cost burden of some albums are expected to have an impact.

Samsung Securities lowered JYP's target stock price from 62,000 won to 50,000 won, considering changes in TWICE's activities after contract renewal, Stray Kids' possibility of future military service, and the growth rate of artists with less experience.

YG Entertainment (122870) is expected to support performance and MD sales. Yuanta Securities estimated operating profit in the third quarter to be 20.5 billion won. It is a 34.1% decrease compared to the same period last year, but an 86.6% increase compared to the previous quarter.

The audience for the third quarter performance is estimated at approximately 800,000. However, the analysis is that as the proportion of performances by highly experienced artists increases, the extent of improvement in profitability may be limited compared to the increase in sales.

Major artists are scheduled to expand their activities next year. Hive is pursuing additional performances by BTS and increasing sales of artists with less experience such as Cat's Eye, Anteem, and Cortis. SM plans to expand the scope of its activities with new albums by Rise and Hearts to Hearts, and a European tour by Aespa.

JYP is looking forward to the expansion of Stray Kids' global tour, but the growth of the next-generation group to prepare for changes in the activities of existing large artists has become important. YG Entertainment is promoting new boy and girl groups along with the activities of existing artists such as Blackpink.

Hive also remains burdened by its high dependence on BTS for sales. Lim Soo-jin, a researcher at Kiwoom Securities, positively evaluated the release of BTS' additional schedule and the increased profit contribution of artists with less experience, but lowered the target stock price from 330,000 won to 280,000 won, reflecting the decline in the market's valuation multiple.