The author is a KB Securities analyst. She can be reached at [email protected] – Ed.
Maintain BUY, target price of KRW360,000
We maintain BUY and our TP of KRW360,000 for HYBE. The company has seen solid revenue growth thanks to superb artist intellectual property and strong performances in the global music charts. However, OP eroded slightly year-on-year due to one-time losses of ~ KRW10bn related to the acquisition of Ithaca Holdings and ~ KRW5bn for amortization of other intangible assets. Going forward, the profit contribution of Ithaca Holdings is expected to offset depreciation. As a result, we maintain the 2021E-23E NP CAGR (attributable to controlling interests) and our TP.
2Q21 review: KRW28.0bn OP (-6.2% YoY) in line with consensus
HYBE announced a consolidated turnover of KRW278.6 billion in 2Q21 (+ 79.2% year-on-year, + 56.2% quarter-on-quarter) and a PO of KRW28.0 billion (-6.2% in YoY, + 23.0% qoq; 10.1% OPM), which is in line with market consensus (KRW 30.6 billion) and our estimate (KRW 28.6 billion).
Slight drop in OPM
For 2Q21, direct artist contribution revenues (46.2%) amounted to KRW 128.6 billion while artists’ indirect contribution revenues (53.8%) reached KRW 150.0 billion . OPM slipped to 10.1% (-9.1pp YoY, -2.7pp QoQ) due to lower high margin indirect contributions (-4.7pp YoY, – 8.7 pp QoQ) and expenses of ~ KRW15bn related to Ithaca Holdings (ie a -excluding losses including offer of rights, amortization of intangible assets).
2Q21 merchandise pre-orders will be recognized in 3Q21
Despite somewhat disappointing margins, album sales more than doubled, reaching 105.4% year-on-year thanks to BTS, Seventeen and TXT. Content revenue jumped 236.9% year-over-year at BTS’s online fan meeting event Sowoozoo. That said, merchandising / licensing revenue contracted 12.5% year-on-year as preorders of merchandise received in 2Q21 must be accounted for as 3Q21 revenue upon completion of delivery. Meanwhile, the contractual liability resulting from the difference between the time of purchase (e.g. merchandise, albums, advertising model fees) and the delivery date increased from KRW 98.0 billion in 1Q21 at KRW 160.0 billion in 2Q21 (consolidated basis); notably, ~ KRW50bn of merchandise sales are expected to be recorded after delivery as 3Q21 revenue.