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The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. — Ed.
Initiate coverage with BUY for a target price of KRW43,000
We initiate coverage of JYP Entertainment with BUY for a target price of KRW43,000, based on the 2021 EPS forecast of KRW1,074 and a target PER of 40x. We applied a 10% discount to the average PER high recorded in 2015-2019, with no concerts held since the outbreak of COVID-19 but album sales continuing on an uptrend. Offline concerts in Korea and Japan have been largely affected by the pandemic. However, earnings will likely improve in 2H20 thanks to the comeback of TWICE, official debut of NiziU in Japan, and release of albums by major artists. Expectations are particularly high for growth in sales from the release of new albums.
Sales growth to be driven by album releases
With offline concerts and tours canceled or delayed due to the pandemic, most artists are currently focusing on producing new albums. We are likely to see a series of album releases by JPY Entertainment artists in 2H20, given that most started working on new albums from1H20. TWICE is preparing to hold their first online concert “Beyond LIVE–TWICE” and launch a Japanese album in 3Q20, and release a regular album in 4Q20. Other releases scheduled for 2H20 include GOT7’s repackage and regular albums in 4Q, DAY6’s regular album in 4Q, and Stray Kids’ repackage and regular albums in 3Q and 4Q, respectively, and ITZY’s album releases in 3Q and 4Q. NiziU, an all-Japanese girl group, plans to unveil their official debut album in November. The release of new albums by various girl groups and boy bands should drive notable growth in sales in the near term. Top-line growth from music downloads and album sales are likely to reach at least 24% HoH in 2H20.
Consolidated OP outlook: KRW41.3bn in 2020 and KRW45.6bn in 2021
We forecast consolidated sales at KRW133.8bn (-13.9% YoY) and operating profit at KRW41.3bn (-5.1% YoY) for 2020, reflecting the drop in concert revenue amid the spread of COVID-19. Music downloads and album sales will likely be the only business to report top-line growth (+12.2% YoY) for the full year. Backed by the release of new albums in 2H, quarterly earnings are expected to remain around KRW8bn-9bn levels through the end of the year. Consolidated operating profit is estimated at KRW8.7bn (-7.8% YoY) for2Q, KRW9.4bn (-36.2% YoY) for3Q and KRW9.7bn (-28.0% YoY) for 4Q. Assuming a rebound in sales from concerts, we expect consolidated operating profit to rise to a new record high of KRW45.6bn (+10.6% YoY) in 2021.
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