"The Bottom Is Here, Time to Buy and Hold" — Three Undervalued Sectors to Watch While Semiconductors Stall [Real Asset Management]

"Entertainment: Rising Stock Prices Thanks to BTS, Cortis, and Big Bang Activities"

"Hotels: Profitability Improving with Higher Average Daily Room Rates"

"Gaming: Need to Confirm Revenue Sustainability and Profit Margins"

Recently, the entertainment, hotel, and gaming sectors, which have undergone corrections due to performance concerns and concentrated capital flows, are attracting attention as undervalued stocks. The securities industry sees the current situation, where valuations have fallen to historic lows, as a buying opportunity to target a full-fledged rebound.

BTS, Cortis on a Roll, and the Real Deal: Big Bang’s Return

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According to the financial investment industry on July 8, the entertainment sector is one of the most representative undervalued industries highlighted by securities firms. From the beginning of this year to July 6, major entertainment agencies have experienced corrections of 30-40%: SM Entertainment (-42.8%), HYBE (-40.8%), YG Entertainment (-39.9%), and JYP Entertainment (-31.4%).

Concerns over HYBE’s earnings peak-out dragged down stock prices across the sector. After the BTS comeback in March, there were worries that HYBE’s earnings would decline starting in the second half of next year, following the conclusion of their world tour. This was compounded by capital flows concentrating on semiconductor stocks such as Samsung Electronics and SK hynix.

However, securities analysts see this as a buying opportunity. Ji Inhae, a research fellow at Shinhan Securities, explained, "The price-to-earnings ratio (PER) for the entertainment sector used to range from 20 to 35 times, but has now fallen to 12 to 22 times," and added, "Amid consensus that K-pop is undervalued compared to its unique fundamentals, the market is now focusing on the second quarter earnings of sector leader HYBE."

The consensus for HYBE’s operating profit in the second quarter of this year is a record 148.5 billion won. Newer groups such as Le Sserafim, ILLIT, and Cortis have sold approximately 10.9 million albums since their comebacks, and BTS has reportedly achieved 315.8 billion won in sales since the start of their world tour in April. Even after BTS’s tour ends, strong performance is likely to continue. Lee Kihun, a research analyst at Hana Securities, said, "While there are concerns about a peak-out in the second half of next year, four members of Seventeen will complete their military service by the first quarter of next year. From 2028 onward, considering the tours of a fully reunited BTS, Seventeen, Cortis, and Cat’s Eye, operating profit is expected to exceed 500 billion won."

Expectations are also high for YG Entertainment. In the second half of this year, Big Bang is scheduled for a 20th anniversary comeback and their first full-group world tour in nine years. The growth of Baby Monster and Treasure is also drawing attention. Yang Ilwoo, a research analyst at Samsung Securities, stated, "YG is preparing to debut a new boy group this year and a new girl group next year; if these debuts are successful, the stock price could rise further."

More Tourists, Less Supply... Hotel Profitability on the Rise

Another undervalued sector is hotels. From February 13 to July 6, stocks such as GS PNL (-39.3%), Seobu T&D (-40.2%), and Paradise (-36.1%) have seen significant declines. Lee Hwajeong, a research analyst at NH Investment & Securities, analyzed, "Unlike global hotel chains like Hilton and Marriott, which have been hitting record highs, domestic hotel stocks are experiencing a harsh discount, trading at a PER of around 12 times. Although the industry is improving, a lack of market interest appears to be slowing the stock price recovery."

The profitability of the hotel sector is gradually improving due to a rise in average daily rates (ADR). The increase in ADR is being driven by a shortage of domestic hotel supply and a surge in tourists. Over the next five years, only 2,800 new hotel rooms are expected to be supplied in Seoul, signaling continued supply shortages, while the cumulative number of inbound tourists from January to April reached a record 6.77 million. This was driven by the visa waiver for Chinese group tourists, an increase in Japanese visitors, and an influx of Western tourists due to BTS concerts.

GS PNL is cited as the primary beneficiary. With properties near city airport terminals such as Grand and Westin, as well as Nine Tree Hotels located in tourist districts like Myeong-dong and Insadong, revenue per room is expected to rise steadily. Lim Sujin, a research analyst at Kiwoom Securities, predicted, "Considering the normalization following the Westin’s renovation and Nine Tree’s contribution to earnings, robust profit growth is expected to continue."

A rebound is also anticipated for Seobu T&D. Lee Sangheon, a research analyst at iM Securities, stated, "Seoul Dragon City, which boasts the largest single-site room count of 1,700 rooms, is seeing occupancy rates (OCC) climb to the high 70% range and room rates are also rising, which should accelerate earnings improvement. Asset value monetization will also pick up, with sales of Yongsan Najin Shopping Center officetels (scheduled for November) and the Sinjeong-dong apartment project (scheduled for May-June next year)."

Gaming at a Historic Low—Selective Investment Needed

The undervaluation of the gaming sector is also pronounced. From June 2 to July 6, stocks such as NC (-25.6%), Krafton (-7.1%), and DoubleUGames (-7.1%) have all declined. Choi Jiwoon, a research analyst at Yuanta Securities, pointed out, "The industry’s 12-month forward PER is about 9 times, a historic low compared to last year’s annual average of 14.7 times."

This is due to market skepticism about the sustainability of earnings. Large-scale MMORPGs like Lineage have been effective in generating initial revenue, but as similar titles are released one after another, it has become common for sales to slow from the quarter following a new launch, leading to a discount in valuations.

Securities firms recommend selective investment in companies with proven revenue sustainability and improved profit margins through cost efficiency. NC and DoubleUGames are cited as representative examples.

NC is showing lasting revenue from revitalizing existing IPs, as well as cost savings from expanding in-house payment systems. The simultaneous success of Aion 2 and Lineage Classic suggests the possibility of recovering revenue based on existing IPs, and the in-house payment share for Aion 2 has risen to 80%, reducing costs such as app market fees.

DoubleUGames is expected to benefit from the cash-generating power of its existing social casino business and profit contributions from its new subsidiary, Paxi Games. The self-payment rate for social casino games has risen to 38.7%, and Paxi Games may secure revenue sustainability through its line-up of AI-based casual games. Kim Hakjun, a research analyst at Kiwoom Securities, assessed, "Paxi Games is leading market change by using AI to halve game development time, making it possible to release more titles."

This content was produced with the assistance of AI translation services.