[Click e-Stock] "Dear U, Earnings Estimates Cut... Target Price Lowered"

Daol Investment & Securities Sets Dear U Target Price at 33,000 Won

On August 5, Daol Investment & Securities lowered its earnings estimates for Dear U and revised its target share price down from 47,000 won to 33,000 won. However, given that Dear U is still in a phase of continuous growth, the investment opinion remains at 'Buy'.

Dear U posted second quarter sales of 23.4 billion won (a 15.7% increase year-on-year) and operating profit of 9.4 billion won (up 26.4%), both of which fell short of market expectations.

The number of subscribers to the global fan communication platform 'Bubble' stood at 1.97 million, down 2% from the previous quarter. This decline appears to be due to the departure of certain intellectual property (IP) assets, such as NCT members Mark and Lucas, despite the onboarding of the male idol group &TEAM. Since &TEAM joined at the end of May, performance figures will be reflected in the future. However, there is a possibility of increased volatility for three months after onboarding, as some light users may leave when contracts are renewed.

Daol Investment & Securities expects Bubble's subscriber count to remain around 2 million by the third quarter due to the lack of planned major IP onboarding. Researcher Lim Doyoung at Daol Investment & Securities commented, "We expect significant contributions once new IPs from SM and JYP are launched on the platform."

Bubble royalties from China are estimated to have increased quarter-on-quarter. Researcher Lim explained, "QQ Music Bubble recognized an additional amount of royalty in March due to an overpayment, while royalties from JOOX Bubble for the first and second quarters were not reflected. For the third quarter, as subscriber numbers rise and JOOX Bubble royalties for the first and second quarters are recognized on a deferred basis, the quarter-on-quarter increase is expected to widen."

The electronic payment gateway (PG) conversion rate was 17% in the second quarter, and is expected to reach 20% by the end of this year. The North American new business (commerce) is set to be concretized around October, leading to higher labor costs due to related recruitment and recognition of amortization expenses for offline store rights-of-use assets.

Daol Investment & Securities lowered its projection for December 2026 sales from 26.1 billion won to 23.9 billion won, and for operating profit from 12.1 billion won to 9.9 billion won, representing decreases of 8.3% and 18.1%, respectively.

Researcher Lim stated, "Currently, costs related to the North American new business are being recognized in advance, but as the business plans are not yet finalized, the sales have not been reflected in the estimates. While the foray into offline commerce will unavoidably undermine profitability compared to the existing business model, given that global Bubble’s growth is limited except for improvements in profitability, the scale of additional profit generated by the new business is crucial."

However, he added, "Although the commission rate is declining and the pace of overseas Bubble royalty revenues may be somewhat disappointing, growth is continuing."

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