NewJeans, CORTIS, aespa and BABYMONSTER to Determine Their Fate [Weekend Money]

Shinhan Securities: "Entertainment Stocks May See Earnings Take a Breather Next Year, but Share Prices Could Tell a Different Story"
Market concerns ease, with 2028 catalysts priced in ahead of time
HYBE named top pick: "Spending by highly loyal fanbases"

Entertainment companies’ earnings are expected to be somewhat weak next year, but their share prices are forecast to perform better than this year on the back of easing market concerns and the advance reflection of future value.

Image generated by Google Gemini

On November 15, Shinhan Securities forecast that the combined revenue of five entertainment companies—HYBE, SM Entertainment, JYP Entertainment, YG Entertainment and DearU—would total 7.2 trillion won next year, with operating profit of 994.6 billion won, down 9% and 4%, respectively, from the previous year. Ji Inhae, a research fellow at Shinhan Securities, said, "The comparison base is challenging because this year, BTS and BLACKPINK, among other super IPs, as well as legacy IPs such as EXO and BIGBANG, drove earnings and benefited from growth cycles in concerts and merchandise."

However, the firm does not expect share prices to fall alongside earnings. Although the entertainment sector posted strong earnings this year, its share prices plunged 52% from the start of the year. The fact that share prices formed a low in October of even-numbered years was also cited as one reason to be optimistic about next year, an odd-numbered year.

Research Fellow Ji said, "Except for 2024 and 2025, when earnings were weak due to BTS's hiatus and concentrated investment in global IP, the entertainment sector has consistently increased its earnings. Yet share prices hit lows in October 2022, September 2024 and October 2026." She added, "Two unusual common features were that the five companies had a combined market capitalization of about 11 trillion won, and that their share prices more than doubled over a short period after hitting bottom."

She continued, "Despite a prolonged cycle of earnings growth, share prices have repeatedly followed a W-shaped pattern. The only difference this year compared with other even-numbered years is that, because the sector posted record profits, the combined price-to-earnings ratio (PER) multiple for entertainment stocks has fallen to 16 times including HYBE and 13 times excluding it."

Easing market concerns are also expected to have a positive effect on share prices. First, quarterly earnings this year demonstrated the leverage effect of super IPs. This refers to a situation in which a company’s profits continue to rise even when it gives a larger share of revenue to major artists. As HYBE’s cost-of-sales ratio rose from 57.2% in the first quarter to 68.2% in the second and 69.7% in the third, its operating profit increased even more sharply, reaching 58.5 billion won, 170.9 billion won and 188.5 billion won, respectively.

The firm also forecast that the growth of fifth-generation idol IPs would contribute to a rebound in share prices. Shinhan Securities cited the following as new growth drivers: NewJeans’ comeback; the success of CORTIS and KATSEYE, which are achieving strong results in albums, streaming and global tours; HYBE’s global IP; the debut of SM Entertainment’s new boy group; and North American success for newer IPs such as aespa and BABYMONSTER.

The firm also expects issues anticipated in 2028 to act as catalysts for share prices. Research Fellow Ji said, "In 2028, BTS’s comeback, SEVENTEEN’s return as a full group, the growth of fifth-generation IPs and the two-year activity cycle of established IPs will coincide, leading to a larger earnings cycle than this year." She added, "Share prices are likely to begin reflecting the 2028 catalysts in advance, from current lows through 2027."

Shinhan Securities named HYBE its top pick and SM Entertainment its preferred stock, describing them as "entertainment companies with loyal fanbases whose spending is less affected by interest rates and inflation."

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