Kiwoom Securities reported on July 20 that SM Entertainment is expected to exceed market expectations with its second-quarter performance. The firm maintained a 'buy' rating but lowered its target price to 110,000 won, reflecting increased marketing expenses in the second half of the year.
Research analyst Lim Soo-jin stated, "Consolidated revenue for the second quarter is projected to reach 349.4 billion won, a 15.3% increase compared to the same period last year, while operating profit is expected to rise by 17.5% to 56 billion won, surpassing market consensus."
The strong performance is anticipated to be driven by the merchandise planning (MD) sector. Contributions include the expansion of pop-up stores, the release of pre-ordered items from the first quarter's 'Wish Bakery,' and sales from existing artist intellectual property (IP) merchandise. However, profitability may decline slightly due to a focus on high-year IP activities, such as those from Super Junior and EXO.
In the second half of the year, increased marketing expenses related to new artist debuts and aespa's expansion into Western markets are expected to pressure short-term profitability. Lim noted, "aespa's North America and Europe tour is a strategic move aimed at expanding its presence in Western markets rather than securing immediate profitability."
She added, "The debut of the new boy group SMTR25 in the fourth quarter and the large-scale world tour cycle planned for the first half of 2027 will serve as catalysts for enhancing future performance visibility. This is a time to focus on the investment recovery phase that will begin in earnest next year rather than short-term results."
* This article has been translated by AI.
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