On the 19th, Hanwha Investment & Securities expressed the view that a wait-and-see approach is necessary for YG Entertainment, saying that its operating deficit will continue for the time being. The target price of the stock was lowered and the investment opinion was maintained at “buy”.
According to Hanwha Investment & Securities, YG Entertainment’s consolidated sales and operating profit for the second quarter of this year were KRW 90 billion and -KRW 11 billion, respectively, again recording an operating loss after the first quarter of last year.
Park Soo-young, a researcher at Hanwha Investment & Securities, said, “It seems that there were some cost issues,” adding, “Despite the release of the Baby Monster album, around 8.3 billion won was spent on investment expenses due to related promotion expenses, etc.”
He then diagnosed: “As there has been no activity since the renewal of the Big IP contract, amortization costs of intangible assets also appear to be a burden.”
At the same time, quarterly deficits are expected to continue this year. He said, “Amid the increased cost burden such as amortization, sales-generating activities themselves will be limited. Investment expenditures to build Baby Monster into a major intellectual property are expected to continue, and Blackpink will also carry out album schedules and world tours, but it will not be “Somewhat difficult to achieve the same level of profit margin as in 2023 due to the subsequent change in the settlement rate,” he analyzed.
Researcher Park reflected the reduced estimate and lowered the target price for YG Entertainment shares from 50,000 won to 41,000 won, expressing the view that a wait-and-see approach is necessary for the time being.
He said: “Given that IP activities are limited this year, amortization costs will continue to be a burden and consecutive quarterly losses are expected to be inevitable.” He added: “I think the upside and downside risks for the company are ultimately Baby Monster and other new IP. “I think we will have to wait and see until next year,” he explained.
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