YG Entertainment (122870)

Transcription

1 Company Note August 29, M rating BUY (Maintain) 12M TP W69, from W69, Up/downside +11% Stock Data KOSPI (Aug 28, pt) 1,916 Stock price (Aug 28, KRW) 62,2 Market cap (USD mn) 561 Shares outstanding (mn) 1 52-Week high/low (KRW) 98,/37,5 6M avg. daily turnover (USD mn) 6.3 Free float / Foreign ownership (%) 54./7.2 Major shareholders (%) Hyeon-Seok Ryang and 2 others 41.8 Samsung Investment Trust Management Co., Ltd 8.3 Performance 1M 6M 12M Absolute (%) Relative to KOSPI (%p) MF PER trend (X) 12MF PER (LHS) price (RHS). Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Source: WISEfn consensus (KRW) 7, 6, 5, 4, 3, 2, 1, YG Entertainment (12287) Focus on earnings after 2Q12, improvement to continue Earnings improvement to continue in 213, maintain BUY We maintain BUY and a TP of W69,. We derived our TP by applying a 12MF PE of 18.4x. While the upside to our TP is relatively small, we maintain BUY on the following. Earnings estimates do not include Psy s overseas promotion, increased merchandise distribution and a joint venture with Cheil Industries. We plan to reflect these after detailed plans are set in 213. Shares may slip over the near term following the 2Q12 earnings release, especially given the 33% rally since the release of Psy s sixth album, but we consider any pullbacks buying opportunities. 2Q12 OP slid 25% YoY on one-off expense 2Q12 sales dropped 13.7% YoY to W22.8bn. There were no domestic concerts held, and an accounting change in concert revenue from Japan to royalty revenue following a deal with AVEX in Jul 211 led to the sales decline. OP also fell 25.1% YoY to W4.1bn, missing our estimate (W5.4bn) on higher production costs and a one-off expense (W1.3bn). Stripping out the one-off, OP would have been in line with our expectations. Earnings improvement to continue after 2Q12 2H12 sales and OP should rise 124% YoY and 168% YoY, respectively. In 3Q12, Big Bang s Japan Tour will be reflected in earnings as well as domestic concerts by 2NE1 and Psy. Furthermore, Big Bang and 2NE1 s concert are currently underway, and domestic and overseas (including Japan) album sales revenue from 2NE1, Psy and Big Bang should be reflected in 3Q12. Going forward, 213 sales and OP should jump 35% YoY and 79% YoY, respectively. We expect overseas revenue at W51.4bn in 212 and W76.8bn in 213. Expectations for the new group remain high, and YG should use its brand power to expand into other businesses as well as merchandise distribution. Monitor Psy-effect over long term Psy s Gangnam Style has topped 66mn views on YouTube. And, the sales contribution from Psy should be about 9% this year 212. However, Psy is a scouted artist, and has a low profit contribution. Profit contribution should increase on active overseas promotions and expanded merchandise sales. Furthermore, earnings may climb with the promotion of Psy in the US and Japanese markets. Shiwoo Kim swkim@truefriend.com Yr to Sales OP EBT NP EPS % chg EBITDA P/E EV/EBITDA P/B ROE Dec (W bn) (W bn) (W bn) (W bn) (won) (YoY) (W bn) (x) (x) (x) (%) 21A , NA NA NA A , F ,375 (28.5) F , F , Note: Net profit and EPS are based on figures attributed to controlling interest

2 YG Entertainment (12287) Quarterly earnings review 2Q12P Growth 212F (W bn, %, %p) Estimates Actual Diff. Consensus QoQ YoY KIS Consensus Sales (1.3) NA 27.5 (13.7) OP (24.1) NA 15.1 (25.1) OPM (%) EBT (26.7) NA 31. (7.4) 32.9 NP (34.) NA 15.4 (11.8) , FnGuide Annual earnings trend (W bn) F 213F Sales Recorded music & Digital music Recorded music Digital music Concert revenue Advertisement Royalty Others (MD, CF, TV & Radio, etc) COGS SG&A Operating profit Earnings before profit Net profit (%, margin) OP margin NP margin Quarterly earnings trend (W bn) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12P 3Q12F 4Q12F Sales Recorded music & Digital music Recorded music Digital music Concert revenue Advertisement Royalty Others (MD, CF, TV & Radio, etc) COGS SG&A Operating profit Earnings before profit Net profit (%, margin) OP margin NP margin

3 YG Entertainment (12287) Sales breakdown: royalty revenue to jump on higher promotions in Japan OPM to improve (W bn) Records Concerts Royalties Digital music Ad appearances Others (W bn) (%) 18 Sales (LHS) 16 Operating profit (LHS) 14 Net profit (LHS) OP margin (RHS) F 213F F 213F 1 5 Album sales in Japan by artist Concert audiences in Japan by artist 1, (' records) Big Bang 2NE1 Gummy Se7en PSY Others (' audiences) Big Bang 2NE1 Gummy Se7en YG Family Psy F 213F F 213F Monthly album sales on Oricon Chart by artist Monthly album sales on Gaon Chart by artist 3 (' records) (' records) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-11 May-11 Sep-11 Jan-12 May-12 Note: Oricon Chart shows album sales of top 5 artists and therefore actual album sales may be different Source: Oricon Chart, Korea Investment & Securities Note: Gaon Chart shows album sales of top 5 artists and therefore actual album sales may be different Source: Gaon, Korea Investment & Securities 3

4 YG Entertainment (12287) 12MF PE band 9, 8, 7, 6, 5, 4, 3, 2, 1, (KRW) x2 x18 x16 x14 x F Concert schedules of major artists Period Artist Region Audiences 2Q11 Big Bang Japan 8, 3Q11 2NE1 Japan 7, 1Q12 YG Family Japan 15, 2Q12 Big Bang Japan 15, 3Q12 Big Bang World tour (China, SE Asia) Psy Domestic 3, 2NE1 World tour (Domestic, US, SE Asia) 4Q12 Big Bang World tour (SE Asia, US, S. America, Europe, Japan) 1, 2NE1 World tour (Japan) 15, Big Bang or YG Family Domestic Source: Company data, news articles, Korea Investment & Securities 4

5 YG Entertainment (12287) Album sales of major artists Period Artist Album type Region Copies sold 1Q11 Big Bang Full-length Japan 11,725 2NE1 Full-length Japan 3,86 Big Bang Single album Domestic 139,14 2NE1 Single album Domestic 13,176 GD&TOP Full-length Domestic 23,4 Victory Single album Domestic 41,32 2Q11 Big Bang Full-length Japan 122,472 Big Bang Full-length Domestic 1,852 Big Bang Single album Domestic 29,35 2NE1 Single album Domestic 2,11 GD&TOP Full-length Domestic 3,929 GD Full-length Domestic 3,379 3Q11 Big Bang Full-length Japan 4,783 2NE1 Full-length Japan 43,35 Big Bang Single album Domestic 2,84 2NE1 Single album Domestic 82,418 Taeyang Full-length Domestic 2,29 GD&TOP Full-length Domestic 7,821 GD Full-length Domestic 8,96 4Q11 Big Bang Full-length Japan 39,74 2NE1 Full-length Japan 5,74 2NE1 Single album Japan 13,581 2NE1 Single album Domestic 25,658 Tablo Full-length Domestic 8,324 1Q12 Big Bang Full-length Japan 73,76 2NE1 Full-length Japan 22,224 Se7en Full-length Japan 13,723 2NE1 Single album Japan 5,896 Big Bang Full-length Domestic 257,431 2NE1 Single album Domestic 6,88 Se7en Single album Domestic 15,28 2Q12 Big Bang Full-length Japan 42,12 3Q12 2NE1 Full-length Japan 7,776 Se7en Single album Japan 8,32 Big Bang Full-length Domestic 8,26 2NE1 Single album Domestic 2,718 Big Bang (Special edition) Single album Japan GD Digital music Domestic Psy Full-length Domestic 4Q12 Tablo (Epik High) Full-length Domestic Gummy Undecided Japan 2NE1 Undecided Japan New girl group (Oct-Dec) Undecided Domestic Source: Company data, news articles, Korea Investment & Securities 5

6 YG Entertainment (12287) Balance sheet FY-ending Dec. (W bn) 21A 211A 212F 213F 214F Current assets Cash & cash equivalent Accounts & other receivables Inventory Non-current assets Investment assets Tangible assets Intangible assets Total assets Current liabilities Accounts & other payables ST debt & bond Current portion of LT debt Non-current liabilities 1 Debentures LT debt & financial liabilities Total liabilities Controlling interest Capital stock Capital surplus Capital adjustments Retained earnings Minority interest () () () Shareholders' equity Income statement FY-ending Dec. (W bn) 21A 211A 212F 213F 214F Sales Gross profit SG&A expense Other operating gains () (1) Operating profit Financial income Interest income Financial expense Interest expense Other non-operating profit Gains (Losses) in associates, subsidiaries and JV 1 () Earnings before tax Income taxes Net profit Net profit of controlling interest Other comprehensive profit Total comprehensive profit Total comprehensive profit of controlling interest EBITDA Cash flow FY-ending Dec. (W bn) 21A 211A 212F 213F 214F C/F from operating Net profit Depreciation Amortization Net incr. in W/C (1) (14) 4 (14) Others (1) 1 (1) 1 (1) C/F from investing (5) (33) (2) (36) (25) CAPEX (3) (2) (5) (5) (5) Decr. in fixed assets Incr. in investment (2) (25) (1) (16) (7) Net incr. in intangible assets () (6) (4) (4) (5) Others (1) (11) (8) C/F from financing 41 Incr. in equity 41 Incr. in debts Dividends Others C/F from others Increase in cash 5 24 (2) 2 25 Key financial data FY-ending Dec. 21A 211A 212F 213F 214F per share data (KRW) EPS 2,615 3,322 2,375 4,127 5,158 BPS 5,442 15,32 9,927 14,36 19,891 DPS Growth (%) Sales growth OP growth NP growth EPS growth (28.5) EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield..... Stability Net debt (W bn) (11) (64) (69) (98) (13) Debt/equity ratio (%)..... Valuation (X) PER NA PBR NA PSR NA EV/EBITDA NA Note: Based on K-IFRS (consolidated) 6

7 YG Entertainment (12287) Changes to recommendation and price target Company (Code) Date Recommendation Price target YG Entertainment Inc. (12287) BUY W85, BUY W69, 12, 1, 8, 6, 4, 2, Aug-1 Dec-1 Apr-11 Aug-11 Dec-11 Apr-12 7

8 YG Entertainment (12287) Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance BUY: Expected to give a return of +15% or more Hold: Expected to give a return between -15% and 15% Underweight: Expected to give a return of +15% or less Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months Overweight: Recommend increasing the sector s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Neutral: Recommend maintaining the sector s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. Underweight: Recommend reducing the sector s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Analyst Certification I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Important Disclosures As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 1 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does not own 1% or more of any class of common equity securities of YG Entertainment Inc.. There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of the research report or at the time of the public appearance. Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for YG Entertainment Inc. in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from YG Entertainment Inc. in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intends to seek compensation for investment banking services from YG Entertainment Inc. in the next 3 months. Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in YG Entertainment Inc. s securities at the time that the research report was published. Korea Investment & Securities Co., Ltd. does not own over 1% of YG Entertainment Inc. shares as of August 29, 212. Korea Investment & Securities Co., Ltd. has not provided this report to various third parties. Neither the analysts covering these companies nor their associates own any shares of as of August 29, 212. Prepared by: Shiwoo Kim This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied, redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment & Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The final investment decision is based on the client s judgment, and this report cannot be used as evidence in any legal dispute related to investment decisions. 8