[Edaily Reporter Kim Hyung-il ] SKSecurities forecasts that SM ENTERTAINMENT CO., Ltd.(041510)will post third-quarter earnings below market expectations this year. This is due to the concentration of key artists’ activities in Japan, as well as anticipated profitability pressures stemming from concert lineups. However, given the clear schedule of key artists’ activities for next year—including RIIZE’s full-length album and NCT’s world tour—the firm maintained its “Buy” rating and target price of 120,000 won.

On the 22nd, SKSecurities estimated SM ENTERTAINMENT CO., Ltd.’s third-quarter consolidated revenue at 263.7 billion won. This represents a 18% year-over-year decline and a 24.6% quarter-over-quarter decrease. Operating profit is expected to be 35.7 billion won, down 26% year-over-year and 32.5% quarter-over-quarter. The operating profit margin is projected to be 13.5%, falling short of the market consensus.

Music album sales were estimated at 22.4 billion won. Total sales volume was projected at 1.86 million copies. While NCT 127’s seventh studio album is expected to sell 940,000 copies, sales for other releases are anticipated to be driven primarily by smaller-scale albums. The analysis suggests that a decline in album sales is inevitable as the activities of major artists—including NCT WISH, aespa, Hearts2Hearts, and RIIZE—are concentrated in Japan.

While the number of concerts is expected to increase, their contribution to profitability is projected to be limited. The number of concerts in the third quarter is forecast to reach approximately 108, up from 90 in the same period last year. However, the report explains that the high proportion of small-scale events—such as fan concerts and fan meetings—could lead to increased cost burdens.

Although aespa is an artist capable of headlining Asian dome concerts, their schedule for this quarter is centered on arena-level performances. With the number of attendees per show decreasing, the impact on profitability is expected to be limited. However, this is viewed as a strategic choice to establish a foothold in Western markets.

Sales of merchandise are also expected to decline in line with album and concert performance. Although the revenue structure is centered on low-margin pop-up stores, merchandise sales are projected to grow year-over-year due to the addition of revenue from the collaboration between aespa and PUBG.

SKSecurities highlighted SM ENTERTAINMENT CO., Ltd.’s artist activities for 2027. Scheduled for next year are the release of RIIZE’s full-length album, world tours by NCT WISH and NCT 127, and events marking Girls’ Generation’s 20th anniversary. The rapid growth of Hearts2Hearts and the early growth momentum of SMTR25 were also cited as key points to watch.

SM ENTERTAINMENT CO., Ltd. is assessed to have a more limited base effect on earnings from mega intellectual property (IP) activities next year compared to other entertainment companies, while the visibility of its major artists’ activities is among the highest in the industry. The firm also cited as a positive factor the fact that earnings contributions are not concentrated on specific artists, but rather activities across multiple artists are expected to continue evenly.

Another point worth noting is the possibility that investments in Western markets—which constrained profitability this year—will begin to yield results. Taking these factors into account, SKSecurities has designated SM ENTERTAINMENT CO., Ltd. as a second-choice stock within the entertainment sector.