[Edaily Reporter Kim Hyung-il ] HEUNGKUK METALTECH CO.,LTD. maintained its “Buy” rating and target price of 260,000 won for HYBE(352820). This follows the company’s third-quarter operating profit, which significantly exceeded market expectations, driven by BTS’s world tour and strong sales of albums, digital music, and merchandise (MD) by major artists. While BTS’s tour is expected to drive earnings next year as well, the pace at which the company expands its concert and merchandise businesses for newer artists is seen as key to further growth.

On the 4th, Song Ji-won, an analyst at HEUNGKUK METALTECH CO.,LTD., reported that HYBE’s third-quarter consolidated revenue reached 1.5257 trillion won, up 109.8% year-over-year and 5.2% quarter-over-quarter. Operating profit stood at 188.5 billion won, marking a return to profitability compared to the same period last year and a 10.3% increase from the previous quarter. This figure also significantly exceeded the market consensus of 164.5 billion won. The operating profit margin stood at 12.4%.

By business segment, sales of physical albums and digital music reached 282.8 billion won, a 49% increase year-over-year. Sales of new releases—including ENHYPEN’s 8th mini-album and N.TEAM’s 2nd domestic mini-album—drove album sales, while back-catalog sales of CORTICE’s 2nd mini-album, “GREENGREEN,” also contributed. In the digital music segment, strong streaming performance by BTS and KATSEYE supported the results.

Concert revenue rose 12.2% to 726.8 billion won. While BTS’s North American and European tours generated high profitability, world tours by numerous other artists also contributed to growth. Merchandise revenue reached 334.6 billion won, a 98.7% increase year-over-year. Sales of BTS tour merchandise and character goods from major artists such as KATSEYE, ENHYPEN, and SEVENTEEN performed strongly.

Profitability also exceeded market expectations. Despite the increased share of concert revenue, the gross profit margin (GPM) held up well, and the ratio of selling, general, and administrative expenses (SG&A) remained favorable. In particular, a reduction in transportation costs and other SG&A expenses—excluding labor costs—played a significant role. It is understood that the initial transportation burden associated with the North American and European tours eased, and logistics costs, as well as customs duties and value-added tax (VAT), were reduced through the local production of merchandise sold in North America.

However, net income was weak. This was largely due to significant foreign exchange valuation losses resulting from a decline in the exchange rate. Labor costs remained high following the second quarter due to the recognition of provisions related to performance-based bonuses, but analysts suggest they are likely to stabilize again in the fourth quarter.

Profitability is expected to slow somewhat in the fourth quarter due to a decline in concert revenue and rising cost pressures. This is because the average ticket price (ATP) and merchandise purchasing power for BTS’s South American tour are relatively low, and concert revenue in Asia is recognized as net revenue. High logistics costs, as well as customs duties and value-added tax, are also expected to weigh on profitability.

For next year, analysts forecast that BTS’s scheduled tours through the first half of the year will drive revenue growth. However, BTS’s additional activity schedule in the second half of the year and the growth momentum of newer artists are cited as key variables. Analysts suggest that concerns over a decline in next year’s earnings could be alleviated if plans for BTS’s group and solo album releases and follow-up tours become more concrete.

The expansion of newer artists’ scope of activities is also drawing attention. Following 31 performances across 27 cities in Europe and North America, KATSEYE is scheduled to hold 11 tour dates in Asia and Oceania next January. Analysts predict that the speed at which growth in album and digital music sales translates into concert and merchandise revenue will determine HYBE’s future growth potential.

Analyst Song stated, “BTS’s tour activities are expected to remain the main driver of earnings through the first half of next year,” adding, “After that, BTS’s additional activity schedule and the pace of business expansion by newer artists will be the key variables for the next phase of growth.”