Kiwoom Securities said on the 10th that although third-quarter operating profit for YG Entertainment(122870) fell far short of the consensus (market average forecast), investors should pay closer attention to next year’s rookie debut momentum. It kept its ‘Buy’ rating and a target price of 70,000 won. YG Entertainment’s previous closing price was 40,500 won.
YG Entertainment posted consolidated third-quarter revenue of 156.7 billion won and operating profit of 13.5 billion won. Revenue fell 9.4% from a year earlier, and operating profit dropped 56.8%. Operating profit came in well below the 20 billion won consensus.
However, it said the operating profit miss versus consensus stemmed from the expense recognition structure, not a deterioration in core cost ratios.
Lim Su-jin, an analyst at Kiwoom Securities, said, “About 2 billion won in bad-debt amortization related to accounts receivable from Big Bang goods (MD) sales at a consolidated subsidiary was booked as SG&A. YG PLUS directly handled MD distribution and on-site operations for Big Bang’s world tour, which pushed up venue costs, sales commissions, and shipping. The third quarter covered the Americas and Europe, where venue unit prices and long-haul shipping burdens are highest, while the number of shows was limited, so costs weren’t spread. YG Investment’s other operating income also fell to 1.1 billion won, down 6.5 billion won from the previous quarter.”
While the market is focused on YG Entertainment’s third-quarter costs, it said fourth-quarter operating leverage is already in place.
Lim said, “Shows are shifting to Southeast Asia and Japan, where venue costs are lower, and with more dates, the same operating expenses will be spread over larger revenue.”
She then forecast fourth-quarter revenue of 198 billion won and operating profit of 27.8 billion won. For the full year, she projected operating profit of 71.6 billion won.
She added that the key driver for the stock is not the third quarter but the rookie lineup.
Lim said, “YG Entertainment’s rookie boy group debut has moved from the fourth quarter to the first half of next year, and the company is even considering unveiling a girl group at the same time, so the point at which rookie momentum can be confirmed has actually been pulled forward.”
In 2027, artists with mega intellectual property (IP) will have limited activity visibility, making a revenue decline unavoidable, and if debut costs are reflected conservatively, there is room to come in below the market’s operating profit estimates.
However, Lim said, “Market estimates reflect little contribution from rookies, so if initial metrics at the BABYMONSTER level are confirmed, that would immediately translate into upward revisions for 2027–2028. It’s time to wait for next year’s rookie momentum.”
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