Entertainment stocks, sidelined amid the AI frenzy, have plunged 40 to 50 percent over four months. But brokerages see the current level as a buying opportunity, saying that "while share prices have collapsed, earnings are actually improving."
Halved K-Pop Stocks... Brokerages Say "Excessive Undervaluation Zone"
According to the Korea Exchange (KRX) on Wednesday, share prices of major Korean entertainment companies have undergone sharp corrections over the past four months. HYBE fell 50.43 percent, effectively halving, while YG Entertainment dropped 43.72 percent, SM Entertainment declined 38.07 percent, and JYP Entertainment fell 26.36 percent.
Brokerages cited the concentration of capital flows into AI-related stocks, concerns over the gap in BTS activities, and some one-off costs as the background for the decline. However, they assessed that current share prices are excessively low relative to earnings.
Hana Securities analyzed that current valuations have entered the sector's historically undervalued zone. HYBE trades at 22 times its estimated price-to-earnings ratio (PER) for 2027, while SM, JYP, and YG trade at just 12 to 15 times their estimated 2026 PER, indicating that corporate value has fallen significantly relative to earnings.
In particular, as the price correction has been far steeper than the anticipated time correction, the brokerage presented a "strong overweight" strategy for the sector overall.
HYBE Leads the Rebound... Record Earnings Expected
HYBE is cited as the key to the sector's rebound.
Hana Securities forecast HYBE's second-quarter operating profit at 144.5 billion won, projecting record earnings. Meritz Securities predicted revenue of 1.3 trillion won and operating profit of 161.2 billion won, exceeding market expectations, while Samsung Securities also forecast revenue of 1.2895 trillion won and operating profit of 152 billion won.
At the center of the earnings improvement is the concert business. Around 1.7 million concert attendees, including the BTS world tour, will be reflected in earnings, and activities by Tomorrow X Together (TXT), Le Sserafim, Boynextdoor, and Illit are also analyzed to contribute.
The market assesses that growth pillars beyond BTS are also quickly taking hold. Rookie group Cortis has already surpassed 2.9 million cumulative sales of its second album, and including additional version sales, breaking 3 million is expected to be possible. Katseye, which is targeting the U.S. market, entered Billboard's "Hot 100" and is expected to sell around 1 million copies with this comeback.
Lee Ki-hoon, a researcher at Hana Securities, said in a report that "Cortis and Katseye are changing the world."
Samsung Securities recently adjusted its label profitability outlook somewhat conservatively, lowering its target price from 380,000 won to 330,000 won, but maintained its "buy" rating. It expected that from the second quarter, earnings improvements across various business segments such as concerts, records, and platforms would begin in earnest based on artist IP competitiveness, reaffirming the company's core business strength.
SM, JYP, YG Also Have Second-Half Momentum... "Sector-Wide Rebound Possible"
In the second half, major agencies are expected to hold large-scale events one after another.
SM's second-quarter earnings are expected to meet market expectations, driven by activities and concert effects from NCT WISH, aespa, RIIZE, and Hearts2Hearts. Hana Securities forecast second-quarter revenue of 330.5 billion won and operating profit of 53.8 billion won, and cited the debut of rookie boy group "SMTR" within the year and full-group NCT 127 activities in 2027 as additional growth drivers.
JYP's second-quarter operating profit is expected at 37.9 billion won, somewhat below market expectations, but an earnings rebound is forecast to be possible as Stray Kids' comeback and a large-scale world tour begin in the third quarter. The Asia performances disclosed so far alone amount to about 590,000 people, and if the schedule expands to North America and Europe, a tour mobilizing more than 2 million people again is analyzed to be possible.
YG's second-quarter operating profit is also expected at 7.7 billion won, below market expectations, but BIGBANG's 20th anniversary dome and stadium tour, starting next month, is cited as the biggest variable. Hana Securities forecast that additional dates are likely to be added to the 31 performances scheduled through February next year, and that if album releases and merchandise sales are included, annual operating profit could expand to around 80 billion won.
Brokerages believe that if investment funds concentrated in AI-related stocks gradually shift toward earnings-focused stocks, other entertainment companies, starting with HYBE, are likely to be re-evaluated as well. As the recent share price plunge reflects weakened investor sentiment more than deteriorating earnings, the analysis suggests that if second-half earnings momentum is confirmed, the sector-wide rebound could also be larger.
