Hybe's (352820.KS) slump is dragging on despite the March return of boy band BTS. The company's valuation has fallen to roughly half its level at the start of the year. The weakness extends beyond Hybe, as investor sentiment toward entertainment stocks as a whole has tightened. Analysts diagnosed that the valuations of entertainment stocks have fallen excessively, suggesting this could present a bargain-buying opportunity.
According to the Korea Exchange, Hybe closed at 205,000 won on Tuesday, down 8,500 won, or 3.98%, from the previous session. Hybe's slump has been an ongoing trend. After the stock soared to 404,500 won in February on expectations of BTS's return, it has been unable to escape a downward trajectory. Over the same period, shares of all four of Korea's major entertainment companies fell in unison, with YG Entertainment down 43.72%, SM Entertainment (041510.KS) down 38.07%, and JYP Entertainment down 26.36%.
Although share prices have declined sharply, analysts are diagnosing the drop as excessive. Hana Securities recently described the decline in entertainment stocks as "a steep price correction born of excessive concern."
Amid this, second-quarter earnings are expected to serve as momentum for a turnaround in entertainment stocks. In particular, Hybe is expected to achieve record earnings, with second-quarter operating profit projected at around 144.5 billion to 152 billion won.
"Hybe's second-quarter revenue is expected to surge 85% year-on-year to 1.3 trillion won, with operating profit rising 145% to 161.2 billion won (an operating margin of 12.4%), significantly beating market expectations," said Jee In-hae, a researcher at Meritz Securities. "The leverage effect of super intellectual property (IP) such as BTS and the meaningful high growth of new-growth IP have been confirmed."
Some forecast that other entertainment companies' shares could rebound, starting with Hybe. "The sector's share prices fell 40-50% in just four months on concerns over a peak-out in BTS's earnings and a growth vacuum, but this is excessive worry," said Lee Ki-hoon, a researcher at Hana Securities. "If earnings concerns are resolved starting with Hybe's strong second-quarter results, the shares of other agencies that had remained in an extremely undervalued zone will rise alongside."
SM has a new male group debut planned following the success of RIIZE and aespa, while JYP is expected to lead an earnings rebound with Stray Kids' comeback and a large-scale world tour in the third quarter. YG is preparing for BIGBANG's 20th-anniversary dome and stadium tour (31 shows) starting next month.
