SM Entertainment (041510 KQ): Buy: Priced in for muted 2026; primed for better 2027

Research evidence excerpt

SM Entertainment (041510 KQ): Buy: Priced in for muted 2026; primed for better 2027

0 ROE (%) 31.7 10.8 11.8 12.1

see stronger earnings growth in 2027 (OP growth of 22% y-o-y), led by two key factors:

1) higher concert contributions from SM’s 3rd generation IPs – NCT 127 and DREAM – 52-WEEK PRICE (KRW)

following a brief lull in 2026; and 2) launch of the first world tour by Hearts2Hearts, one of 170000

SM’s new major IPs, expected to attract 200-300k audiences. We forecast these two

factors should boost gross ticket sales by 18% y-o-y in 2027. Positively, Hearts2Hearts’ 112500

monthly listeners on Spotify are currently over 8m, more than doubling y-o-y and 55000

07/25 01/26 07/26

implying global mass fandom. We also highlight the shift in AESPA’s new world tour

Target price: 120000 High: 153000 Low: 66500 Current: 72300

regional breakdown (exhibits 4-5), targeting non-Asia markets (c79% of the total

estimated audience is from outside Asia vs previous tours’ proportion of 0-31%) to Source: LSEG IBES, HSBC estimates

expand the total addressable market. If this demonstrates strong demand for concerts

Junhyun Kim*

and merchandise in new regions, it could present a key upside risk to our current 2027 Analyst, Korea Internet Gaming and Entertainment

assumptions and be a key catalyst for a valuation multiple expansion for SM. The Hongkong and Shanghai Banking Corporation

Limited, Seoul Securities Branch

2Q26e preview: We expect SM to show solid top-line growth of 8% y-o-y in 2Q26, junhyun.kim@kr.hsbc.com

+82 2 3706 8763

led by concert revenue growth thanks to the utilization of legacy IPs (eg, EXO). But,

this will likely affect the margin due to the artist mix changes (first-contract based

* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is