EFFECTS OF NH Investment & Securities Lowering HYBE's Earnings Projections

source: https://m.kmib.co.kr/view.asp?arcid=0020565435

The conflict between Min Hee-jin and HYBE has escalated after HYBE, the parent company of ADOR, rejected the demand to reinstate Min Hee-jin as the CEO of ADOR, which manages the girl group NewJeans. Due to this unresolved dispute, NewJeans’ upcoming album production has been halted, raising concerns about HYBE’s future performance.

On September 26th, NH Investment & Securities released a report indicating that they have lowered HYBE's earnings projections, assuming NewJeans will remain inactive as part of a worst-case scenario. The revised sales forecast for the third quarter is now estimated at 524.1 billion won ($399M), with an operating profit of 59.1 billion won ($45.1M), down by 6.6 billion won ($5M) and 2.4 billion won (1.83M), respectively. The target stock price was also reduced from 280,000 won ($213) to 270,000 won ($206).

The potential inactivity of NewJeans includes missing the release of a full-length album in Q4, a world tour in early 2025, and another album later that year. This inactivity is expected to cause HYBE an operating profit loss of about 10 billion ($7.6M) won in the second half of 2024 and 25 billion ($19M) won in 2025. The report's author, analyst Lee Hwa-jung, suggested that while this scenario assumes the worst, NewJeans may resume activities if the conflict is resolved.

Fairlane’s Note: For context, Suga’s D-Day tour grossed $57.2M. He was pressed for time and went against the advice of HYBE to do stadiums. If JHOPE tours (join me in manifesting please) and manages to do more cities since he won’t be pressed for time, we can safely say that whatever HYBE is going to miss out on will be covered and AT LEAST tripled. 

Since the conflict began in April, there have been concerns about HYBE's future without NewJeans and vice versa. The report is significant because it suggests that the stock market is starting to consider the possibility of HYBE's performance without NewJeans. An entertainment industry insider mentioned that HYBE has likely already simulated the impact of halting all NewJeans activities.

A securities industry official pointed out that HYBE’s strength has been its multi-label system, which distributes risks. Even if ADOR and NewJeans were to leave, HYBE's other successful groups like BTS (Big Hit), SEVENTEEN (Pledis), ENHYPEN (BeLift Lab), and LE SSERAFIM (Source Music) provide a safety net, allowing HYBE to develop new artists.

The relationship between Min Hee-jin and HYBE appears irreparable. Min Hee-jin claimed in a recent interview that HYBE interfered with her work, suspended NewJeans' activities, offered her money to leave, and spread slanderous materials about her through overseas PR agencies. In response, HYBE denied these claims, stating that the suspension of NewJeans' activities was due to Min's negligence, and they never offered her money or distributed defamatory information.

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ABOUT NH SECURITIES 

NH Investment & Securities is one of South Korea's leading financial services companies, providing a broad range of services such as investment banking, brokerage, wealth management, asset management, and research. It is one of the largest securities firms in Korea and operates under the umbrella of NH Financial Group, which is part of the National Agricultural Cooperative Federation (NongHyup). The firm is well-respected for its investment research, financial products, and services for both individual and institutional clients, and it plays a significant role in Korea's capital markets.

NH Investment & Securities is known for its active involvement in various financial markets, including stocks, bonds, and derivatives, and for offering financial advisory services, IPOs, mergers and acquisitions, and wealth management solutions to clients.

HOW DOES LOWERED PROJECTIONS "USUALLY" AFFECT A COMPANY

It all boils down to

Stock Price Impact: Such reports often lead to decreased investor confidence, which could cause HYBE’s stock price to drop. In this case, NH Investment & Securities already reduced HYBE’s target stock price from 280,000 won to 270,000 won, indicating that the market might perceive HYBE as less valuable due to the uncertainty surrounding NewJeans' activities​(

Investor Sentiment: Lowered earnings projections can create negative sentiment among existing and potential investors. If investors believe that HYBE's future profitability is at risk, they might reduce their holdings or avoid buying the stock, which could lead to a decline in HYBE's market capitalization.

Market Perception of Risk: HYBE's business model relies on multiple labels and artists. The projection from NH Investment & Securities suggests that the absence of NewJeans' contributions could be financially significant, which might prompt analysts and investors to scrutinize the company's multi-label system more closely, questioning its stability and the potential risks associated with reliance on certain artists.

Pressure on Resolving Conflicts: As the report underscores the impact of the ongoing conflict between Min Hee-jin and HYBE, it may put pressure on HYBE's management to resolve the situation quickly to prevent further financial damage and restore investor confidence.

WHAT SETS HYBE DIFFERENT

In one word - BTS.

As I've mentioned, If HYBE is to lose $17M, let's be generous and say $20M, they stand to gain AT LEAST three times that should JHOPE decide to tour. [HE WILL TOUR, LET'S MANIFEST] We aren't even considering activities of Jin and future brand deals of both Jin and Jhope. This report does not consider that.

Let me reiterate that the only reason I am not considering Jin for a tour is the lack of songs. The man is just about to release his first album. Jhope is the one with enough songs to actually do a tour.

Another thing, investment and finance companies are lining up to get a piece of HYBE. For example, Mirae Asset Securities has proposed a cover the issuance of convertible bonds (CB) worth 400 billion KRW. Some CBs are maturing this year.

As a result, HYBE is anticipated to successfully issue convertible bonds (CBs) under favorable conditions for the second time, following a similar success in 2021. According to the financial investment industry on the 27th, Mirae Asset Securities has shown interest in purchasing the entire 400 billion KRW worth of CBs using its own funds. In the event that investor demand does not meet the target issuance amount, Mirae Asset Securities has committed to buying any remaining unsold bonds in full.

It is also not considering possible tours of other groups such as LE SSERAFIM who has made significant strides in the NA market.