As signals for the lifting of China's 한한령 (Hallyu Restriction) become clearer, entertainment stocks are showing strength. Being the only domestic export sector unaffected by U.S. tariffs, major entertainment companies are also expected to see improvements in their performances in the latter half of the year, increasing expectations for rising stock prices.
Over the past month (March 28 to April 30), exchange-traded funds (ETFs) investing in domestic entertainment stocks have shown remarkable increases. The 'ACE KPOP Focus' ETF (11.5%), 'HANARO Fn K-POP&Media' (10.47%), and 'TIGER Media Contents' (10.5%) all recorded double-digit percentage increases. During the same period, the KOSPI index fell by 1.94%, while the KOSDAQ index rose by 1.38%.
The high returns of these ETFs were due to significant increases in the stock prices of major entertainment companies. Over the past month, four entertainment firms—SME (15.79%), JYP Entertainment (12.88%), HYBE (11.01%), and YG Entertainment (5.67%)—have consistently shown upward trends despite the plunge in the U.S. stock market. Recently, the stock price of DearU (16.25%), a fan communication platform incorporated as a subsidiary of SME, also surged.
The recent interest in large entertainment stocks is a result of concrete signals regarding the lifting of China’s 한한령. On the 29th of last month, a spokesperson for the Ministry of Foreign Affairs of China, Guo Jizhun, noted, "We want to emphasize that we have an open attitude toward developing cultural exchanges and cooperation with Korea," and added, "We hope Korea will work together with us."
For the first time in nine years, a local solo concert by a Korean idol has been realized. All members of the K-Pop idol group 'Epex', who are all Korean nationals, recently received approval from Chinese authorities for a 'commercial performance' and are set to hold a solo concert this month. In September, a K-Pop performance called 'Dream Concert' is scheduled at a stadium in Hainan, China, with an expected audience of about 40,000.
Since the deployment of THAAD in 2016, activities of Korean singers have been restricted, but with recent large-scale local performances taking place, analysis suggests that the opening of the Chinese market is imminent.
In the securities industry, it is expected that if Korean artists can advance into the Chinese market due to the lifting of the 한한령, related entertainment stocks will receive high evaluations. Lee Hwan-wook, a researcher at Yuanta Securities Korea, stated, "Even applying the historical price-to-earnings ratio (PER) multiples for the entertainment sector would not be problematic in the current market situation," noting that "considering that the sector's premium compared to the KOSDAQ has not significantly recovered compared to the past, the stock prices still remain in an attractive range."
The PER is an indicator that shows how high a company's stock price is relative to its earnings; the higher the company's growth potential, the higher the PER applied. With increasing expectations for growth in the entertainment sector due to entry into the Chinese market, it means that investors are willing to accept higher stock prices than in the past. Last month, Samsung, Yuanta, and Eugene Securities all raised their target stock prices for SME, YG Entertainment, and HYBE.
The market anticipates that high-priced performances and MD business will become cash cows for these companies. Yuanta Securities estimates that revenue from performances could expand by at least 20% annually if the Chinese market opens. Furthermore, even adding just the touring MD sales results at a level of at least 30% of revenue could lead to a more than 15% upward adjustment in the performances of major entertainment firms.
The fact that the four entertainment companies have clear performance improvement factors ahead in the second half of the year is also positive. Starting from the second quarter (April to June) of this year, the performance of the fan communication platform 'DearU', which has the highest profit margin among its subsidiaries, will be included in the consolidated results. Jang Ji-hye, a researcher at DS Securities, mentioned, "As SME's low-year IP (intellectual property) is added to DearU, an increase in monthly active users (MAU) and an expansion of domestic and international fandoms are expected," adding that "DearU's growth potential in the Chinese market is also significant, as it entered a strategic alliance with Tencent Entertainment last year."
Activities of major artists driving the performances of large entertainment firms are also planned. HYBE is set for the full activities of BTS in the second half of this year. BLACKPINK, the representative artist of YG Entertainment, plans to conduct a 18-show world tour starting in July.
Lee Gi-hun, a researcher at Hana Securities, stated, "After BTS's full group comeback in June, a profit cycle of more than 1 times is expected over the next two years," recommending strong buys up to a market capitalization of about 15 trillion won (35,000 won per share). The closing price of HYBE on the previous trading day was 267,000 won.
Moreover, as the U.S.-China conflict escalates, expectations are growing that China will reduce its dependence on U.S. industries and expand its demand for Korean culture.
Lee Sun-hwa, a researcher at KB Securities, noted, "The recent international situation is turning favorably for the K-Pop entertainment industry," and added, "As the U.S.-China trade conflict intensifies, it is anticipated that there will be benefits from cultural exchanges between Korea and China, free from the impacts of U.S. tariffs."