SK Securities cuts Hybe target price to 290,000 won, citing BTS dependency as the central risk

SK Securities maintained a buy rating on Hybe (KOSPI: 352820) on the 22nd but cut its target price from 350,000 won to 290,000 won. At the current share price of 165,900 won, the implied upside is 74.8%.

The brokerage projects Hybe's full-year 2026 revenue at 5.11 trillion won, up 92.9% year on year, with operating profit of 301.7 billion won — a 504.8% increase — yielding an operating margin of 5.9%. Both figures are expected to exceed market consensus, driven by the return of BTS following the completion of members' mandatory military service, as well as growing contributions from newer acts such as Katseye and Cørts.

The reduction in the target price does not reflect a deterioration in the earnings outlook. Rather, SK Securities has shifted its valuation base year from 2026 to 2027, applying a target price-to-earnings ratio of 31.0 times to its projected 2027 earnings per share of 9,257 won. That multiple represents a 10% discount to the five-year average 12-month forward PER of 34.5 times, reflecting a sector-wide de-rating. The rationale is that 2026 profits are heavily distorted by the one-off impact of the BTS world tour and therefore overstate the company's normalised earning power. The share price itself tells a sobering story: Hybe now trades 59% below its 52-week high of 404,500 won, and the target price has been cut four consecutive times since March — from 480,000 won in March, to 400,000 won in April, 350,000 won in July, and now 290,000 won.

Second-quarter results (April–June 2026) exposed a structural tension in the company's margin profile. Concert revenues surged as the BTS world tour got fully under way, but the gross margin collapsed from 42.8% in the first quarter to 31.8% in the second, as renegotiated contracts pushed up the revenue-sharing rate paid to artists, raising costs even as headline sales hit a record. SK Securities expects the third quarter to offer some relief: North American and European tour dates are concentrated in this period, lifting per-show ticket revenues, while most of the fixed production costs — stage construction and the like — have already been absorbed. The brokerage forecasts third-quarter operating profit of 192.7 billion won, implying a margin of 12.1%.

The deeper strategic challenge is Hybe's dependence on a single intellectual property. With BTS largely absent during 2025, full-year operating profit fell to 49.9 billion won — just 27% of the 184.0 billion won recorded the previous year. Looking ahead to 2027, when BTS's second-half schedule has yet to be announced, revenues are expected to contract by 9.8% to 4.62 trillion won. Yet SK Securities anticipates the operating margin will actually improve to 10.7% that year. Its reasoning: as the revenue share from BTS — who command higher settlement rates under their renegotiated contracts — declines, the mix shifts towards newer artists still in the early stages of their contracts, where the economics are more favourable and profit quality higher.

The early-stage acts are already delivering measurable results. Cørts surpassed cumulative album sales of five million copies within a year of their debut and sold out fan concerts across South Korea, Japan and the United States in the third quarter. Their first world tour, which kicked off in Incheon on 18 July, spans 14 shows across the United States, Japan and other markets. Katseye's trajectory is equally striking: audience numbers on their second world tour have grown more than sevenfold compared with the first — from 83,000 (concentrated in North America) to 613,000 (spanning North America and Europe).

SK Securities rates Hybe as possessing the deepest pipeline of emerging acts among South Korea's four major talent agencies. The brokerage argues that having a BTS-calibre act on the roster confers significant negotiating leverage with local promoters and venues, and that this network effect is being transferred to newer artists: the average time from debut to breaking into the North American market has shortened from 33 months to 16 months in recent years.

Nonetheless, investors should weigh several risks carefully. Although all BTS members have completed their military service and renewed their contracts, the balance between solo and group activities — and the precise terms of each member's arrangements — remains a variable. The sector-wide de-rating trend also warrants attention: the 31.0 times target multiple already embeds a 10% discount to the five-year average, and if the market comes to assign a higher probability to a slowdown in K-pop's global growth, further downward pressure on valuations cannot be ruled out. The durability of the growth momentum behind Cørts, Katseye and other newer acts will need to be validated by next year's tour attendances and album sales data.

Hybe's market capitalisation stood at 7.15 trillion won as of the 22nd, with foreign investors holding an 18.46% stake.