SM ENTERTAINMENT JAPAN Co.,Ltd. Q4 FY2024 earnings call

Overall 2024 Performance

• Total company revenue hit 9.716 billion yen, operating profit hit 0.364 billion yen, and net profit hit 0.787 billion yen, all reaching post-merger record highs and beating the November 2024 revised guidance by 2.9%, 56.9%, and 36.5% respectively.
• The company returned to profit in 2023 after posting net losses from 2020 to 2022 due to COVID-19 pandemic disruptions.

Entertainment Segment Strategic Priorities

• Existing Business Growth: Maintain a target of 1.5 million annual concert attendees to ensure stable revenue, with ongoing large-scale concerts acting as a key marketing driver to spur growth in non-concert businesses. Target a 5 percentage point increase in non-concert revenue share in 2025, targeting a 65/35 concert/non-concert revenue split in the short term, while managing concert production costs.
• New Business Expansion: The newly acquired fan club planning contract from the group's sister company leverages existing resources to deliver high incremental profit. Launch two additional new businesses, an in-house independent label music business and a concert-linked travel business, in 2025, with expected profit contributions starting in 2026.
• Original IP Development: A new original girl group and a VR team are scheduled to debut in H2 2025, with a third group planned to debut shortly after. This will transition the company from pre-development costs to revenue generation.

Rights & Media Segment Strategic Priorities

• Strengthen both new and archived content sales, continue the long-standing focus on exclusive first-run Korean dramas, and expand K-POP premium live concert content, which has proven effective at driving new subscriber acquisitions and reducing churn for the KNTV channel. Target 20 K-POP premium content broadcasts in 2025.

Corporate Updates

• Restarted the shareholder benefit program to encourage holdings of 1,000+ shares, completed a capital reduction to enable easier corporate actions, and initiated dividend payments with a 1 yen per share first dividend. Reduced parent company ownership to 66%, hitting the target 60%+ range, and will focus on improving stock liquidity going forward.

1. Entertainment Segment: Revenue reached 7.264 billion yen, accounting for 74.8% of total company revenue. Segment profit hit 0.679 billion yen, beating both initial and revised forecasts. Within the segment, non-concert businesses made up 49% of segment revenue (up from 33% in 2023), and total concert attendance hit 1.57 million people. 2. Rights & Media Segment: Revenue was 2.451 billion yen, accounting for 25.2% of total company revenue, which came in below the revised downward forecast. Segment profit reached 0.261 billion yen, beating the initial plan thanks to office optimization and expanded subtitle sales. New Korean drama copyright acquisitions increased 50% year-over-year to 21 titles, which will contribute to future revenue.

• Total 2025 revenue is guided at 9.866 billion yen, a slight increase from 2024, with mixed growth across segments resulting in a broadly similar overall size.
• The company prioritizes operating profit growth for 2025, guiding a 11.2% year-over-year increase in operating profit, with an expected over 11% increase in operating margin.
• Management notes that the 2025 guidance is intentionally conservative, and the company has a track record of beating forecasts due to incremental upside from concerts and merchandise when core plans execute as expected.
• The new fan club business is expected to deliver larger-than-expected operating profit contributions thanks to full utilization of existing resources.
• The 2025 full year dividend is guided at 2 yen per share, up from the 2024 1 yen per share initial dividend.

• The Rights & Media segment faces intensifying competition from global streaming giants including Netflix and Disney+ in the Japanese market, making the traditional first-run Korean drama-only model unsustainable.
• The 2024 K-POP premium content KPI of 20 works was missed (15 works delivered) due to external disruption from the December 2024 South Korean passenger plane fire accident, which led to cancelations of planned end-of-year events and broadcasts.
• The success of the new original IP debuting in H2 2025 is uncertain, and its contribution to future revenue and profit depends on how much popularity the new groups gain with audiences.

Q: How much operating profit contribution should we expect from the newly contracted fan club business, and why is its profit margin so high?

A: The contract gives Stream Media 8.5% of the sister company's 2.5 billion yen annual fan club revenue, translating to around 0.21 billion yen in annual revenue. The business uses Stream Media's existing organizational resources and assets, and does not require paying royalty fees for artist image rights that the sister company incurs. Only incremental personnel costs are incurred, so the incremental profit contribution will be large, depending on how efficiently existing staff are allocated.

Q: What is the company's future dividend policy? Will the dividend increase alongside improving performance?

A: The 2 yen per share 2025 dividend is set based on a 0.4 billion yen operating profit base. Management aims to grow profit above the current forecast, and plans to increase dividends in line with higher realized profit. The level of future dividend increases will depend on how much performance beats the current forecast.

Q: What annual cost savings are expected from office optimization, and is there room for more selling, general and administrative (SG&A) cost cuts?

A: Office optimization following a prior subsidiary sale is expected to deliver 70 million to 75 million yen in annual cost savings from lease renegotiation and space reconfiguration. Management will continue reviewing SG&A expenses in 2025 and cut additional costs where possible, alongside focusing on growing top-line revenue and profit.

Q: Why is the company changing its corporate name?

A: Many investors did not associate the existing Stream Media name with its position as the core Japanese subsidiary of the SM Entertainment group. Additionally, the segment revenue mix has completely reversed since the 2020 merger: from an 80/20 Rights & Media/Entertainment split to the current 20/80 split. Changing the name to SM Entertainment Japan will better reflect the company's current business focus and support future business expansion.