Both SM Entertainment and YG Entertainment are no longer top-level blue-chip companies, what happened?
On May 4, The Korea Exchange announced that SM Entertainment and YG Entertainment were demoted in status from blue-chip companies to regular mid-sized businesses due to poor performance and increased equity losses.
The news came as a huge shock.
In the case of SM, this marks the first time in 13 years this has happened, they were promoted in March of 2008. In the case of YG, they have been demoted 8 years after being promoted back in April of 2013.
But why did this happen and what does it mean for the future of the companies?
For starters, its important to clarify that to be promoted to blue-chip level the company must have an equity capital of over ₩70.0 billion won (about $62.2 million ) and the average market capitalization must be over ₩100 billion won (about $88.9 million ) over the past six months.
The companies also need to maintain an average return on equity (ROE) of 5%, a net profit of at least ₩3.00 billion won (about $2.67 million ) and sales of over ₩50.0 billion won (about $44.4 million ) all over the past three years.
Now based on the criteria, you can find the explanation as to why both SM Entertainment and YG Entertainment were demoted.
At the end of 2020, SM Entertainment had a total equity capital of ₩608 billion won (about $541 million) and YG Entertainment had an equity capital of ₩431 billion won (about $383 million). In regards to their three year sales averages, SM Entertainment recorded ₩617 billion won (about $548 million) and YG Entertainment recorded ₩259 billion won (about $230 million).
The below should guarantee their status as a blue-chip company but when you take a closer look at their net profit and ROE, you’ll understand why they were demoted. Both companies have seen a sharp decline in their net profit and ROE.
SM has averaged a yearly loss of ₩24.4 billion won (about $21.7 million) while YG Entertainment is averaging a yearly loss of ₩1.80 billion won (about $1.60 million ). SM Entertainment’s ROE is -3.8% per year, and YG Entertainment’s ROE is -0.5%.
Added to that, 2020 was one of SM’s worst years on record, they recorded a net loss of 71.4$ million. Among the big 3, only JYP is the only blue-chip company left. Even they had the lowest sales average, their net profit average was ₩28.4 billion won (about $25.2 million). And their ROE was 18.0%.
Source: A
