SM And YG Entertainment Demoted From Top Blue-Chip Companies To Regular Mid-Size Businesses Due To Poor Performance And Increased Losses

Both SM Entertainment and YG Entertainment have been downgraded from top-level blue-chip companies to regular mid-sized businesses by the Korea Exchange due to poor performance and increased losses.

The Korea Exchange announced on May 4 that both 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. SM Entertainment was demoted 13 years after being promoted in March 2008, and YG Entertainment was demoted eight years after being promoted in April 2013.

According to the selection criteria of the Korea Exchange, companies can be promoted to blue-chip level if they have an equity capital of over ₩70.0 billion KRW (about $62.2 million USD) and the average market capitalization must be over ₩100 billion KRW (about $88.9 million USD) over the past six months. There should also not be any capital impairment, or when the company’s total capital is less than the face value of its stock. Finally, companies will need to maintain an average return on equity (ROE) of 5%, a net profit of at least ₩3.00 billion KRW (about $2.67 million USD) and sales of over ₩50.0 billion KRW (about $44.4 million USD) all over the past three years.

Based on size alone, both SM Entertainment and YG Entertainment would have no reason to be demoted. Based on the end of 2020, SM Entertainment had a total equity capital of ₩608 billion KRW (about $541 million USD) and YG Entertainment had an equity capital of ₩431 billion KRW (about $383 million USD), far above the requirement. Their three year sales averages also were far above the requirement, with SM Entertainment recording ₩617 billion KRW (about $548 million USD) and YG Entertainment recording ₩259 billion KRW (about $230 million USD).

However, both SM Entertainment and YG Entertainment have seen their net profit and ROE fall sharply, causing their demotion. Over the past three years, SM Entertainment has averaged a yearly loss of ₩24.4 billion KRW (about $21.7 million USD) while YG Entertainment is averaging a yearly loss of ₩1.80 billion KRW (about $1.60 million USD). SM Entertainment’s ROE is -3.8% per year, and YG Entertainment’s ROE is -0.5%.

2020 was one of SM Entertainment’s worst years on record, with the company recording a net loss of ₩80.3 billion KRW (about $71.4 million USD), mainly due to the effects of the coronavirus pandemic. YG Entertainment did record a net profit in 2020, profiting ₩3.20 billion KRW (about $2.84 million USD), however their losses from 2019 (₩24.6 billion KRW (about $21.9 million USD)) brought their three-year average loss to the aforementioned ₩1.80 billion KRW (about $1.60 million USD).

Out of the “Big 3”, JYP Entertainment is the only agency to remain as a blue-chip company. Even though JYP Entertainment has the lowest sales average (₩142 billion KRW (about $126 million USD)), their three-year net profit average is ₩28.4 billion KRW (about $25.2 million USD). During that same time, the ROE for JYP Entertainment was 18.0%.