Stock thesis:

JYP Entertainment (KOSDAQ: 035900) is a multinational entertainment and record label conglomerate founded in 1997 by J. Y. Park.

The new Japanese idol group NiZiU has been phenomenal and completely engulfed Japan. However, the current stock price does not capture this growth potential in Japan.

Reasons to buy:

I do not plan to list out financial metrics analysis, as it is largely irrelevant to entertainment industries. Rather, I focus on analyzing intangibles, such as how attractive artists are and how likely are they to succeed in certain geography.

Hence, I present my analysis on the following intangibles:

1. J.Y. Park’s philosophy and discipline:

The leader of JYP Entertainment is J.Y. Park, who still performs on the stage at the age of 48. There are so many episodes of him being an exceptional CEO both as a producer and artist.

What is lesser known, however, is his philosophy in running his company. J.Y. Park emphasizes respect over success, and to earn respect he sets strict discipline for himself (he has been exercising two hours every day in the morning and managing diets because he plans to perform until 60), and treats his staffs and musicians very warmly.

His philosophy is well-reflected in recruitment of artists, in which good personality, humbleness and diligence are more important than talents (this is unique and rare because many music companies simply look for talents).

His numerous quotes and television shows all testify that he is the epitome of discipline and good personality, a philosophy that he has imbued JYP Entertainment with.

In the short run, such philosophy may not pay off well in business. However, in the long run JYP Entertainment has won the trust of people and attracted fans as the most clean and friendly K-pop company in a rather scandal-ridden celebrity industry.

 

2. Popularity of NiZi Project and NiZiU group:

 

NiZi Project is an audition program started in 2019 that aimed to create a global idol group from Japan.

The program was a huge success, as evidenced by numerous records from music charts and television shows in Japan. A simple research on Japanese websites and social network service will show that everyone in Japan knows about this program and many love and support the artists who debuted.

In particular, many Japanese people were touched by sincere advice J.Y. Park gave to trainees and impressed by his disciplines. It is a rare phenomenon considering that Japan and South Korea have unresolved political sensitivities.

The nine member group NiZiU is planned to debut in November 2020, but has gained a phenomenal popularity in Japan with their pre-debut songs ranking top in Japanese iTunes and Apple music charts within one day.

Source: kworb.net

 

According to IFPI 2017 data (International Federation of the Phonographic Industry), Japan is the second largest music market with 2.7 billion USD only after the US with 5.9 billion.

On top of JYP Entertainment’s success in winning the minds of Japanese, the nine members of the group NiZiU are exceptionally talented and are already popular among Japanese. The photo for its members is attached below.

With the sensation that the group is creating, I strongly believe that NiZiU Group will capture significant market share of Japan’s music industry and drive profits for JYP Entertainment.

3. Less risky than other entertainment companies:

Korean celebrity industry is fraught with much scandals and accidents, which can be a critical blow to the company. For example, JYP Entertainment’s competitor, YG Entertainment, had its famous group Big Bag causing the Burning Sun and opium addiction scandals, which basically prevented the group from performing music and appearing from television shows.

On the other hand, JYP Entertainment has the least number of scandals and accidents involving its artists in Korea entertainment industry, thanks to its emphasis on good personality and humbleness of its artists. This reduces the risk of having accidents and scandals which may negatively affect the share price.

4. JYP brand name:

Above all, the biggest benefactor is the brand name of JYP Entertainment. The brand name of any K-pop entertainment company plays an important role as it attracts and maintains loyal fandom.

JYP brand name in Japan has skyrocketed because of the following reasons:

• J.Y. Park’s accurate and sincere advice for trainees
• J.Y Park’s self-discipline and emphasis on being a good person before being a musician
• JYP Entertainment’s capability in training some of the zero base Japanese trainees to professional idol group within a year
• JYP Entertainment as a safe and reliable company, as it stays away from some of the behind scene activities and cares for well-being of trainees, unlike other entertainment companies in Japan and South Korea

This brand name will create a synergy for all artists of JYP Entertainment, paving the way for them to enter the Japanese market as Japanese people vividly remember the brand name with positive impression.

Chart:

I would like to draw a parallel between the group Twice and NiZiU. They both debuted after audition programs called Sixteen and Nizi Project, which attracted a nation-wide interest in South Korea and Japan, respectively.

Usually, traditional institutional investors do not have a sense of the likelihood of the success of debuting artists from entertainment company, and thus invest only based on financial metrics, which can be misleading because they do not take into account popularity and growth potential of artists. The below is a chart of JYP Entertainment’s share price since 2014.

Source: Capital IQ

Twice debuted on October 2015, when the stock price was around 4,000 KRW. It took about two years for the share price to triple and three years to go up seven times. I will cover the success of group Twice in another article, but this is basically thanks to attractiveness of its members and J.Y. Park’s philosophy, which is a parallel to the new Japanese group NiZiU.

However, with industry downturn caused by scandals in Korean celebrity industry and outbreak of COVID-19, the share price stands now approximately at about 20,000 KRW.

With the newly launched group NiZiU following the path of its predecessor, Twice, and becoming the most famous group in Japan, JYP Entertainment will definitely have a similar stock price pattern which happened about three to five years ago.

Risk:

 

There are a number of risks to buying JYP stocks.

• The spike in the number of and spread of COVID-19 may delay performances of its artists, including NiZiU;
• Souring political relationship between South Korea and Japan could dampen the mood;
• The renewal of contract with the famous group Twice, which debuted in 2015 and soon needs to renew its contract in two years; and
• Depreciation of Korean won is making stock investment in South Korea unfavorable for foreign investors. I have presented my thesis on KRW/USD exchange rate here;

Conclusion:

Despite headwinds and economic recession, I believe JYP Entertainment will thrive with the personal attraction of its leader J.Y. Park and new idol group NiZiU. Addition of Japanese entertainment market—which is second largest in the world and five times larger than South Korea—will be a huge boost for JYP Entertainment, and its effect will materialize in one to two years.

 

I also published a subsequent article explaining what differentiates JYP Entertainment from its competitors and its intangibles in much detail.

As of 17 July, the stock price has soared approximately 50% after I wrote this article.

Disclosure: I am long JYP Entertainment. I wrote this article to myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This article is also published on Macrotrend.