Kakao shares rise as synergy seen from SM Entertainment stake purchase

[Courtesy of SM Entertainment]

Kakao Corp. shares climbed nearly 2 percent Wednesday morning on growing optimism that its position as the second-largest shareholder of K-pop powerhouse SM Entertainment Co. would generate more synergy.

Kakao, the operator of South Korea’s biggest mobile messenger KakaoTalk, Tuesday announced its acquisition of a 9.05 percent stake in SM Entertainment for 217.1 billion won ($173 million) to strengthen its entertainment business. The two also agreed to share their expertise in music and content production capabilities to produce new K-pop artists.

SM Entertainment is one of the country’s top K-pop agencies, with big-name K-pop groups like EXO and Red Velvet under its belt.

As of 12:50 pm, Kakao shares gained 1.62 percent to trade at 69,200 won.

Hyundai Motor Securities Co. immediately raised its target price for Kakao by 14.5 percent to 87,000 won from 76,000 won, while maintaining its “buy” rating.

Kakao Entertainment’s K-pop business is expected to see a 24 percent increase in album sales and doubling in performance participants this year, which will be boosted by the collaboration with SM Entertainment, said Kim Hyun-yong, an investment analyst at Hyundai Motor Securities.

As Kakao’s entertainment, media and publishing unit Kakao Entertainment is on track for an initial public offering, Kakao may seek additional stake purchasing to raise the valuation or earnings forecast, Kim explained.

Kakao Entertainment has major K-pop management agencies, including Starship Entertainment, IST Entertainment, Edam Entertainment and Antenna. Key artists include IVE, IU, Monsta X and The Boyz.