The Korea Exchange announced on May 4th, 2021 that YG Entertainment and SM Entertainment were demoted in status from blue-chip companies to mid-sized business due to poor performance and equity losses. A blu-chip company is a nationally recognized, well-established and financially sound company. These companies tend to have less volatile investments than owning shares and are also more liquid. According to the selection criteria of the Korea Exchange, companies can be promoted if they have equity capital of $62.2 million USD, and an average market capitalization over $88.9 million USD over the past 6 months.
YG and SM Ent. would have no reason to be demoted based on size alone. Based on the end of 2020, SM had a total equity of $541 million USD, and YG a total of $383 million USD. However, both companies have seen their net profit and ROE fall sharply. Over the past three years, SM had a yearly average loss $21.7 million USD, while YG a 1.60 million USD. Therefore, 2020 was the worst year for SM with a net loss of $74.1 million USD. This is mainly because of the coronavirus pandemic. Meanwhile, YG recorded a net profit in 2020 of $2.84 million USD, but this is because their 2019 losses were huge.
Out of the “Big 3”, the company JYP Entertainment is the only agency that is still in the blue-chip level, inclusive when they are the ones with the lowest average sales of about $126 million USD. Their 3 year average profit is $25.5 million USD. During that time, JYP´s ROE was 18%.
