Licensing revenue is expected to remain the main growth driver for record label HIM International Music Inc (華研國際) this year and next year due to the addition of Line Music as a streaming platform partner, Capital Investment Management Corp (群益投顧) said in an investment report on Thursday.
With its increased focus on music copyright, HIM’s net profit is expected to grow continuously despite a drop in revenue after veteran girl group S.H.E did not renew its contract with the company late last year, Capital Investment said.
“It has been almost one year since S.H.E ended its contract with HIM. Nevertheless, HIM’s earnings continue to set a new high thanks to its extensive music library intellectual property [IP] and the rising trend of subscription-based music streaming platforms,” the report said.
The investment consultancy’s remarks came after HIM last week reported third-quarter revenue of NT$388.68 million (US$12.7 million), up from NT$384.13 million in the second quarter, but down from NT$413.8 million in the same quarter last year.
In the first three quarters this year, cumulative revenue totaled NT$1.098 billion, down 13.36 percent from the same period a year earlier, HIM’s data showed.
The company used to focus on music production, physical albums and its entertainment agency business, but about 65 percent of its total revenue is now generated from its licensing partnerships with leading music streaming services Spotify Technology SA and Apple Music, as well as China’s NetEase Cloud Music (網易雲音樂) and Taiwan’s KKBOX Inc, plus its licensing deals with KTV parlors.
The licensing business carries a higher gross margin, which boosted the company’s gross margin to 65.8 percent in the first half of the year, compared with 50.31 percent a year earlier, and raised earnings per share (EPS) from NT$4.58 to NT$5.31 over the period.
In July, HIM partnered with Line Music, which enables it to take a fixed income from users’ monthly subscription fees, as well as a share of profits based on the number of clicks per song. It also benefits from Line services such as music ringtones and music stickers.
Capital Investment said that the Line Music deal might start contributing to HIM’s revenue in the fourth quarter.
“We are optimistic about the growth trend of subscription-based music streaming platforms and the multi-platform model is expected to maximize the benefits of HIM’s existing music library IP, while annual renewal prices are expected to rise slowly and sequentially,” the report said. “Additionally, as international laws promote the rights of IP creators, the future terms of licensing and profit sharing would continue to favor HIM.”
Capital Investment forecast HIM’s revenue would fall 10.87 percent this year to NT$1.51 billion, but grow 5.91 percent next year to NT$1.6 billion.
Supported by higher licensing revenue contributions, net profit is predicted to expand 14.86 percent this year to NT$550 million, with EPS of NT$10.39, and then increase 5.44 percent next year to NT$580 million, with EPS of NT$10.96, it said.
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