BTS Announces Plans for Military Enlistment
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
On Oct 17, BTS announced plans for military enlistment and group activities, resolving the uncertainties that have caused HYBE’s share price to slump. In addition to addressing the company’s sluggish share price momentum, the announcement has made it possible to re-evaluate the lineups that have been hidden in BTS’s shadow. We maintain a Buy rating.
Re-evaluation begins with resolution of BTS uncertainties
We maintain a Buy rating and TP of W250,000 on HYBE. A major factor behind HYBE’s recent weak share performance has been uncertainty related to BTS’s future activities. However, as related questions have now been answered through the company’s Oct 17 shareholder letter, we expect the stock to pull off a short-term rebound.
Though an earnings slowdown over the next two years due to the absence of BTS appears inevitable, we believe that the firm deserves a valuation premium versus peers, noting: 1) the strong possibility of BTS’s prolonged activity; and 2) anticipated platform business growth driven by expanded monetization on the Weverse platform in 2023.
In addition, the re-evaluation of lineups other than BTS should now be possible in the absence of BTS uncertainties. Two boy groups (Seventeen, TXT) capable of leading arena-class world tours, two girl groups (NewJeans, Le Sserafim) that are rapidly monetizing, and two expected debut groups (&Team, Trainee A) that boast core fandom even prior to their debuts should be able to fill in for BTS. Thanks to such groups’ rapid rise, HYBE’s sales dependence on BTS has already dropped from 92% (W730bn/ W796bn) in 2020 to 70% (W880bn/W1.3tn) in 2021.
BTS expected to resume group activities in 2H25 after sequential military enlistment
At yearend, starting with Jin (the eldest member; born in 1992), all BTS members will start military service in sequence. Jin is expected to enlist around November or December after releasing a solo album at end-October. Leader RM (born in 1994), who is scheduled for the next individual activity, is also highly likely to enlist within this year after releasing a solo album. The schedules for the remaining members’ individual activities and military enlistment have not been confirmed, but considering the fact that full group activities are hoped to resume around 2025 according to the shareholder letter, all members are likely to enlist by 1H23.
We see little need to worry about the eventual resumption of BTS group activities following military service at an Oct 15 concert, the group directly addressed their commitment to a shared future by stating, ‘We will be together as BTS in 30 years’. Given the members’ strong commitment to their future together, we forecast that the group’s activities will resume in 2025. And, with BTS members enlisting one by one and individual activities continuing, the absence of BTS activities for fans should be limited to around a year.