The Label behind the Boy Band BTS
The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. -- Ed.
IPO of Big Hit Entertainment
Big Hit Entertainment, the label behind the boy band BTS, is slated to go public next month. The growth strategy of the company, which focuses on building the BTS Universe, Weverse platform, IP assets, sales from indirect artist involvement businesses and earnings from online performances, is powered mainly by the fan base of BTS, called ARMY. Despite the spread of COVID-19, Big Hit Entertainment has generated strong earnings through its Weverse platform thanks to global fans with high purchasing power. Further growth will rely on securing larger sales from the indirect artist involvement business through Weverse, leveraging on the popularity of BTS and other artists of the company. We believe the growth story of Big Hit Entertainment will strengthen further in the wake of the pandemic, backed by BTS and its ARMY, debut of new artists, and the Weverse platform.
Consolidated OP forecast at KRW264bn (+98.7% YoY)for 2021
We expect consolidated operating profit to reach KRW132.8bn (+34.5% YoY) for full-year 2020. Steep growth in earnings should continue on the success of online performances, with album sales forecast at KRW321.7bn (+197.0% YoY) and content sales at KRW145.4bn (+86.3% YoY). For 2021, operating profit is projected at KRW264bn (+98.7% YoY), including KRW46.2bn (+1,214.8% YoY) from concerts, KRW464.2bn (+44.3% YoY) from albums, and KRW345.4bn (+137.5% YoY) from content (centering on online performances and concerts through the Weverse platform). Merchandise sales will likely increase 28.7% YoY to KRW260bn in 2021.
Fair market cap assessed at KRW10tr based on 2021F earnings
We assessed the value of Big Hit Entertainment based on 2021F consolidated net profit and a PER of 50x. For the valuation of the three entertainment companies under our coverage (JYP Entertainment, YG Entertainment and SM Entertainment), we apply a target PER of 40x with a 10% discount placed on the 2015-2019 average PER of 44x in reflection of China’s restrictions on Korean content and cancelation of offline concerts and tours. For Big Hit Entertainment, however, we believe a 25% premium can be applied in reflection of the company's market leadership vs. peers and added value from the Weverse platform. Our 2021 EPS forecast of KRW5,801 translates to a fair value of KRW290,000 per share. We do not set a target price for this not-rated report but offer our assessment of fair market cap, taking into account the post-IPO upside potential for shares.