For Big Hit Entertainment Stock, BTS Is (Still) the Ticket
Despite disruptions to the music industry caused by the coronavirus pandemic, Big Hit Entertainment, the management company behind K-pop superstars BTS, had a booming 2020. Last year saw BTS fully penetrate the U.S. music market, landing a No. 1 on the Billboard Hot 100, massive YouTube tallies, a Grammy nomination and swift album sales.
In the case of hit single, “Dynamite,” its detonation aligned perfectly with BHE’s lucrative initial public offering (IPO) in mid-October 2020. Shares were offered at the top end of projections, at KRW135,000 apiece, valuing the company at KRW 4.8 trillion ($4.36 billion at Jan. 2021 exchange rates). The sale enabled it to raise $875 million (KRW963 billion) of fresh capital.
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Funds and institutional investors subscribed for 1,100-times more than the amount of stock that was available to professionals. While Korea-based retail investors applied for 600 times more than the portion that was allocated to them.
Those punters who were fortuitous enough to get on board at or before the stock launch were able to share some of BHE’s fortunes and enjoyed spectacular early gains.
But the secondary market for BHE shares has been more of a roller coaster.
Propelled by the action of frustrated institutions that had missed out, and by BTS fans who treated the stock like a piece of merchandize worth snapping up at almost any price, the shares soared in initial trading. They closed up almost double at KRW258,000 on the first day.
Cold reality set in as soon as the following day, when the price plunged to KRW199,000, some 23% lower that their day one peak. The shares have not achieved those highs ever since and by the end of October, had fallen all the way back to KRW144,000 — barely above the IPO price.
Since then, the stock has regained some of the ground it lost — it surged 11% on Friday (Jan. 21, 2021) to close at KRW192,500.
At that price BHE founder Bang Si-hyuk, who personally owns a 36% stake in the company, is a still a multi-billionaire. And BTS band members have seen their personal share allocations each increase in value to $12 million (KRW13.2 billion).
Still, questions have arisen: namely, how the unsophisticated retail investors — who similarly piled in to 2020’s other Korean hot stocks, Kakao Games and SK Biopharmaceuticals — will fare if BHE doesn’t live up to the hype it has generated.
“The bankers did their job, but the IPO was probably conducted at too high a multiple,” one securities analyst tells Variety. “Institutional investors have taken available profits and sold on every lockup expiry.”
At launch, BHE’s price to earnings multiple was over 70 times projected 2020 net earnings, far higher than the electronics, tech and heavy industry companies that are the bedrock of the Korean economy.
For the three months to September (announced in November) BHE showed a 54% year-on-year revenue gain. But net profits for the first nine months showed the draining effects of coronavirus, and only improved 13% to $55 million (KRW60.4 billion).
The company will soon have a chance to prove its worth when it publishes its 2020 annual figures.
Outwardly, BHE’s 2020 good fortunes appear to have lasted through the year. It renegotiated its BTS management contract just before the IPO. And with just days to spare before Jin, the oldest BTS band member, would have been drafted. (Korean law was changed allowing K-pop stars to seek exemption from otherwise compulsory military service.)
Fourth quarter earnings could be impressive. The immediate post-IPO period includes BTS’s “Map of the Soul ON:E” online concert in October which is estimated to have generated $35 million from the sale of nearly a million tickets, and revenues from the band’s “BE Deluxe Edition” album.
But plenty of pundits have asked whether it makes sense for BHE to be rated higher than Korea’s three other leading talent agencies, JYP Entertainment, YG Entertainment and SM Entertainment, the latter of which is home to Lee Soo-man, who is considered the father of K-pop.
In comparison with the other trio, which have larger portfolios of artists, BHE looks like a one-product company. After all, more than 90% of its 2019 income came from BTS — in addition to recorded music and merchandise, the group is among the top-selling touring acts in the world.
BHE’s attempts to diversify, through the success of other bands such as Together X Tomorrow, and mid-year acquisition of Pledis Entertainment, should begin to show its worth after Q1, but the company isn’t likely to shake off its BTS dependency just yet. Indeed, as BHE’s shares were slumping, those of the other agencies moved upwards, erasing some of the valuation discrepancy. YG stock, in particular, has gained ground, rising 20% since BHE’s trading debut, while JYP improved by 10% and SM by 5%.
But there can be no doubting BHE’s vaulting ambition. The company is planning to move out of its current headquarters in Seoul’s fashionable Gangnam district (made globally famous by YG-promoted PSY) and into the newly-completed Yongsan Trade Center. To cope with growing staff numbers, BHE has leased the entire building, which reportedly has 26 floors and seven basement levels.
And, of course, there’s BTS’ return to the stage once live music returns.
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