KTB Investment & Securities Report
Operating Profit This Year 113 Billion KRW, Up 15% YoY
[Asia Economy Reporter Minji Lee] Ahead of the demand forecast scheduled for the 24th-25th, opinions have emerged that attention should be paid to the business performance of the intellectual property (IP) held by Big Hit Entertainment and the subscription model through its platform.
According to KTB Investment & Securities on the 20th, Big Hit Entertainment's greatest investment attraction lies in owning the powerful IP BTS. Based on album sales and concert attendance, BTS ranks among the top in South Korea. In 2018, BTS's album sales reached 5.15 million copies, a level similar to SM Entertainment's annual sales of 5.52 million copies. In 2019, sales recorded 6.62 million copies, and this year it is estimated to have increased to 9.46 million copies. BTS's performance guarantees in Europe and the Americas are also expected to be among the highest domestically.
The diversification of IP through worldview expansion and accelerated artist growth are also positive factors for the company. By operating a professional storytelling team to build a worldview, the company uses a strategy that connects each artist's album concept and story, thereby increasing growth speed while expanding into secondary and tertiary content based on the owned IP.
Additionally, the fact that the company has a fandom subscription model through its own platform is attractive. This can secure a stable revenue source, reducing the volatility of the agency's performance, and when commerce is linked, the average monthly payment per user (ARPPU) is 85,000 KRW, indicating high growth potential in the future.
It is also noteworthy that the company is actively entering new businesses. In June, revenue from Bang Bang Con tickets and MD (merchandise) reached 14.4 billion KRW and 15.4 billion KRW, respectively. Online and offline combined performances are scheduled for July 10-11, with the gross profit margin of performances estimated to be high at 40.8-43.7%.
Big Hit Entertainment's first half revenue composition was 45% from albums, 31% from MD and licensing, 12.5% from content, 12% from others, and 1% from performances. Revenue related to platforms and paid content increased rapidly, and the proportion of North American and online sales was higher compared to other agencies.
This year's sales are expected to reach 688.3 billion KRW, and operating profit 113 billion KRW, increasing by 17% and 14.5% respectively compared to the same period last year. Next year's album sales are expected to be 17.09 million copies, and content sales are projected to grow by 42% due to increased contributions from online concert performance. If some offline performances resume from the second half of the year, operating profit is expected to reach 150.9 billion KRW, a 40% increase compared to the previous year.
Nam Hyoji, a researcher at KTB Investment & Securities, analyzed, "This year had high potential for significant performance growth due to label acquisitions, new performance businesses, and increased platform traffic, but due to COVID-19 causing cancellations of offline performances and changes in artist activity schedules, profit growth this year is expected to be 14.5%."
Big Hit Entertainment's expected market capitalization based on the public offering band is between 35.5 trillion KRW and 45.7 trillion KRW. The price-to-earnings ratio (PER) based on this expected market capitalization is estimated to be between 48.8 and 62.7 times this year’s forecast. Researcher Nam Hyoji stated, "Although the target market capitalization's PER is relatively high compared to other companies, considering the IP competitiveness and the strong competitiveness of the Weverse platform, the future growth potential is judged to be high," and added, "The expected stock price upside based on the upper limit of the anticipated market capitalization band is 57.8% from the upper limit of the public offering price."
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