Big Hit IPO Price Set at 135,000 Won... Diverging Views on Appropriateness

Target Stock Price Reaches 380,000 Won in Securities Market... High Dependence on BTS Pointed Out

[Asia Economy Reporter Kum Boryeong] Opinions are divided over the appropriateness of the public offering price of Big Hit Entertainment, which is scheduled to be listed next month.

According to Big Hit on the 29th, the demand forecast conducted for domestic and foreign institutional investors on the 24th and 25th confirmed the public offering price at 135,000 KRW. The expected price band was 105,000 to 135,000 KRW. The total public offering amount is 962.55 billion KRW.

A total of 1,420 institutions participated in this demand forecast, recording a competition rate of 1,117.25 to 1, showing intense enthusiasm. Among them, 1,381 institutions, accounting for 97.25%, wrote prices at or above the top of the band, 135,000 KRW.

The securities industry's target stock price has reached up to 380,000 KRW. Hana Financial Investment applied a price-to-earnings ratio (P/E) of 50 times to the controlling shareholder net profit of 272.4 billion KRW in 2022, when full offline concerts will be possible, setting the target stock price at 380,000 KRW (corporate value about 14 trillion KRW). Lee Ki-hoon, a researcher at Hana Financial Investment, explained, "This is a 50% premium compared to JYP Entertainment, considering the value of the global No.1 artist BTS universe, the synergy when combined with the 'Weverse' platform, and the fact that Big Hit itself is an innovation in the global music industry." Yuanta Securities also suggested a target stock price of 296,000 KRW.

However, the proportion of institutional investors who committed to lock-up agreements was 43.85% by quantity. This is lower than SK Biopharm (81.2%) and Kakao Games (58.6%), which are considered major listings in the second half of the year. If the lock-up volume is not secured, there is a high possibility that shares will be released to realize profits when the stock price surges after listing. Regarding the lock-up period, the highest proportion of institutional investors, 49.4%, committed to a one-month lock-up. This was followed by 6 months at 22.2%, 3 months at 18.7%, and 15 days at 9.8%. A financial investment industry official said, "SK Biopharm had the largest proportion of six-month lock-ups, so considering this, institutional investors seem to have relatively less interest in long-term investment in Big Hit compared to SK Biopharm."

Individual investors also pointed out the high public offering price, criticizing the excessive dependence on BTS's income. On online communities, it is easy to find posts saying, "Stocks should be bought based on future value, but as BTS members, who account for most of Big Hit's revenue, enlist one by one, the stock price will naturally fall." Big Hit also stated in its investment prospectus, "The company shows a high sales dependence on specific artists, with BTS accounting for 87.7% and 97.4% of sales in the first half of this year and last year, respectively," and "If the popularity of artists declines or activities are suspended in the future, resulting in a sharp drop in sales related to major artists, profitability may decrease."

Big Hit plans to conduct a general subscription on the 4th and 5th of next month and enter the KOSPI market on the 15th. The joint lead managers are NH Investment & Securities, Korea Investment & Securities, and JP Morgan, with Mirae Asset Daewoo as a joint manager and Kiwoom Securities as the underwriter.