[Click eStock] "BigHit, Q4 Earnings Surprise Expected"

Hana Financial Investment Report
"4Q Sales at Least 300 Billion KRW"

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating and a target price of 320,000 KRW for Big Hit on the 26th, expecting a performance surprise in the fourth quarter as well.

[Image source=Yonhap News]

In the third quarter, Big Hit delivered a surprise performance driven by the rapid growth of Weverse, and a performance surprise is also expected in the fourth quarter. Kihoon Lee, a researcher at Hana Financial Investment, explained, “Although there is a short-term overhang issue, it is expected that by the first half of next year at the latest, Big Hit will actively pursue investments and mergers and acquisitions based on 1 trillion KRW in cash,” adding, “The entry of overseas artists into Weverse is anticipated, and inclusion in the KOSPI 200 is also positive from a supply-demand perspective.”

Fourth-quarter sales are expected to reach at least 300 billion KRW. BTS released two albums, with the average selling price (ASP) more than doubling to 39,000 KRW compared to previous releases.

The initial sales of ‘Skool Luv Affair-S.A.’ were 670,000 copies, and ‘BE’ reached 2.6 million copies; even assuming a price of only 30,000 KRW, sales exceed 100 billion KRW. Considering Seventeen’s initial sales of 1.1 million copies, TXT’s 400,000 copies, and digital music sales, the total revenue from albums and digital music in the fourth quarter is estimated to reach approximately 160 billion KRW. Additionally, considering BTS’s online tour with 990,000 attendees (expected revenue of 40 to 50 billion KRW) and the Big Hit Labels tour scheduled for the year-end, total sales are expected to reach at least 300 billion KRW.

On the cost side, Yongsan rent was pre-reflected at 5 billion KRW per quarter, and the amortization of Pledis exclusive contract fees and artist stock compensation costs were estimated at a total of 4 billion KRW. When conservatively reflecting one-time growth fees at 10 billion KRW, operating profit is estimated to be 54 billion KRW.

Researcher Kihoon Lee said, “Excluding one-time growth fees, the operating profit for the second half is about 105 billion KRW, but the market’s expectation of 218 billion KRW for next year’s operating profit means the market’s expectations have become too low,” adding, “We should consider that despite artists not being able to travel overseas this year, growth exceeded 50%, and that Weverse subscribers have already surpassed 10 million.”

He continued, “Considering two consecutive quarters of performance surprises and supply-demand momentum, I strongly recommend buying before the first half of next year.”