[Click eStock] Hana Financial Investment "Weverse Drives Big Hit Earnings... Stock Undervalued"

[Asia Economy Reporter Ji Yeon-jin] As Big Hit partners with the American record label Universal Music Group (UMG) to introduce a K-pop boy group in the U.S., there are forecasts that Big Hit's stock price will be reevaluated.

On the 23rd, Lee Ki-hoon, an analyst at Hana Financial Investment, said, "The reason Universal Music and YG are collaborating with Big Hit is simple. Although artists couldn't go overseas, they want to make money through Big Hit Weverse's overwhelming monetization capability, which saw a 44% annual profit increase." He added, "Even before fully reflecting the synergies related to Big Hit's organic and inorganic growth, the expected P/E ratio for 2022 was about 35 times, indicating undervaluation."

Big Hit's Q4 revenue and operating profit last year surged 117% and 122% year-on-year to 312.3 billion KRW and 52.5 billion KRW, respectively. This was due to the release of two special albums by the idol group BTS (ASP 39,000 KRW), which caused album and music sales to jump 1177% to 140.8 billion KRW, and a sharp increase in content sales (80.9 billion KRW) from BTS and Big Hit Labels' online tours. Incentives (estimated about 15 billion KRW) and listing fees (about 7 billion KRW) were reflected, and excluding these, operating profit was around 75 billion KRW. If tours resume from Q4 this year, operating profit is expected to significantly increase to 253.7 billion KRW compared to last year.

Big Hit's growth engine is considered to be Weverse. This year, YG artists such as Blackpink are expected to join Weverse, followed by the sequential participation of big names under UMG. Weverse is currently a platform where fans from over 200 countries and regions gather, allowing fans to not only communicate with artists but also experience various activities such as content viewing and merchandise purchasing. VenueLive is an interactive live streaming platform that started with Bang Bang Con in June last year, broadcasting concerts and fan meetings of Big Hit artists (BTS, Seventeen, etc.) and T-Mobile's New Year live event. Both Weverse and VenueLive utilize advanced technology to maximize fan experience, and UMG's active participation is seen as a declaration of commitment.

UMG is the world's number one label, having placed six albums in the Billboard Top 10 last year. However, due to COVID-19 making tours impossible, UMG's merchandise sales for the first three quarters of last year shrank by 42%. During the same period, recording grew by 7% and publishing by 15%, but combined sales were limited to 5.3 billion euros (+5%) due to merchandise and album sluggishness.

On the other hand, Big Hit, which had only one album (BTS) in the Top 10, saw annual revenue and operating profit grow 36% and 44% to 796.3 billion KRW and 142.4 billion KRW, respectively. MD and licensing recorded 259.1 billion KRW, and content reached 133.5 billion KRW, reflecting significant indirect sales growth through Weverse and online tours. This is presumed to be the reason why UMG had no choice but to collaborate with Big Hit.

The analyst said, "Currently, the fanbases of artists in the global top 10 are around 200 to 400 million, far surpassing BTS and Blackpink," adding, "If these fanbases translate into virtual performances via VenueLive and commerce sales through Weverse, it is difficult to calculate how far the growth could go."