이 기사는 2020년 02월 06일 08:00 thebell 에 표출된 기사입니다.

Big Hit Entertainment, the South Korean label of mega popular boy group BTS, is expected to be valued at well over three trillion won ($2.5 billion) in its planned initial public offering (IPO).

Price to earnings (P/E) ratios of three major domestic entertainment companies – SM Entertainment, JYP Entertainment and YG Entertainment – have been above the market average, ranging from 20 to 40 times. If investors value Big Hit Entertainment at a similar P/E multiple of peers, its IPO value could comfortably rise above three trillion won.

The dramatic increase in BTS’ global fandom, called Army, has led to a rapid growth of the entertainment company founded in 2005. Analysts are bullish on prospects for the company’s 2019 earnings, forecasting an increase in revenue and operating income to 300 billion won ($253 million) and 100 billion won ($84 million), respectively. This would represent a more than 40 percent and 56 percent growth year-on-year, after a 132 percent and 97 percent rise in its revenue and operating income in 2018.

Even allowing for the business model in the entertainment sector, the profitability of Big Hit Entertainment is unusually high: its operating margin reached 29.9 percent for 2018 and is expected to exceed 30 percent for 2019. While significant initial investment costs were required at the early stage of the company, the global success of BTS has led to the explosive growth in revenue with limited requirements for additional spending.

The outlook for Big Hit Entertainment’s 2020 earnings is also positive. More than 3.42 million of advance orders for the boy group’s fourth full album, slated to be released later this month, have been already placed, breaking its own record.

Hopes for a higher value

Currently JYP Entertainment is the most valued entertainment company in the country’s stock market. Its stock is traded at about 36 times of P/E based on 2018 earnings, followed by YG Entertainment’s stock at about 35 times and SM Entertainment’s stock at about 24 times.

Big Hit Entertainment’s net income for 2019 is roughly estimated to around 80 billion to 90 billion won. With this estimate and a P/E multiple similar to JYP Entertainment’s, the company’s IPO value could rise well above three trillion won.

Some bankers are more bullish, offering a view that Big Hit Entertainment’s IPO value could rise above four trillion won. They expect that investors may accept a higher P/E multiple due to BTS’ position as a top-tier pop artist with its global popularity and ever-growing base of fandom.

Brokerage firms invited by Big Hit Entertainment to submit IPO proposals are currently working on the valuation of the company. It is possible that they might use a comparable P/E multiple derived from overseas entertainment companies, rather than domestic ones, as a large portion of Big Hit Entertainment’s revenue comes from overseas including North America and Europe.

“Candidates for a role on the deal are seen to take pains to ensure they properly value the company based on the potential of BTS,” said a market insider. “What kind of approach they will take for the valuation is one of the things to watch.”

(By reporter Yang Jung-woo)