이 기사는 2020년 02월 24일 08:00 thebell 에 표출된 기사입니다.

South Korea’s Big Hit Entertainment, home to the phenomenally successful boy band BTS, may be worth as much as six trillion won ($5 billion), according to value estimates from brokerage firms competing to win the lead role for the listing of the company on the local stock exchange.

Three domestic brokerage houses – NH Investment & Securities, Korea Investment & Securities and Mirae Asset Daewoo – have put the valuation of Big Hit Entertainment ranging from at four trillion won to six trillion won in the presentation competition held by the company earlier this month. By comparison, the market capitalization of three major domestic music labels – SM Entertainment, JYP Entertainment and YG Entertainment – all hovers below one trillion won.

Analysts so far have estimated the IPO value of the company at about three trillion won ($2.5 billion) based on the company’s 2019 earnings and its domestic peer group’s P/E ratios ranging between 30 and 40 times. This represents almost threefold growth in the company's value just over the past two years.

Fierce competition among brokerage firms for handling an IPO may lead to an aggressive valuation of the company going public. Moreover, many analysts remain optimistic about the planned IPO of Big Hit Entertainment, highlighting its differentiated business model and BTS’ growing popularity across the globe. But even with these in mind, a valuation gap is notable particularly for Big Hit Entertainment.

To put the highest valuation does not necessarily mean for a brokerage firm to win the lead role in the IPO. Bang Si-hyuk, CEO and producer of Big Hit Entertainment, is known for his cool-headed leadership. He is expected to put more weight on the valuation process as a whole rather than an estimated value itself.

Peer group selection

All three brokerage firms that made a presentation in front of Bang have included major global labels in the company’s peer group. This approach has put the company’s IPO value estimates between four trillion won and six trillion won.

They thought a peer group composed of domestic music labels is not appropriate for the valuation of Big Hit Entertainment, as BTS’ ever-growing fandom and its global status as an artist are unprecedented among domestic entertainment companies. Still, finding appropriate peer companies in the overseas market must have not been easy because of a unique business model of South Korean music labels.

For 12 months ended in December 2019, Big Hit Entertainment posted revenue of 587.9 billion won, a 97 percent growth year-on-year, and operating income of 97.5 billion won, a 17 percent increase, on a consolidated basis. The company’s 2019 operating income is greater than the combined operating income for the three major domestic labels based on consensus estimates.

(By reporter Yang Jung-woo)