South Korea’s boy band IPO may be peak K-pop

Netmarble

18/03/2020 02:26

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Sharon Lam
    HONG KONG, March 18 (Reuters Breakingviews) - K-pop may face
its harshest critic yet: investors. Big Hit Entertainment, the
music label behind global boy-band phenom BTS, is eyeing a
public market debut. Sales are surging, but its fortunes largely
depend on one act in a hit-driven business. With the coronavirus
outbreak now eating away at concert sales, a premium valuation
increasingly sounds out of tune.
    BTS is an even bigger South Korean cultural export than
Oscar winner “Parasite”. Thanks to Spotify  SPOT.N , YouTube and
viral-video app TikTok, K-pop’s reach has extended beyond Asia
and into Western markets. The recently-released “Map of the
Soul: 7” marks BTS’ fourth album to reach number one on the U.S.
Billboard 200 chart in less than two years. The last pop group
to achieve that milestone was The Beatles.
    Big Hit wants to capitalise on BTS-mania. The music label,
backed by video-games outfit Netmarble  251270.KS , has hired
banks for an initial public offering this year, Refinitiv’s IFR
reported last month. The privately held company recently said
revenue nearly doubled to 588 billion won, or $474 million, last
year, while operating profit reached 98 billion won.
    Assume optimistically that the company can double its top
line again this year and maintain the same operating profit
margin. Applying the roughly 13 times multiple of expected 2020
EBIT that its rivals fetch implies the Big Hit enterprise would
be worth around $2.1 billion.
    Even so, the company is heavily dependent on BTS, whose
members are nearing the age of South Korea’s compulsory military
service. In such a fickle business, any extended hiatus could be
career-ending. Moreover, K-pop stocks have been hit hard by
recent scandals involving the country’s biggest names. YG
Entertainment  122870.KQ , for example, has lost over 45% of its
market value since last March, when one of its stars quit on the
back of bribery and prostitution allegations.
    Covid-19 is also proving to be a literal showstopper. BTS
has already cancelled this year’s Seoul tour, citing
unpredictability of the outbreak which has wreaked havoc on
major events including music and tech fest South by Southwest as
well as the latest James Bond movie release. Against this
backdrop, it’s hard to believe Big Hit can deliver a
chart-topping market debut.
    On Twitter https://twitter.com/sharonlamhk
    
    CONTEXT NEWS
    - South Korean music label Big Hit Entertainment has hired
four banks to work on its planned IPO targeted for the second
half of the year, Refinitiv publication IFR reported on Feb. 25,
citing people with knowledge of the matter. JP Morgan, Korea
Investment & Securities and NH Investment & Securities are the
joint lead bookrunners and Mirae Asset Daewoo is the lead
manager, according to the same report.
    - Big Hit Entertainment on Feb. 28 announced that BTS was
cancelling its scheduled April tour in Seoul, amid growing
concerns of the new coronavirus outbreak.        
    - For previous columns by the author, Reuters customers can
click on  LAM/ 
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K-pop sensation BTS' label picks JPMorgan, others for IPO-media 
   urn:newsml:reuters.com:*:nL4N2AO00D 
Big Hit hires four for planned KRX IPO - IFR News   
 urn:newsml:reuters.com:*:nL3N2AP1QB
BREAKINGVIEWS - Korean pop music can dance past boy-band blues  
  urn:newsml:reuters.com:*:nL3N2100B1
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 (Editing by Robyn Mak, Jeffrey Goldfarb and Jamie Lo)
 ((sharon.lam@thomsonreuters.com; Reuters Messaging:
sharon.lam.thomsonreuters.com@reuters.net))