3 reasons for the crash of the big hit

When Big Hit (352820) was listed on the KOSPI and showed a sharp drop for two days in a row, sighs of whether the expectation so far was a ‘bubble’ burst everywhere. What is the reason why the results were not much lower than the successive subscription ticket offices? The experts mentioned the limitations of entertainment, the high public offering and the effects of learning.

Big Hit started to fall on the 16th, the second trading day, and is gradually increasing its decline. It was traded at 214,000 won, down 17.05% at 10:10 a.m.

On the first day of trading, at the same time it opened, it went straight to 351,000 won, which is 160% of the public offering price (135,000 won), but the upper limit was lifted in less than 5 minutes. In the end, it ended at 258,000 won, 26.49% less than the maximum.

Contrary to the expectation that it will become the top tier IPO (public offering) this year, the post-listing performance is poor. As a background, it is first of all that it is enteroju, that it has a high dependency on BTS. It is noted that Big Hit has the weapon of the global artist BTS, but on the contrary, it is the limitation that only BTS exists. In that sense, if there is any bad news or risk in BTS, it can immediately affect the entire company. In fact, when BTS reached the top of the US Billboard’s main singles chart ‘Hot 100’ with the sound source dynamite released before the chart, expectations rose, but a member’s comments raised a wave among Chinese netizens. As a result, Samsung Electronics, FILA and Hyundai Motors in China began to “clean up BTS”.

Lee Hyo-jin, a researcher at Meritz Securities, said: “Big Hit’s strength is that world-class artist BTS is a contract company, and its weakness is that BTS sales are pretty much everything to the company. It did not change the system itself. BTS’s values ​​belonged to BTS themselves, not Big Hit. It’s difficult to infinitely expand the premium compared to other companies. “

There was also controversy over the high competition. Previously, when the public offering price was set at 135,000 won, opinions were narrowly divided between overvalued and undervalued.

The side that claimed to be underrated noted that Big Hit recently took over the Source Music agency and Pledis, expanding the artist lineup to GFRIEND, Seventeen, and NU’EST, thereby reducing reliance on BTS. We also expected synergy with Platform Weverse.

On the other hand, the undervalued party cited the BTS member enlistment issue and the fact that the public offering price was set higher than in the same industry.

According to Shinyoung Securities, ‘EV / EBITDA’ based on Big Hit’s public offering price and this year’s converted EBITDA is 44.7 times. Last year, the top three agencies (SM, JYP, and YG) participated 11.3 times and 24.4 times in the internet industry, such as Naver and Kakao. EV / EBITDA is the value obtained by dividing the market value (EV) of a company by its operating income before taxes (EBITDA), and is used to determine the fair price of a company’s shares.

Researcher Shin Soo-young said, “Compared to the same industry, a relatively high multiple is being applied.” Said.

Finally, it was pointed out that the current flow of ‘not asking for investment’ through public offerings has decreased. While it posted a high underwriting rate, it was explained that it created a kind of learning effect among investors, as the situation where the company could not escape the slowness after the listing was repeated.

Previously, when SK Biopharm to Kakao Games was successful at the successively successful subscription box office, there was a trend of “not asking for investment”, asking if you are a public offering. Consequently, there were fewer companies that challenged the IPO market, but some of them voluntarily pulled out when the response was not good in the demand forecast, and there were many cases where the share price was well below the price. public offering after listing. This was a time when warnings were made about the need to cover the stones.

Also, it seems that a kind of “learning effect” occurred when public offering stocks showed a brilliant rise and then declined after listing. In fact, prior to the Big Hit listing, SK Biopharm and Kakao Games began to show a total decline. Investors who saw this thought that they should sell at the right time after trading to make a profit, and it is interpreted that they sold immediately after the Big Hit opening and the limit was released.

The company is also expected to be cautious when it comes to investing, as stock market uncertainty has also increased. The first day, the sale of great successes by institutions and foreigners was great. The largest institutional net sales business was a great success.

SK Securities Research Center Director Choi Seok-won said: “Institutional investors have started selling due to the growing uncertainty in the stock market, such as the upcoming US presidential election and the current situation. of infection by coronavirus (Corona 19) “. It seemed to mean that they would sell them first and see the future flows of share prices, ”he analyzed.