Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>In this insight, we provide a preview of Big Hit Entertainment's 3Q 2020 earnings as well as a trading strategy post end of the lock-up period. Big Hit Entertainment has been one of the most hyped IPOs in Korea this year.</p><h3>Drifting lower to our target price </h3><p>Our one-year target price for Big Hit Entertainment remains 132,429 won, which is 2% lower than the IPO price and 30% lower than the current price. We continue to believe that the market is mispricing Big Hit right now and that it is likely to decline further. However, over the next 3-4 weeks, there could be some positive pressure from the addition to the KOSPI200 Fast Entry but the bigger problem could be the selling from the ending of the one-month lock-up. </p>

In this insight, we provide a preview of Big Hit Entertainment's 3Q 2020 earnings as well as a trading strategy post end of the lock-up period. Big Hit Entertainment has been one of the most hyped IPOs in Korea this year.Drifting lower to our target price Our one-year target price for Big Hit Entertainment remains 132,429 won, which is 2% lower than the IPO price and 30% lower than the current price. We continue to believe that the market is mispricing Big Hit right now and that it is likely to decline further. However, over the next 3-4 weeks, there could be some positive pressure from the addition to the KOSPI200 Fast Entry but the bigger problem could be the selling from the ending of the one-month lock-up. 

Big Hit Entertainment: Trading Strategy Post End of Lockup, KOSPI200 Fast Entry, & 3Q 2020 Earnings

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Equity Capital Markets

<p>Big Hit doubled the IPO price at the opening on this market debut day.</p><p>It then immediately hit the daily ceiling (30%). But the glory didn't last long. It now falls back to ₩278,000, only +3% from the opening price.</p><p>It sits on a market cap of ₩9.4T, taking the 31st spot on KOSPI.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit Ent. (₩B)"}'>Big Hit Ent. market debut performance (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MC"}'>MC</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ranking"}'>Ranking</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"IPO price"}'>IPO price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":135000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Pricing!R[-53]C[2]">₩135,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4569.23592}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000">4,569.2</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Opening"}'>Opening</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":270000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩270,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9138.47184}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000">9,138.5</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Daily high"}'>Daily high</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":351000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩351,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11880.013392}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000">11,880.0</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current"}'>Current</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":278000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩278,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9409.241376}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000">9,409.2</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":31}'>31</td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><p>The final allocation number to overseas institutions was 1,431,617, representing 4.23% of SO and 20.08% of the IPO. The initial estimate was 1.1M. So, it may explain a more aggressive selling force than initially anticipated this morning.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Allocation by type (₩B)"}'>Allocation by type (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Qty. - initial"}'>Qty. - initial</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"% - initial"}'>% - initial</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Qty. - final"}'>Qty. - final</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"% - final"}'>% - final</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Institutional"}'>Institutional</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4278000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=Terms!R8C2*0.6">4,278,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">60.00%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4282309}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=R[0]C[-2]+(R[4]C[-2]-R[4]C[0])">4,282,309</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.600604347826087}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">60.06%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Local (est.)"}'>- Local (est.)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2850692}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=R[-1]C[0]-R[1]C[0]">2,850,692</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.39981654978962133}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">39.98%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Overseas (est.)"}'><strong>- Overseas (est.)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"#,##0",1]'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"#,##0",1]'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1431617}' data-sheets-numberformat='[null,2,"#,##0",1]'><strong>1,431,617</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.20078779803646563}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2"><strong>20.08%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Retail"}'>Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1426000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=Terms!R8C2*0.2">1,426,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">20.00%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1426000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=R[2]C[-2]-R[-3]C[0]-R[1]C[0]">1,426,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">20.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ESOP"}'>ESOP</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1426000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=Terms!R8C2*0.2">1,426,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">20.00%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1421691}' data-sheets-numberformat='[null,2,"#,##0",1]'>1,421,691</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.19939565217391306}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">19.94%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total"}'>Total</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7130000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=Terms!R[-139]C[0]">7,130,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">100.00%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7130000}' data-sheets-numberformat='[null,2,"#,##0",1]' data-sheets-formula="=R[-5]C[0]+R[-2]C[0]+R[-1]C[0]">7,130,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/Terms!R8C2">100.00%</td>
</tr>
<tr><td colspan="5" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Big Hit doubled the IPO price at the opening on this market debut day.It then immediately hit the daily ceiling (30%). But the glory didn't last long. It now falls back to ₩278,000, only +3% from the opening price.It sits on a market cap of ₩9.4T, taking the 31st spot on KOSPI.








Big Hit Ent. market debut performance (₩B)
Price
MC
Ranking


IPO price
₩135,000
4,569.2
-


Opening
₩270,000
9,138.5
-


Daily high
₩351,000
11,880.0
-


Current
₩278,000
9,409.2
31

Source: KRX

The final allocation number to overseas institutions was 1,431,617, representing 4.23% of SO and 20.08% of the IPO. The initial estimate was 1.1M. So, it may explain a more aggressive selling force than initially anticipated this morning.









Allocation by type (₩B)
Qty. - initial
% - initial
Qty. - final
% - final


Institutional
4,278,000
60.00%
4,282,309
60.06%


- Local (est.)
-
-
2,850,692
39.98%


- Overseas (est.)
-
-
1,431,617
20.08%


Retail
1,426,000
20.00%
1,426,000
20.00%


ESOP
1,426,000
20.00%
1,421,691
19.94%


Total
7,130,000
100.00%
7,130,000
100.00%

Source: DART



Big Hit First Trading Day: Market Reception & Immediate-Term Ceiling Price

<div class="content-highlight"><p>The Big Hit Entertainment IPO starts trading this week on 15 October. It was reported today in numerous<a href="https://www.globaltimes.cn/content/1203171.shtml" target="_blank" rel="noopener"> media</a> that Samsung has removed BTS related products from its official stores on Chinese e-commerce platforms. Well, apparently this news is really getting out of hand. All the major local media outlets in Korea including <a href="https://www.yna.co.kr/view/AKR20201012108900083?input=1195m" target="_blank" rel="noopener">YTN, </a><a href="https://www.chosun.com/international/china/2020/10/12/6RFKE7KJ6FEXFM6GB6Z24PCEGY/?utm_source=naver&amp;utm_medium=original&amp;utm_campaign=news" target="_blank" rel="noopener">Chosun</a>, and <a href="https://news.joins.com/article/23892128" target="_blank" rel="noopener">Joongang</a> have reported on this news. </p></div>

The Big Hit Entertainment IPO starts trading this week on 15 October. It was reported today in numerous media that Samsung has removed BTS related products from its official stores on Chinese e-commerce platforms. Well, apparently this news is really getting out of hand. All the major local media outlets in Korea including YTN, Chosun, and Joongang have reported on this news. 

BTS' Political Remarks Anger Thousands of Chinese Fans

Big Hit released a regulatory filing about the final allocation and lock-up data at DART.Here is the link to it.There was a little shortage in the ESOP subscription. As a result, the institutional allocation got bumped up slightly.









Allocation by type (₩B)
Qty. - initial
% - initial
Qty. - final
% - final


Institutional
4,278,000
60.00%
4,282,309
60.06%


- Local (est.)
-
-
3,150,695
44.19%


- Overseas (est.)
-
-
1,131,614
15.87%


Retail
1,426,000
20.00%
1,426,000
20.00%


ESOP
1,426,000
20.00%
1,421,691
19.94%


Total
7,130,000
100.00%
7,130,000
100.00%

Source: DART











Allocation by banker (₩B)
Qty.
Value
%
Note


NH
2,495,500
336.9
35.00%
Local


KIS
2,139,000
288.8
30.00%
Local


JP Morgan
1,639,900
221.4
23.00%
Overseas


Mirae Asset
713,000
96.3
10.00%
Local


Kiwoom
142,600
19.3
2.00%
Local

Source: DART

About 80% of the institutional allocation carries a lock-up. But only half is 3 months or longer. The other half expires within a month.








Allocation by lock-up
Qty.
% of allocation
% of SO


6 months
1,063,100
24.83%
3.14%


3 months
765,179
17.87%
2.26%


1 month
1,322,416
30.88%
3.91%


15 days
205,463
4.80%
0.61%


No lock-up
926,151
21.63%
2.74%


Total
4,282,309
-
12.65%

Source: DART

As a result, the immediate real-world float becomes 19.8%, rising to 24.3% after one month.







Immediate real-world float
Qty.
%


1 year
1,421,691
4.20%


6 months
21,006,701
62.07%


3 months
3,189,195
9.42%


1 month
1,322,416
3.91%


15 days
205,463
0.61%


- Total
27,145,467
80.20%


Immediate real-world float
6,700,726
19.80%

Source: DART









Shareholding
Post-IPO
Lock-up


Bang Si-hyuk
36.57%
6 months


Minority shareholders (lock-up)
1.41%
6 months


Netmarble Corp
20.94%
6 months


STIC Investments
7.16%
3 months


ESOP (through IPO)
4.21%
1 year


Minority shareholders (no lock-up)
12.85%
-


IPO
16.85%
-


Total
100.00%
-

Source: DART



Big Hit IPO: Immediate Real-World Float & Index Float (For KOSPI 200)

<p>The Forbes magazine has an excellent<a href="https://www.forbes.com/soccer-valuations/list/#tab:overall" target="_blank" rel="noopener"> list</a> of the valuations of the top 20 football (soccer) teams in the world. Founded in 1902, the Real Madrid football team has been around for nearly 118 years. Real Madrid is the most valuable football franchise in the world with a valuation of $4.2 billion.</p>
<div class="content-highlight">
<p>Warren Buffett always recommended his followers to think in terms of buying the whole business rather than a small fraction of the business. We ask our readers this question, <strong><em>"If you had a choice of buying a 100% stake in either Real Madrid or Big Hit Entertainment AT THE SAME PRICE, which company would you buy?" </em></strong>In this insight, we go through the details of why most serious investors would buy Real Madrid rather than Big Hit at the same price. In addition, such a comparison could shed greater light on why Big Hit Entertainment IPO is more likely to be a dud rather than a big success.</p>
</div>

The Forbes magazine has an excellent list of the valuations of the top 20 football (soccer) teams in the world. Founded in 1902, the Real Madrid football team has been around for nearly 118 years. Real Madrid is the most valuable football franchise in the world with a valuation of $4.2 billion.

Warren Buffett always recommended his followers to think in terms of buying the whole business rather than a small fraction of the business. We ask our readers this question, "If you had a choice of buying a 100% stake in either Real Madrid or Big Hit Entertainment AT THE SAME PRICE, which company would you buy?" In this insight, we go through the details of why most serious investors would buy Real Madrid rather than Big Hit at the same price. In addition, such a comparison could shed greater light on why Big Hit Entertainment IPO is more likely to be a dud rather than a big success.


Would You Rather Buy Real Madrid or Big Hit Entertainment for the Same Price?

South Korea

HYBE Co., Ltd. operates as an entertainment company. The Company provides music production, album distribution, entertainers management, publicity, planning, training, and other services. HYBE also makes television shows.

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HYBE (352820 KS)

Big Hit Entertainment: Trading Strategy Post End of Lockup, KOSPI200 Fast Entry, & 3Q 2020 Earnings

In this insight, we provide a preview of Big Hit Entertainment's 3Q 2020 earnings as well as a trading strategy post end of the lock-up period and...

Douglas Kim

Big Hit First Trading Day: Market Reception & Immediate-Term Ceiling Price

It appears that Big Hit's main selling point, WEVERSE (the online community platform), isn't selling very well in the market at large. So, we...

Sanghyun Park

BTS' Political Remarks Anger Thousands of Chinese Fans

It was reported today in numerous media that Samsung has removed all BTS related products from its official stores on Chinese e-commerce platforms.

Douglas Kim

Big Hit IPO: Immediate Real-World Float & Index Float (For KOSPI 200)

Big Hit just released the IPO allocation and lock-up data: real-world immediate float and index float for KOSPI 200 inclusion

Sanghyun Park

Would You Rather Buy Real Madrid or Big Hit Entertainment for the Same Price?

We go through the details of why most serious investors would buy Real Madrid rather than Big Hit at the same price. In addition, such a comparison...

Douglas Kim

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