Big Hit Entertainment (352820)

Acquisition to Bring Justin Bieber and Ariana Grande

Into the Fold

Sunhwa Lee
Food & Beverage / Entertainment
April 5, 2021 +82-2-6114-2939 [email protected]

Maintain BUY; TP raised by 13.0% We maintain BUY on Big Hit Entertainment (to be renamed HYBE this year), but raise our
from KRW270,000 to KRW305,000 TP from KRW270,000 to KRW305,000. The company’s recent acquisition of U.S. music
publisher Ithaca Holdings via its wholly owned subsidiary Big Hit America should (1) bolster
the pipeline of global artists and (2) diversify the range of merchandise found on the
company’s mobile app Weverse—a global fan community platform. We now expect
2021E-23E revenue CAGR for Weverse at 27.5% (as opposed to 19.1% previously). We
believe future EPS growth (via acquisition-backed inorganic growth) will outweigh EPS
dilution from the rights issue to fund the Ithaca acquisition.

Rights issue to fund acquisition of U.S. Big Hit Entertainment announced on Apr 2 that it would acquire Ithaca Holdings via its
company Ithaca Holdings wholly-owned subsidiary Big Hit America. For the acquisition, Big Hit America would
conduct a rights issue totaling KRW1.0tn, with the full amount of newly issued shares
(950mn) to be acquired by parent Big Hit Entertainment. Big Hit Entertainment, in a bid
to secure operating capital, decided on a rights issue worth KRW440.0bn targeting its
existing shareholders. Meanwhile, related parties of Ithaca Holdings, in a bid to solidify
collaborations, will participate in Big Hit Entertainment’s private placement, which should
secure around KRW182.0bn. Ultimately, the parent will have around KRW2.0tn in cash (via
existing cash holdings + two rights issues); in exchange for the 100% interest in Ithaca
Holdings, it will pay around KRW1.2tn.

Acquisition to bolster pipeline of Ithaca Holdings owns a variety of music interests, including SB Projects (management
global artists, Weverse revenue clients Justin Bieber and Ariana Grande) and Big Machine Label Group (famous country

Buy Maintain Trading Data Risk & Total Return (annualized over three years)
Free float 40.0%
Target Price (Raised) KRW305,000
Avg. T/O val. (3m, KRWbn) 108.1 Return 1 2 3 4 5
High
Dividend yield* 0.0% Foreign ownership 7.8%
Risk

1 FALSE FALSE FALSE FALSE FALSE

Total return 25.5% Major shareholders Si-Hyeok Pang and 2 others 34.8% 2 FALSE FALSE FALSE FALSE FALSE

Current price (Apr 2) KRW243,000 Netmarble 19.9%

3 FALSE FALSE FALSE FALSE FALSE
Consensus target price KRW298,182 Stock Price Performance
4 FALSE FALSE FALSE FALSE FALSE
High

Market capitalization USD7.7bn (%) 1M 3M 6M 12M

5 FALSE FALSE FALSE FALSE FALSE
* 12-month forward Absolute 17.4 51.9 0.0 0.0
Relative 14.8 40.2 0.0 0.0

Earnings Forecast & Valuation

Stock Price & Relative Performance
Fiscal year-end 2020A 2021E 2022E 2023E
Revenue (KRWbn) 796 1,202 1,532 1,792 Relative performance (LHS)
OP (KRWbn) 146 221 290 352 % Stock price (RHS)
KRW
NP to control. int. (KRWbn) 86 155 206 250 0 300,000
EPS (KRW) 2,843 4,248 5,637 6,864
-10 260,000
EPS growth (%) 9.3 49.4 32.7 21.8
-20
P/E (x) 56.3 57.2 43.1 35.4 220,000
-30
EV/EBITDA (x) 27.1 36.7 27.5 22.1 180,000
-40
P/B (x) 4.8 6.6 5.7 4.9
-50 140,000
ROE (%) 12.5 12.2 14.2 14.9
Div. yield (%) N/A 0.0 0.0 0.0 -60 100,000
Apr '20 Jul '20 Oct '20 Jan '21

Source(s): Company data, KB Securities

 singers), and has major subsidiaries Silent Content Ventures (content producer and
distributor) and Drew House (producer of merchandise based on proprietary artist
IPs). The tie-up should shift Big Hit Entertainment away from its high dependence on
the seven-member Korean boy band BTS (aka Bangtan Boys) and facilitate its entry
into the overseas merchandise market with global artist IPs, which should translate
into a jump in revenue for Weverse Shop.

2
Investment Opinion & Risks

Base-case scenario: Catalysts

Bull-case scenario KRW455,000 (75.6x implied P/E) 1) 2021E-23E revenue CAGR at 16.0%-50.0%
2) 2021E-23E OP CAGR at 20.0%-60.5%

Base-case scenario (target price) KRW305,000 (50.7x implied P/E) Bull-case scenario: Upside risks
1) 2021E-23E revenue CAGR above 50.0%

Current price KRW243,000 2) 2021E-23E OP CAGR above 60.5%

Bear-case scenario: Downside risks

Bear-case scenario KRW188,000 (31.2x implied P/E) 1) 2021E-23E revenue CAGR below 16.0%
2) 2021E-23E OP CAGR below 20.0%

Revised Earnings Estimates Valuation & Target Price Calculation

(KRWbn, %) Previous Revised Change
2021E 2022E 2021E 2022E 2021E 2022E 1) Valuation method:
Revenue 1,195 1,472 1,202 1,532 0.6 4.1 Discounted cash flow model
OP 219 272 221 290 1.0 6.8
NP (to control. int.) 153 192 155 206 1.0 6.9 2) Target price calculation:
Source(s): KB Securities estimates 7.98% WACC; 4.15% TGR

3) Target price range:

KB Estimates vs. Consensus
KRW188,000 - KRW 455,000
(KRWbn, %) KB Estimates Consensus Difference
2021E 2022E 2021E 2022E 2021E 2022E
4) Valuation at target price:
Revenue 1,202 1,532 1,206 1,630 -0.3 -6.0
50.7x 12m fwd implied P/E, 16.94x P/B
OP 221 290 241 333 -8.5 -12.8
NP (to control. int.) 155 206 171 231 -9.3 -11.1
Source(s): FnGuide, KB Securities estimates

Revenue Composition (2020) Earnings Sensitivity Analysis

Albums Concerts Ad/performance fees (%) EPS change
(%) Merchandising/Licensing Content Other
4.1 2021E 2022E
+1% in FX rate 0.9 0.4
16.8
+1pp in interest rate -0.3 -0.1

40.3

32.5
5.9 0.4

Source(s): Company data, KB Securities

Peer Group Comparison

(KRWbn, x, %) Market P/E P/B EV/EBITDA ROE Dividend Yield
Cap 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E
Big Hit Entertainment 8,657 49.6 37.0 11.3 8.7 30.6 22.6 22.9 23.4 0.0 0.0
Warner Music Group 19,767 54.1 34.2 50.9 15.4 22.4 18.6 94.2 45.0 1.4 1.5
JYP Entertainment 1,239 28.0 23.5 5.4 4.6 18.9 15.7 19.4 19.4 0.5 0.6
YG Entertainment 835 34.2 32.8 2.3 2.1 14.9 12.4 6.6 6.4 0.2 0.4
Source(s): Bloomberg consensus, KB Securities

3
 I. Valuation

7.98% WACC, 4.15% TGR, 6.4x We maintain BUY on Big Hit Entertainment, but raise our TP from KRW270,000 to
EV/EBITDA exit multiple KRW305,000. Our TP, derived using the DCF model, is based on 7.98% WACC (7.98%
cost of equity; 3.06% after-tax cost of debt; 0.99 52w adj. beta) and 4.15% implied
TGR (after 2032; 6.4x EV/EBITDA exit multiple), representing 50.7x implied 12m fwd,
16.94x P/B with 25.5% upside (against Apr 2 closing price).

Table 1. TP Calculation: Discounted Cash Flow Model

(KRWbn) 2020 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E Terminal
Cash flow projection
OP a 142 221 290 352 444 551 668 795 926 1,056 1,178 1,285 1,370
Marginal tax rate (%) b 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0
NOPLAT c=a*(1-b) 107 166 218 264 333 413 501 596 695 792 884 964 1,028
Depreciation & amortization d 0 1 1 5 5 5 5 5 5 5 5 5 5
Total cash flow e=c+d 107 166 218 269 339 418 507 602 700 797 889 969 1,033
Change in working capital f 17 -86 -89 -85 -81 -76 -73 -69 -63 -57 -52 -47 -43
Capex g -2 -4 -4 -5 -6 -5 -5 -5 -5 -5 -5 -5 -5
Total investments h=f+g 15 -89 -93 -90 -86 -82 -78 -74 -68 -62 -57 -52 -48
FCFF i=e+h 123 77 126 179 253 336 429 527 632 735 832 916 985
Adjusted FCF 77 126 179 253 336 429 527 632 735 832 916 20,575
PV of cash flow
WACC 7.98%
Terminal growth rate 4.15%
Discount 1.00 0.93 0.86 0.79 0.74 0.68 0.63 0.58 0.54 0.50 0.46 0.43
PV of terminal value 77 116 154 201 247 292 333 369 398 417 425 8,846
Valuation
Sum of cash flow (PV) j 11,875
Net cash k -63
Investments in non-cons. affiliates l 1
Non-controlling interests m 4
Stock option n 0
Fair EV o=j+k+l-m-n 11,810
No. of outstanding shares (’000) p 38,715
Target price (KRW) q=o/p 305,000
Current price (KRW; Apr 2, 2021) 243,000
Upside (%) 25.5
12m fwd EPS 6,017
12m fwd BVPS 18,008
12m fwd P/E (x) 50.7
12m fwd P/B (x) 16.94
Source(s): Company data, KB Securities estimates

4
 Fig 1. WACC Calculation
(1) Cost of debt is average yield of BBB+ credit
(applied BBB+, the median rating of
companies issuing credit, as four peer
W AC C (%)
entertainment companies have no available 7.98

history of credit issuance); market value of

debt is total debt as of end-1H20
De bt E qui ty
(2) Cost of equity derived using CAPM; RFR is
recent 3m avg. yield for 1y MBS; adj. equity
beta is weighted avg. of Big Hit
Cost of Debt Marginal Tax Rate Market value of Debt Cost of Equity Market value of Equity
Entertainment’s 52m beta and market beta; 4.09 25.0 7.98
1 7.98 11,810
MRP is historical avg. of difference in yield
between WMI500 and 1y MSB
Risk free rate (%) Adj. Equity beta (X) Market risk premium (%)
(3) Shareholders’ equity derived by multiplying 0.68
= 0.99 7.37
total no. of outstanding shares by TP

Source(s): FnGuide, Infomax, KB Securities estimates

Table 2. TP Sensitivity to WACC & TGR

(KRW) WACC →
7.5% 7.6% 7.7% 7.8% 7.9% 8.0% 8.1% 8.2% 8.3% 8.4% 8.5%
TGR ↓ 4.0% 302,974 302,578 302,183 301,788 301,394 301,000 300,406 299,812 299,220 298,629 298,039
4.1% 304,987 304,588 304,191 303,793 303,396 303,000 302,402 301,804 301,208 300,613 300,020
4.2% 307,000 306,599 306,198 305,798 305,399 305,000 304,398 303,796 303,196 302,598 302,000
4.3% 309,013 308,609 308,206 307,804 307,402 307,000 306,394 305,789 305,185 304,582 303,980
4.4% 311,026 310,620 310,214 309,809 309,404 309,000 308,390 307,781 307,173 306,566 305,961
Source(s): FnGuide, Yonhap Infomax, KB Securities estimates

Table 3. TP Upside Sensitivity to WACC & TGR

(%) WACC →
7.5% 7.6% 7.7% 7.8% 7.9% 8.0% 8.1% 8.2% 8.3% 8.4% 8.5%
TGR ↓ 4.0% 24.7 24.5 24.4 24.2 24.0 23.9 23.6 23.4 23.1 22.9 22.6
4.1% 25.5 25.3 25.2 25.0 24.9 24.7 24.4 24.2 24.0 23.7 23.5
4.2% 26.3 26.2 26.0 25.8 25.7 25.5 25.3 25.0 24.8 24.5 24.3
4.3% 27.2 27.0 26.8 26.7 26.5 26.3 26.1 25.8 25.6 25.3 25.1
4.4% 28.0 27.8 27.7 27.5 27.3 27.2 26.9 26.7 26.4 26.2 25.9
Source(s): FnGuide, Yonhap Infomax, KB Securities estimates

5
 II. Earnings Forecast

2021E-23E revenue/OP CAGR at We forecast Big Hit Entertainment 2021E-23E revenue/OP CAGR at 22.1%/26.1%,
22.1%/26.1% reflecting the bolstered pipeline of artists and ramp-up in merchandise sales to come
from the Ithaca acquisition. Our revenue estimate is roughly in line with the market
consensus. However, factoring in acquisition costs and further investments (e.g., new
hires to assist with expansion of global network, set-up of fulfillment centers), we are
conservative with our OP estimate, which is below the market consensus.

Table 4. KB Estimates vs. Market Consensus

(KRWbn, %, pp) KB Estimate Consensus Difference
2021E 2022E 2021E 2022E 2021E 2022E
Revenue 1,202 1,532 1,206 1,630 -0.3 -6.0
OP 221 290 241 333 -8.5 -12.8
NP 155 206 171 231 -9.1 -10.9
OPM 18.4 18.9 20.0 20.4 -1.6 -1.5
NPM 12.9 13.5 14.2 14.2 -1.3 -0.7
Source(s): FnGuide, KB Securities estimates

Fig 2. Revenue Consensus vs. KB Estimates Fig 3. OP Consensus vs. KB Estimates

(KRWbn) (KRWbn)
2021E 2022E 2021E 2022E
1,800 400
2021 KB estimate 2022 KB estimate 2021 KB estimate 2022 KB estimate
1,600
300
1,400

1,200
200
1,000

800
100
600

400 0
09/20 10/20 11/20 12/20 01/21 02/21 03/21 09/20 10/20 11/20 12/20 01/21 02/21 03/21

Source(s): FnGuide, KB Securities estimates Source(s): FnGuide, KB Securities estimates

6
Table 5. Earnings Trend & Forecast
(KRWbn) 2018 2019 2020 2021E 2022E 2023E 1H19 2H19 1H20 2H20 4Q19 3Q20 4Q20 1Q21E 2Q21E 3Q21E 4Q21E
Revenue 301 587 796 1,202 1,532 1,792 320 267 294 502 144 190 312 207 271 291 433
Albums 105 108 321 437 460 480 74 34 133 188 11 47 141 76 121 80 160
Concerts 88 191 3 160 264 400 132 60 0 3 33 3 0 4 6 51 101
Ad/performance fees 47 78 96 124 19 28 7 14 14 15 17 21 25
Merchandising/Licensing 51 168 259 318 460 480 72 96 92 168 60 100 67 62 75 89 92
Content 33 78 134 168 208 260 26 52 36 97 27 16 81 40 42 41 45
Other 24 42 33 41 44 48 17 25 14 19 7 10 10 10 10 10 10
Revenue proportion (%) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Albums 35.0 18.4 40.3 36.3 30.0 26.8 23.2 12.7 45.2 37.4 7.7 24.7 45.1 36.6 44.4 27.5 37.0
Concerts 29.1 32.5 0.4 13.3 17.2 22.3 41.1 22.3 0.1 0.6 22.8 1.6 0.0 1.7 2.0 17.5 23.2
Ad/performance fees 5.9 6.5 6.3 6.9 6.5 5.5 4.6 7.4 4.4 7.3 6.4 7.0 5.9
Merchandising/Licensing 17.0 28.6 32.5 26.5 30.0 26.8 22.5 36.1 31.2 33.4 41.5 52.8 21.5 30.0 27.8 30.6 21.2
Content 11.1 13.3 16.8 14.0 13.6 14.5 8.0 19.6 12.4 19.3 18.4 8.5 25.9 19.4 15.6 13.9 10.4
Other 7.8 7.1 4.1 3.4 2.9 2.7 5.2 9.3 4.7 3.8 5.0 5.0 3.1 4.9 3.8 3.5 2.3
Revenue growth (% YoY) 94.8 35.6 51.0 27.5 17.0 -8.2 88.1 54.0 116.9 53.1 38.7
Albums 2.8 196.0 36.2 5.4 4.3 78.9 451.9 1,177.1 71.0 13.7
Concerts 117.9 -98.2 4,628.6 64.7 51.5 -99.8 -94.8 -100.0 1,544.0 N/A
Ad/performance fees 67.6 22.4 29.2 108.1 46.1 84.5
Merchandising/Licensing 227.9 54.1 22.8 44.5 4.3 27.4 74.0 12.5 -11.3 36.8
Content 133.5 71.2 25.8 23.9 25.0 42.2 85.3 205.2 149.8 -44.4
Other 76.3 -20.9 23.3 8.4 9.1 -17.9 -22.9 31.3 5.4 4.8
GP 111 202 363 554 714 841 87 114 133 230 65 89 141 94 123 134 203
GPM (%) 37.0 34.3 45.6 46.1 46.6 46.9 27.3 42.8 45.3 45.8 45.0 47.1 45.0 45.5 45.5 45.9 46.8
% YoY 80.9 80.2 52.4 28.9 17.9 52.5 101.4 49.2 44.2
OP 80 99 142 221 290 352 52 47 50 93 24 40 52 36 44 55 86
OPM (%) 26.5 16.8 17.9 18.4 18.9 19.6 16.2 17.5 16.9 18.4 16.4 21.1 16.8 17.5 16.3 18.9 19.8
% YoY 23.5 44.2 55.2 31.3 21.2 -4.2 98.2 73.0 122.1 37.1 63.4
EBT -48 98 126 214 284 346 53 45 47 79 24 38 42 34 42 53 84
EBT margin (%) -16.1 16.8 15.9 17.8 18.6 19.3 16.6 17.0 16.0 15.8 16.7 19.8 13.4 16.6 15.6 18.3 19.4
% YoY TTB 28.2 69.6 32.7 21.8 -11.6 75.0 77.0 73.1 41.8 101.7
NP -70 72 86 155 206 251 39 33 33 53 19 27 26 25 31 39 61
NPM (%) -23.4 12.3 10.8 12.9 13.5 14.0 12.3 12.3 11.3 10.5 13.0 14.3 8.2 12.0 11.3 13.3 14.1
% YoY TTB 19.0 80.3 32.7 21.8 -15.9 60.8 92.0 37.3 42.0 137.0
Source(s): Company data, KB Securities estimates
Note 1: 2018-19 Ad/performance fees included in Other
Note 2: GP and EBT are based on KB estimates
Note 3: TTB=turn to black

7
 III. Investment Points

At its 4Q20 earnings conference, Big Hit Entertainment announced that it would
pursue organic and inorganic growth this year based on three growth drivers: Label
(artist pipeline), Solution (IP-based products) and Platform (Weverse distribution). The
Ithaca acquisition should bring inorganic growth as it reinforces the three growth
drivers, acts as a stepping stone toward global expansion and deepens the company’s
global presence.

Fig 4. 2021 Business Strategies

Three Growth Drivers Organic/Inorganic Growth

Label Organic Growth

 2021 Big Hit boy group debut

+
 Artist training
 2021 Big Hit Japan boy group debut
 Music production
 2021 Source Music girl group debut
 2022 Global Idol audition with UMG

Inorganic Growth

 Weverse attracts investment from Naver

Solution Platform
and builds partnership with V Live
 Business cooperation via investment in
 Various product/service  Upgrade to Weverse and YG Plus
offerings (live, video,  Greater scope for JVs and M&A with
licensing, game, education) ecosystem expansion foreign labels

Source(s): Company data, KB Securities

Investment point #1: Acquisition to BTS is the world’s top-tier K-pop group, boasting an unrivaled fan base, but Big Hit
provide access to global labels and Entertainment derives almost all of its revenue from it, serving as the company’s
diversify business portfolio biggest weakness. Revenue exposure to BTS stood at 98.2% as of 2018, but then the
acquisition of Source Music in August 2019 and Pledis Entertainment in June 2020
brought the figure down to around 80%. We believe Ithaca should further alleviate
concerns regarding overdependence.

Table 6. Ithaca Holdings

Company name: Ithaca Holdings LLC

Country: United States
Business type: Artist management, publishing, content production and others
Date of establishment: Jun 24, 2013
Major businesses: SB Projects (artist management)
Big Machine Label Group (record label)
Silent Content Ventures (production and distribution of TV/OTT content)
Drew House (clothing/beauty brand)
Major artists: Justin Bieber
Ariana Grande
J Balvin
Demi Lovato
Source(s): Company data, KB Securities

8
Table 7. Big Hit Entertainment’s Label Business
Company Name Country Business Summary

Big Hit Music Korea Artist training, music production (Main artists: BTS, TXT)

Ithaca Holdings United States Artist management, music publishing, music production

Pledis Entertainment Korea Artist training, music production (Major artists: Seventeen, NU’EST)

Source Music Korea Artist training, music production (Major artist: Gfriend)

Belift Lab Korea JV with CJ ENM, artist training, music production (Major artist: Enhypen)

Big Hit Entertainment Japan Japan Artist discovery, artist discovery/commercialization via major local labels

Training & Development Japan Japan Trainee education

Source(s): Company data, KB Securities

Ithaca CEO to join Big Hit board The Ithaca acquisition may be considered by some as all spin with no substance, but,
given that Ithaca CEO Scooter Braun is set to join the Big Hit board, we view it as a
serious global push that promises close collaborations with Ithaca’s artists. Also, the
company’s major artists will participate in Big Hit Entertainment’s private placement,
demonstrating a strong willingness for mutual growth.

Justin Bieber and Ariana Grande Music artists participating in Big Hit Entertainment’s private placement include Justin
among music artists participating in Bieber and Ariana Grande. The equity holdings of major related parties of Ithaca
private placement (~860,000 shares) represent 2.2% of no. of shares issued.

With the release of his album Justice (2021), Justin Bieber, renowned for having the
largest YouTube following among global artists, recently became the first male solo
artist to rank at the top of the Billboard Hot 100 and Billboard 200 simultaneously in
the first week of album release. We expect his merchandise (currently sold on his
personal website) to hit Weverse shelves, to be available for Big Hit Entertainment’s
fans worldwide.

In our view, Weverse is to become the world’s top-tier fan community platform, with
some of the most influential music artists today Justin Bieber and Ariana Grande
expected to join soon, alongside Korea’s girl group Blackpink in 2Q21. Although
Weverse’s level of monthly active users (MAUs) recently stagnated at around 5.0mn,
the new injection of talent should translate into a meaningful increase.

Fig 5. Justin Bieber Fig 6. Ariana Grande

Source(s): Google, KB Securities Source(s): Google, KB Securities

9
Table 8. Big Hit America: Ithaca Holdings Acquisition
Notes
A. Big Hit America rights issue (targeting Big Hit Entertainment) KRW 1,072,835,000,000
-No. of newly issued shares 950,000,000
-Issuance price per share KRW 1,129.30
B. Big Hit America’s loan from KEB Hana Bank (New York) KRW 112,930,000,000
C. Ithaca Holdings acquisition price (debt guarantee by Big Hit Entertainment) (A+B) KRW 1,185,765,000,000
Source(s): DART, KB Securities

Table 9. Big Hit Entertainment: Fundraising Profile

Notes
A. Funds raised via Big Hit Entertainment’s private placement targeting related parties of Ithaca Holdings KRW 181,798,721,072
-Purpose of fundraising Acquisition of Ithaca Holdings interests
-No. of newly issued shares 863,209
-Issuance price per share KRW 210,608
Payment date Jun 17, 2021
Listing date of newly issued shares Jun 30, 2021
Lock-up period One year
B. Funds raised via Big Hit Entertainment’s rights issue targeting existing shareholders KRW 439,999,980,000
-Purpose of fundraising
-Operating capital KRW 189,999,980,000
-Debt payment KRW 250,000,000,000
No. of newly issued shares 2,227,848
No. of new shares allotted per existing share 0.0625382609
Issuance price per share (KRW) KRW 197,500
Record date for new shares Apr 19, 2021
Confirmation date for issuance price May 27, 2021
Subscription date for existing shareholders Jun 1, 2021 – Jun 2, 2021
Payment date Jun 9, 2021
Listing date of new shares Jun 22, 2021
Source(s): DART, KB Securities

Fig 7. Deal Structure

Deal Structure Post-acquisition

2. Repayment
HYBE of debt Ithaca Holdings LLC HYBE
(Listed as Big Hit Ent.) creditors (Listed as Big Hit Ent.)

1. Rights issue
100% 100%

Ithaca Holdings LLC

Big Hit America Inc. Big Hit America Inc.
2. Payment of shareholders

acquisition price

100% 100% 100%

3. Merger
BH Odyssey
Ithaca Holdings LLC Ithaca Holdings LLC
Merger Sub LLC

Source(s): DART, KB Securities

10
Table 10. Big Hit Entertainment’s Private Placements
Proportion of Subscribers/Followers
No. of Proportion Sale of
Recipients of Third- Privately (mn)
Shares of Shares Personal Description
party Capital Increase Placed You- Insta-
Allotted Outstanding Twitter Merchandise
Shares Tube gram
Scott Braun 462,380 53.57% 1.19%
Founder of Big Machine Label Group;
Scott Borchetta 166,537 19.29% 0.43%
discovered Taylor Swift
Ariana Grande-Butera 53,557 6.20% 0.14% 47.6 Global top-tier artist
Justin Drew Bieber 53,557 6.20% 0.14% 62.1 169.0 110 Website Global top-tier artist
Producer of Justin Bieber (“Believe” in 2013,
Allison Kaye Scarinzi 26,778 3.10% 0.07%
“Popstar” in 2020)
Jose Alvaro Osorio Balvin 21,423 2.48% 0.06% 30.4 46.6 9.4 Columbian reggae artist
Jason Scott Manson 10,711 1.24% 0.03% SB Projects COO, Partner
Jennifer McDaniels 10,711 1.24% 0.03% SB Projects General Manager
Demetria Devonne Lovato 5,355 0.62% 0.01% 17.1 102.0 55.3 Website Singer, actor
Andrew Wotman 5,355 0.62% 0.01% 0.3 Producer, singer-songwriter
Thomas Rhett Akins Jr 5,355 0.62% 0.01% 1.3 4.2 2.4 Website Singer
Tyler Reed Hubbard 5,355 0.62% 0.01% 2.4 2.1 2.0 Website Part of Florida Georgia Line music duo
David Bolno 5,355 0.62% 0.01% Owner of NKSFB; artist management
David Andrew Burd 4,284 0.50% 0.01% 7.5 0.7 3.0 Website Rapper
Victoria Kelly 2,677 0.31% 0.01%
Daniel Smyers 2,677 0.31% 0.01% 1.5 1.1 0.6 Dan + Shay duo
Shay Mooney 2,677 0.31% 0.01% Dan + Shay duo
Jules Ferree 2,677 0.31% 0.01% SB Projects Head of Brand Partnership
Andrew Kautz 2,677 0.31% 0.01% SB Projects COO
Quavious Keyate Marshall 1,338 0.16% 0.00% BlueBucks Clan duo, rapper
Michael Hertz 1,071 0.12% 0.00% Manager of rapper Lil Dicky
Eric Holden 1,071 0.12% 0.00% Ithaca Holdings CFO
Fabio David Acosta
803 0.09% 0.00%
Martinez
Raymond Rock 803 0.09% 0.00% Manager of SB Projects artists
James Shin 803 0.09% 0.00% Manager of SB Projects EVP, Film/Television
Ryan David Aldred 803 0.09% 0.00%
Asher Roth 535 0.06% 0.00% Rapper
Carly Rae Jepsen 535 0.06% 0.00% 3.8 2.0 9.8 Singer-songwriter
Taylor James 535 0.06% 0.00%
Joshua Gudwin 535 0.06% 0.00% Producer, Mixer
Charles Hamilton Jr. 535 0.06% 0.00% Rapper
Thomas Lee Brown 535 0.06% 0.00% Producer of Ariana Grande
Jason Boyd 535 0.06% 0.00% Composer (aka Poo Bear)
Jaclyn Augustus 535 0.06% 0.00% SB Projects Head of Digital Marketing
Tony Bracy 535 SB Projects VP of Marketing & Promotion
Shauna Nep 535 0.06% 0.06% Executive director of Braun Foundation
Daniel Gross 535 0.06% 0.06% SB Projects co-founder
Nicole Krolicki 267 0.03% 0.03%
Zachary Cohen 267 0.03% 0.03% Assistant of Scooter Braun
Total 863,209 173.8 328.0 192.6
Source(s): DART, KB Securities

11
Fig 8. Governance Structure

Listed
Big Hit 360 Big Hit IP
Unlisted
Merger of subsidiaries Bolstering of artist pipeline,
engaged in solution business addition of merchandise for global artists
to Weverse Shop

7.7%
Naver YG Plus HYBE
Ithaca Holdings LLC Kiswe Mobile Inc.
(035420) (037270) Big Hit Ent. (352820)

10.2%
14.3% 100%

Superb Weverse Company Big Hit Edu Big Hit Solutions Japan Big Hit America Inc. TNDJ Inc. KBYK Live Inc.
(acquisition of V Live)

51% 70.9% 100% 100% 100% 100% 59.1%

100% 47.5% 100% 66.7% 80% 85%

Big Hit Entertainment

Belift Lab Big Hit Music KOZ Entertainment Source Music Pledis Entertainment
Japan

Artist labels under HYBE

100% 100% 100%

Pledis Hong Kong Xing Can

Pledis Japan
Limited Sheng Shi

Source(s): DART, KB Securities

12
Investment point #2: Expansion via On Apr 1, Big Hit Entertainment merged with major solution subsidiaries Big Hit 360
solution business and Big Hit IP. The move should decrease the complexities of internal transactions
between affiliates and expedite decision-making.

Big Hit IP is engaged in the content business (i.e., merchandising, character-based

products and licensing business based on artist IPs). Big Hit 360 is engaged in the
production and distribution of music albums/digital music/video content as well as
artist performance planning/agencies; the subsidiary’s excellent capabilities in
content planning allow Big Hit Entertainment to produce quality content
independently.

Table 11. Big Hit Entertainment’s Solution Business

Company Name Country Business Summary
Performance planning/agency, albums/digital music distribution, production/distribution of video content,
Big Hit 360 Korea
advertising agency
Development/distribution of derivative content (artist IP-based merchandise, character-based products,
Big Hit IP Korea
print)
BeNX Korea Development/operation of fan community platform Weverse and fan e-commerce platform Weverse Shop

Superb Korea Maker of Big Hit Entertainment’s music-based games

Big Hit Edu Korea Artist IP-based publishing business; developer of educational content

Big Hit Solution Japan Subsidiary in charge of albums/digital music, content, merchandise, fan clubs, etc.

Big Hit America United States Subsidiary in charge of albums/digital music, content, merchandise, fan clubs, etc.
Source(s): DART, KB Securities

Investment point #3: Weverse to The global fan community platform Weverse is a space for fans to closely interact
help expand revenue and secure with artists and strengthen relationships among fans. Dedicated solely to fans, it
massive global traffic boosts loyalty and indirectly raises the value of limited-edition items sold at Weverse
Shop. With products of Ithaca’s music artists expected to hit the shop’s shelves, Big
Hit Entertainment should to see its revenue proportion from merchandising grow as
global traffic increases. Last year’s revenue from Weverse accounted for 41% of Big
Hit Entertainment’s total revenue; we believe this will rise to 66% in 2021, when the
long list of artists appear on the platform.

Fig 9. Weverse: Revenue & Revenue Proportion Fig 10. Weverse Shop & Weverse

(KRWbn) (%)
Rev enue (L) Proportion (R)
1,200 80

1,000
60
800

600 40

400
20
200

0 0
2019 2020 2021E 2022E

Source(s): Company data, KB Securities Source(s): Company data, KB Securities

13
Advent of world’s No. 1 fan Since its listing, Big Hit Entertainment has been expanding into new business areas via
community platform relentless investments. Of them, particular attention has been paid to Weverse
Company, the operator of the namesake Weverse platform. Big Hit Entertainment’s
subsidiary BeNX was renamed Weverse Company in January after the company
acquired the live-video-streaming service V Live from Naver. The consolidation of V
Live, the leader in fan community platform with the largest MAU, and Weverse, the IP
holder of BTS, should further sharpen Big Hit Entertainment’s competitive edge.

Table 12. Naver’s Acquisition of BeNX Shares; BeNX’s Acquisition of Naver’s V Live
No. of Shares Ownership Notes
BeNX’s no. of shares issued (before rights issue) 4,231,527
-Big Hit Entertainment 3,000,000 70.9%
-Individual investors 1,231,527 29.1%
-Sale of existing shares/first round of new share
No. of BeNX existing shares sold 603,448 14.3% issuance completed after approval of merger
declaration
-Big Hit 0
-Individual investors 603,448 14.3%
No. of shares held after existing BeNX share disposal
-Big Hit Entertainment 3,000,000 70.9%
-Individual investors 628,079 14.8%
-Naver 603,448 14.3%
-Sale of existing shares/first round of new share
BeNX’s first round of new share issuance 1,257,763 issuance completed after approval of merger
declaration
BeNX’s no. of shares issued (after first rights issue) 5,489,290
No. of shares after first rights issue
-Big Hit Entertainment 3,000,000 54.7%
-Individual investors 1,861,211 33.9%
-Naver 628,079 11.4%
-Second round of new share issuance to occur on
the earlier date between completion date for
BeNX’s second round of new share issuance 1,624,590
platform consolidation and one year after Jan 27,
2021, contract signing
BeNX’s no. of shares issued (after second round of rights issue) 7,113,880
Shares to be held by Big Hit Ent. and individual shareholders
3,628,079 51.0%
person
Naver 3,485,801 49.0%
Summary
Naver’s BeNX share acquisition
-Existing shares Cash consideration KRW 94,529/ share
-Newly issued shares Private placement KRW 123,108/ share
Acquisition price (KRW)
-Existing shares 57,043,314,250 -Individual investors’ disposal of existing shares
-Newly issued shares 354,840,713,124 -New shares issued by BeNX
Total (KRW) 411,884,027,374
BeNX’s acquisition of V Live
Acquisition price (KRW) 199,999,533,288
Source(s): DART, KB Securities

14
Blackpink to open fan community on In a bid to bring in more artist IPs for Weverse, Big Hit Entertainment and Big Hit’s
Weverse affiliate Weverse Company invested KRW30.0bn and KRW40.0bn, respectively, to
acquire existing and new shares of YG Plus, combining to become the second largest
shareholder of the company. We expect synergies, as Big Hit Entertainment, through
YG Plus, is set to distribute albums/digital music of Big Hit artists, and YG Plus, in
collaboration with Big Hit Entertainment, will engage in planning/production of
merchandise of YG Entertainment artists to be sold at Weverse Shop.

Table 13. Acquisition of YG Plus Shares by Big Hit Entertainment and BeNX
No. of Shares Ownership
YG Plus’ no. of shares issued
60,197,516
(before rights issue)
Common stock 59,646,045
-YG Entertainment 22,208,770 36.89 %
-Minsuk Yang 6,828,863 11.34%
Preferred stock 551,471
-Minsuk Yang 183,824 0.31%
-Hyunsuk Yang 367,647 0.61%
YG Plus no. of existing shares disposed 8,198,066
-YG Entertainment 5,738,646 9.53%
-Hyunsuk Yang 367,647 0.61%
-Minsuk Yang 2,091,773 3.47%
YG Plus no. of newly issued shares 3,152,584
YG Plus no. of shares issued
63,350,100
(after rights issue)
YG Plus’ no. of shares (after rights issue)
-YG Entertainment 16,470,124 26%
-Hyunsuk Yang 0 -
-Minsuk Yang 4,920,914 7.77%
Big Hit Entertainment 4,864,565 7.68%
BeNX 6,486,085 10.24%
Note
Acquisition of YG Plus shares
Via cash consideration
-Existing shares (Jan 28 after-hour block deal KRW 6,099/ share
and OTC trading)
Participation in rights issue
-Newly issued shares KRW 6,344/ share
(Feb 4)
Acquisition price (KRW)
-Existing shares 50,000,004,534
-Newly issued shares 19,999,992,896
Total (KRW) 69,999,997,430
Source(s): DART, KB Securities

15
Products similar to BTS’ official light Big Hit Entertainment will be engaged in the customization of merchandise for global
stick ARMY Bomb may appear at artists joining Weverse Shop. In Korea, a wider array of merchandise is available. In
non-Korean concerts general, fans spend an average of USD5.50 in merchandise, whereas K-pop fans
spend USD8.00. Korea’s unique cheering culture as well as the diversity and high
quality of Korean-made merchandise are tempting fans around the world to loosen
their purse strings.

While t-shirts are the best-selling artist merchandise, a more diverse range of items
is gaining popularity among Korean fans. For instance, AR photo cards, wherein fans
can watch artists’ video clips via the installation of an app, and ARMY Bomb—the
digital version of BTS’ official glow stick, which, when connected to Bluetooth,
changes in color in tandem with music—are among recent products that use cutting-
edge technology. Of course, regular products such as stationery (e.g., character-
printed pencil cases, pencils and erasers) are steady sellers.

But what if a version of ARMY Bomb were to appear at a Justin Bieber concert, where,
like at most non-Korean concerts, basically the only type of merchandise available
for sale is t-shirts? Such products could deepen fans’ concert experience with new
forms of rapport with the artist and fellow concertgoers. The combination of Big Hit
Entertainment’s merchandising capabilities and global artist IPs should work toward
satisfying the needs of global fans today who are eager to buy various artist-related
products.

Fig 11. Revenue Proportion by Merchandise (2019) Fig 12. Army Bomb (Bluetooth)

(%)

60
50
40

30

20

10

Source(s): atVenu, KB Securities Source(s): Company data, KB Securities

Fig 13. AR Photo Card Fig 14. BT21 Character Products (pencil cases)

Source(s): iLLUU, KB Securities Source(s): Company data, KB Securities

16
Strategic alliance with Universal In November 2020, the American singer songwriter Gracie Abrams, who belongs to
Music Group #1: Idol-fostering Universal Music Group’s representative label Interscope Geffen A&M, became the
audition project first foreign artist on Weverse, debuting her fan community on the platform. She was
followed by other artists under UMG’s roof, such as Alexander 23 (United States) and
Yungblud (United Kingdom).

Fig 15. Gracie Abrams on Weverse Fig 16. Alexander 23 on Weverse Shop

Source(s): Company data, KB Securities Source(s): Company data, KB Securities

Table 14. UMG Artists Signed on to Join Weverse

YouTube YouTube Weverse
Artist Record Label Song
Subscribers Views Joining Date
Yungblud Interscope Records 11 Minutes 2,120,000 484,492,046 TBA
New Hope Club Virgin EMI Records Dusk Till Dawn 1,830,000 160,253,991 Feb 1, 2021
Gracie Abrams Interscope Records I miss you, I’m sorry 312,000 29,338,441 Nov 25, 2020
Alexander 23 Interscope Records IDK You Yet 118,000 27,067,336 Feb 15, 2021
Source(s): YouTube (as of Feb 9), KB Securities

In February, Big Hit Entertainment and UMG’s Geffen Records announced via the
digital live-streaming platform VenewLive that they will partner in the launch of a joint
label and hold global auditions to debut a new boy group (program to be aired in
2022). Participating artists will be given a chance to experience the artist-fostering
programs offered by the K-pop entertainment company (e.g., music, performance,
fashion, video content and fan communication skills).

Fig 17. Big Hit & UMG Announce Plans for Joint Label Fig 18. Global Boy Group Debut Project

Big Hit Ent. Universal Music

(352820) Group

100% Interscope Geffen A&M Records

Big Hit America Inc. Geffen Records

Launch of joint label and

audition project

Source(s): Company data, KB Securities Source(s): Company data, KB Securities

17
Strategic alliance with Universal Big Hit Entertainment signed an MOU with the U.S. broadcasting company Kiswe
Music Group #2: Securing global Mobile in May 2020 to establish a JV named KBYK Live in September 2020. The JV has
online broadcasting rights been holding online concerts via its digital live-streaming concert platform
VenewLive. With its experience in broadcasting for the National Basketball
Association, Kiswe Mobile has an edge in multi-view live-streaming techniques.
Meanwhile, in February 2021, UMG and YG Entertainment agreed to equity
investments in the JV in anticipation of the online concert market growing further.

Fig 19. Investments in KBYK Live Fig 20. BTS Virtual Concert: “Bang Bang Con: The Live”

Listed
Unlisted
Big Hit Ent.
Kiswe
(352820)

JV established (Sep 2020)

KBYK Live Inc.

Equity investments (expected)

YG Entertainment Universal Music

(122870) Group

Source(s): Company data, KB Securities Source(s): Company data, KB Securities

Note: Attracted 760,000 viewers from 107 countries

Table 15. Online Concert Platforms: VenewLive vs. Beyond LIVE

VenewLive Beyond LIVE

Major affiliates Big Hit, Kiswe, YG, Universal SM, JYP

Transmission channels Weverse Naver V Live
Features Multi-view, live chats, light sticks Multi-cam, video chats, light sticks
Major concerts BTS Map of the Soul On:e Beyond LIVE—NCT: RESONANCE ‘Global Wave’
990,000 fans from 191 countries 200,000 fans from 124 countries
Price KRW49,500 (HD multi-view) KRW44,000
KRW59,500 (4K single view + multi-view)
Ticket revenue KRW49.2bn KRW8.0bn
Source(s): Media reports, KB Securities

Table 16. Major Events & Concerts Held via KBYK Live
Date Major Event & Concerts
May 2020 MOU signed between Kiswe Mobile and Big Hit Entertainment
Jun 14, 2020 760,000 fans from 107 countries watched BTS’ “Bang Bang Con: The Live”
Aug 30, 2020 Seventeen’s “Seventeen in Carat Land”
September 2020 Founded JV KBYK Live and launched VenewLive
Oct 11, 2020 990,000 fans from 191 countries watched BTS’ “BTS Map of the Soul On:e”
Oct 30, 2020 Gfriend’s “Gfriend C:on”
Nov 28, 2020 NU'EST “Fan Meeting <L.O.Λ.E PAGE>”
Dec 31, 2020 Big Hit Entertainment’s “2021 New Year's Eve Live”
Jan 1, 2021 Justin Bieber’s “T-Mobile New Year's Live”
Jan 23, 2021 Seventeen’s “2021 Seventeen Online Concert In-complete”
Feb 7, 2021 Enhypen’s “2021 Enhypen Fan Meeting <EN-CONNECT>”
Source(s): Media reports, KB Securities

18
 IV. Risk Factors

Overhang issue Established in 2005, Big Hit Entertainment went public on the KOSPI on Oct 15, 2020.
The IPO price was set at KRW135,000, which was at the high-end of the offer price.
The stock opened at KRW270,000 and hit an intra-day high of KRW351,000. Currently,
the stock price hovers around the opening price, as market participants have
continued in their profit-taking.

An overhang issue could emerge, as some shares held by institutional investors

(among those subscribed via IPO) are eligible for trading when the lock-up period
ends on Apr 15. Also, there is potential of STIC Investments dumping its shares (8.05%
stake).

Table 17. Potential Overhang Issue

No. of Shares No. of Shares Ownership Ownership
Shareholders
(before sale) (after sale) (%, before sale) (%, after sale)
STIC Special Situation Private Equity Fund 3,266,703 2,866,703 9.17 8.05
MainSton LLC 1,282,223 Partial sale during market hours (est.) 3.60 Small % left
Eston First Private Equity Fund 399,064 Partial sale during market hours (est.) 1.12 Small % left
Partial sale via block deal to Small % left
Well Blink Ltd. (Legend Capital) 1,777,568 4.99
Singaporean institutional investors
Institutional investors’ uncommitted 205,463 0.58
Institutional investors’ 15-day commitment 926,151 2.60
Institutional investors’ 1-month commitment 1,322,416 3.71
Institutional investors’ 3-month commitment 765,179 2.15
Institutional investors’ 6-month commitment 1,063,100 2.98
Source(s): Company data, KB Securities
Note 1: Well Blink Ltd. owns RCPSs.
Note 2: Ownership (after sale) is based on disclosed volume.
Note 3: Based on ownership prior to rights issue.

19
 Income Statement Statement of Financial Position

(KRWbn) 2019A 2020A 2021E 2022E 2023E (KRWbn) 2019A 2020A 2021E 2022E 2023E
(Reporting standard) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C) (Reporting standard) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C)

Revenue 587 796 1,202 1,532 1,792 Total assets 363 1,924 1,702 1,928 2,200
Cost of revenue 386 422 648 818 951 Current assets 295 1,389 1,155 1,373 1,637
Gross profit 202 375 554 714 841 Cash and cash equivalents 161 380 113 231 446
SG&A expenses 103 229 333 423 489 Current financial assets 4 783 783 783 783
Operating profit 99 146 221 290 352 Trade receivables 95 112 173 261 299
EBITDA 108 180 221 290 352 Inventory 13 62 49 56 64
Non-operating accounts 0 -19 -7 -6 -6 Other current assets 22 52 37 42 45
Interest income 0 2 3 4 4 Non-current assets 68 535 547 555 564
Interest expenses 1 4 7 7 7 Investment assets 15 34 34 31 35
Profit on equity method -1 -2 -2 -2 -2 Property, plant and equipment 8 48 52 55 55
Net other non-operating income 1 -16 -1 -1 -1 Intangible assets 26 288 292 296 296
Profit before tax 98 126 214 284 346 Other non-current assets 20 165 169 174 178
Income tax expense 26 39 59 78 95 Total liabilities 189 726 728 749 770
Net profit 72 87 155 206 251 Current liabilities 175 296 299 322 340
NP attributable to controlling interests 74 86 155 206 250 Trade payables 25 35 69 78 90
Adj. net profit 74 86 155 206 250 Short-term financial liabilities 11 21 18 16 6

Other current liabilities 138 241 211 228 245

Operating Statistics & Ratios Non-current liabilities 15 429 429 427 430
(%) 2019A 2020A 2021E 2022E 2023E Non-current financial liabilities 3 323 323 323 323
Revenue growth 94.9 35.6 51.0 27.5 17.0 Other non-current liabilities 12 107 107 104 108
OP growth 23.5 47.4 51.9 31.3 21.2 Total equity 174 1,199 1,354 1,560 1,810
EBITDA growth 28.8 67.0 22.5 31.3 21.2 Issued capital 1 18 18 18 18
NP growth of parent TTB 16.1 80.8 32.7 21.8 Share premium 213 1,132 1,132 1,132 1,132
GP margin 34.3 47.1 46.1 46.6 46.9 Other equity interest 2 2 2 2 2
OP margin 16.8 18.3 18.4 18.9 19.6 Accumulated other comprehensive income 0 0 0 0 0
EBITDA margin 18.4 22.7 18.4 18.9 19.6 Retained earnings -42 44 199 405 655
EBT margin 16.8 15.9 17.8 18.6 19.3 Controlling interests 174 1,195 1,351 1,556 1,807
NP margin of parent 12.6 10.8 12.9 13.4 14.0 Non-controlling interests -1 4 4 4 4

Statement of Cash Flows Key Ratios

(KRWbn) 2019A 2020A 2021E 2022E 2023E (x, %, KRW) 2019A 2020A 2021E 2022E 2023E

Cash flow from operating activities 92 117 112 119 220 Multiples
Net profit 72 87 155 206 251 P/E N/A 56.3 57.2 43.1 35.4

Depreciation & amortization 9 35 0 0 0 P/B N/A 4.8 6.6 5.7 4.9

Other non-cash adjustments 9 26 61 80 97 P/S N/A 6.1 7.4 5.8 4.9

Investments in working capital 5 -26 -45 -87 -36 EV/EBITDA N/A 27.1 36.7 27.5 22.1

Decrease(Increase) in receivables -44 -20 -61 -88 -37 EV/EBIT N/A 33.6 36.7 27.5 22.1
Decrease(Increase) in inventory -8 -54 12 -7 -8 Dividend yield, ordinary (%) N/A N/A 0.0 0.0 0.0
Increase(Decrease) in payables 11 9 35 9 11 EPS 2,601 2,843 4,248 5,637 6,864

Investments in other working capital 46 39 -31 -1 -2 BVPS 6,113 33,554 37,014 42,648 49,514
Other operating cash flow -4 -6 -59 -80 -92 SPS 20,691 26,411 32,943 41,988 49,113
Cash flow from investing activities 12 -1,022 -12 -8 -9 DPS (annual, ordinary) 0 0 0 0 0
Capital expenditure -5 -39 -4 -3 0 Cash dividends payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Investments in intangibles -2 -13 -4 -4 0 Operating performance
Changes in investment assets 36 -783 0 3 -4 ROE 56.5 12.5 12.2 14.2 14.9
Other investment cash flow -17 -188 -5 -5 -4 ROA 25.5 7.6 8.6 11.4 12.2
Cash flow from financing activities -1 1,133 12 8 4 ROIC -8,573.3 56.1 42.4 47.8 51.5
Proceeds from (repayment of) debt -4 185 -3 -3 -10 Financial structure (%)
Changes in equity 0 948 0 0 0 Total liab./equity 109.2 60.5 53.8 48.0 42.6
Dividends paid 0 0 0 0 0 Net debt/equity Net Cash Net Cash Net Cash Net Cash Net Cash
Other financing cash flow 2 0 15 11 14 Current ratio 1.7 4.7 3.9 4.3 4.8
Other cash flow 0 -8 0 0 0 Interest coverage (x) 78.4 37.4 31.2 41.2 50.2
Increase/decrease in cash 103 219 113 119 215 Activity ratios
Cash and cash equivalents at FYE 161 380 113 231 446 Asset turnover (x) 2.1 0.7 0.7 0.8 0.9
Free cash flow 87 77 109 115 220 Receivables turnover (x) 8.2 7.7 8.4 7.1 6.4
Net cash flow 62 670 -265 121 225 Payables turnover (x) 30.2 26.6 23.2 20.8 21.3
Net cash (net debt) 150 820 555 676 901 Inventory turnover (x) 62.9 21.3 21.6 29.1 29.9

Source(s): Company data, KB Securities estimates

20
Disclosures Rating and Target Price Changes (Share price ━, Target Price ━)

KRW Big Hit Entertainment B i g H i t Entertai nment ( 352820)

Da te R a ti ng T a rge t Pri c e Di ffe re nti a l (% )
340,000
(KR W ) Av g. Ma x / Mi n
280,000 Nov-30-2020 Buy 256,000 -33.88 -25.98
Jan-07-2021 Buy 226,000 -8.41 10.18
220,000
Feb-24-2021 Buy 270,000 -17.67 -10.00
160,000 Apr-05-2021 Buy 305,000

100,000
Apr '19 Aug '19 Dec '19 Apr '20 Aug '20 Dec '20 Apr '21

KB Securities is an issuer and liquidity provider of equity-linked warrants (ELW) that Proportion of investment rating (as of March 31, 2021)
have stock of Big Hit Entertainment underlying as of the date of this report.
Buy Hold Sell
KB Securities has not provided any material in this research report to institutional 79.9 20.1 -
investors or third parties in advance of publication of this research report. The research
analyst responsible for the preparation of this research report does not have any
beneficial interest in any security or issuer covered and certifies that the analysis was
* Note: Based on reports presented with investment ratings over the past one year
made in good faith and that the views presented accurately reflect personal opinion
without any undue influence or intervention.

Classification and Standards for Investment Rating All research reports are available through electronic publication on Bloomberg, Thomson
Reuters and FactSet. Please contact your KB Securities sales representative for access.
Investment Rating for Company
(based on estimation of 12-month absolute returns) This report is provided for information only and is not an offer or solicitation to trade in
Buy: +15% or beyond Hold: Between 15% and -15% Sell: -15% or beyond any security. Opinions in this report reflect the professional judgment of the research
analyst(s) as of the date hereof and are based on information and data obtained from

Note: KB Securities’ classification of investment ratings has shifted from four stages sources that KB Securities considers reliable. KB Securities makes no representation that

(Strong BUY, BUY, Marketperform, Underperform) to three stages (Buy, Hold, Sell) the information and data are accurate or complete and the views presented in this report

based on Korean reports since February 23, 2017. are subject to change without prior notification. Clients should independently consider

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Positive: Neutral: Negative: authorized for use for any other purpose.

To outperform market To match market performance To underperform market

Notes: The industry rating system of KB Securities has shifted from (Overweight, Neutral,
Underweight) to (Positive, Neutral, Negative) as of Jun 28, 2017.
KB Securities’ standards for industry rating shifted starting on Feb 10, 2020 from an
estimation of six-month absolute returns to an estimation of 12-month absolute returns.

21