K-Pop Group BTS's Label Set To Go Public in 2020: Are K-Pop Record Labels a Good Investment?

101.1 million.

In just 24 hours, K-Pop group BTS (Korean: 방탄소년단; RR: Bangtan Sonyeondan)’s first English single Dynamite was viewed 101.1 million times on YouTube, breaking three Guinness World Records.

The group also made history, as Dynamite is the first Korean song that reached number one on the US Billboard Hot 100.

Blackpink and BTS were even mentioned in parliament, with Member of Parliament (MP) Mr Baey Yam Keng (Tampines GRC) lauding BTS’s successful ticketed live online concert held in June during the COVID-19 pandemic. The concert was a roaring success, as at one point, 756,000 concurrent viewers in 107 countries tuned in, with ticket sales bringing in a massive S$26 million.

Mr Baey added that:

“The BTS concert’s paid viewership of three-quarters of a million was the equivalent of 15 shows at a 50,000-seat stadium, but the concert was streamed from a much smaller venue,”

This would be music to the ears of BTS label Big Hit Entertainment as the company plans to go public, has filed for an initial public offering (IPO) on 2 Sept 2020. The company is planning to raise about 962.6 billion won (S$1.06 billion).

If the IPO is successful, the members of BTS will be handsomely rewarded as the 68,385 common shares that they were given would be worth 9.23 billion won (S$10.6 million).

With their global success, the biggest South Korean record labels or the ‘’Big 4’’ of Big Hit Entertainment, S.M. Entertainment and YG Entertainment look like promising investments.

But, should you be investing in them?

Here is what you need to consider!

TL;DR: Should You Invest in K-pop Record Labels?

K-Pop Industry Overview

According to the International Federation of the Phonographic Industry (IFPI)’s latest Global Music Report 2019; South Korea’s music industry enjoyed an 8.2 per cent increase in revenue growth from 2018 to 2019.

The South Korean music industry is also the sixth biggest in the world by this metric.

Not to mention that the global appeal of K-Pop is also undeniable as Spotify would attest:

Interestingly enough, although K-pop is the most popular music export from South Korea, many who are older prefer Korean Trot, an earlier version of South Korean popular music.

When it comes to record labels the lifeblood of the company are the stars it manages.

Sales Revenue of JYP Entertainment Worldwide in 2019, by Sector(in Billion South Korean Won)

For example, if you were to take a look at JYP entertainment’s revenue in 2019 which is broken down by sectors. The sectors like recorded or digital music sales, concert (management) and performance fees mainly revolve around the stars the label manages.

Thus, it would not be a stretch to say that the stars are the most precious revenue-generating assets for these companies.

Now that you are up to speed about the K-pop industry, let’s look at the four biggest companies that dominate it.

Big Hit Entertainment’s Proposed IPO

First up we have Big Hit Entertainment.

The company was founded back in 2005 by Bang Si-hyuk, currently manages stars like solo artist Lee Hyun and idol groups BTS and TXT. But undoubtedly, BTS and their massive global fan base is Big Hit’s biggest source of revenue.

On the back of K-pop’s global success, Big Hit Entertainment is planning a huge IPO.

On Wednesday (2 September 2020), the Seoul-based record label filed an application for its IPO as per its regulatory filing.

According to the filing, the company is planning to raise about 962.6 billion won (S$1.06 billion) by listing about 21 per cent of its shares on the Korea Exchange (KRX), the sole securities exchange operator in South Korea.

FYI: Within the KRX, there is the Korea Stock Exchange, Korea Futures Exchange and KOSDAQ Stock Exchange.

If the IPO is successful, the company might be valued at about 4.8 trillion won (S$5.5 billion). This potential market capitalisation will make Big Hit more valuable than South Korea’s three biggest listed record labels, JYP Entertainment, S.M. Entertainment Stock and YG Entertainment combined.

Big Hit is also opting for a more traditional underwritten IPO, having engaged NH Investment & Securities, Korea Investment & Securities, and JP Morgan will serve as lead underwriters, with Mirae Asset Daewoo and Kiwoom Securities assisting them.

Big Hit by the Numbers

In 2019, Big Hit recorded 587.2 billion won (S$682.3 million) in revenue, up about 94.8 per cent from last year. In the same timeframe, its net profit was 98.7 billion won (S$91.4 million), up 23.5 per cent from a year earlier.

For the first half of 2020, Big Hit’s operating profits took a hit falling about 4 per cent to 49.7 billion won (S$57.0 million) from 294 billion won ($337.1 million) in revenue. This was largely due to the cancellation of BTS’s world tours due to the COVID-19 pandemic.

For Big Hit, a potential concern is its lack of diversification and heavy dependence on BTS.

This may pose a problem due to South Korea’s mandatory 18-month military conscription for all males, which will affect BTS members in the future. But on balance, Big Hit has stated that BTS’s oldest member, Jin, could push back his enlistment until end 2021.

In addition, record labels like Big Hit might be affected if their stars get involved in scandals. For example, the 2019 Burning Sun entertainment and sex scandal caused YG Entertainment’s stock to tumble and affected other record label stocks too,

JYP Entertainment Stock (KOSDAQ: 035900)

Next up we have JYP Entertainment Corporation, which is currently the biggest listed record label in South Korea by market capitalisation.

The company was founded way back in 1997 by Park Jin-Young or J.Y. Park a former singer who became the founder and co-CEO of JYP Entertainment.

The company is known as the label behind K-pop royalty, Wonder Girls, Rain and Miss A.

Currently, the company manages:

• TWICE,
• 2PM,
• GOT7,
• DAY6,
• 15&,
• Stray Kids,
• JJ Project,
• Jus2,
• 3Racha,
• ITZY,
• J.Y. Park, and Yubin.

Undoubtedly, the jewel in their portfolio is girl group TWICE.

As of June 2020, are the most popular girl group in South Korea having sold over 5.2 million albums domestically. In total, the group has sold over 10 million albums in South Korea and Japan at the time of writing.

They also have 14.2 million followers on Instagram and another 6.1 million followers on Twitters

Entering the Japanese Market

Two of JYP’s biggest acts TWICE and GOT7 have made headways in Japan and are growing in popularity there.

As part of its expansions efforts, JYP Entertainment has partnered with The Orchard, an American American music and entertainment company under Sony Music Entertainment. This partnership will potentially help JYP entertainment enter the US, UK and other markets.

JYP Entertainment by the Numbers

At the time of writing, JYP is trading at a price of 40,800 won (S$46.8) with a market capitalisation of about 1.45 trillion won (S$1.67 billion).

Here are some key statistics:

• Price to Book Ratio: 7.94
• Price to Sales Ratio: 8.5451

In 2019, JYP Entertainment recorded revenue of 155 billion won (S$$177.2 million) and 32 billion won (S$35.4 million) in net profit.

For Q2 2020, JYP Entertainment recorded revenue of 34,134 million won (S$39.1 million) with a net profit of 4,717 million won (S$5.4 million)

They also have a very healthy profit margin of 13.82% and a debt to asset ratio of just 1.13%

YG Entertainment

Next, we have YG Entertainment, which is currently the second-biggest listed record label in South Korea by market capitalisation.

The company was started way back in 1996 by Yang Hyun-suk, and has developed the careers of K-pop royalty like Psy, 2NE1, Park Bom and Epik High.

They are currently managing artists like:

• Blackpink,
• Big Bang,
• Jinusean,
• Dara,
• Akdong Musician,
• Winner,
• iKon,
• Sechs Kies,
• and Treasure.

However, they are still reeling from the 2019 Burning Sun entertainment and sex scandal involving Big Bang, which saw their stock tumble 24.8 per cent between 25 February and 15 March 2019. 

Currently, the biggest group that they manage, is undoubtedly girl group Blackpink who went on a highly successful world tour in 2019.

They have also formed a strategic partnership with Universal Music Group’s representative label, Interscope records to promote Blackpink to a global audience.

But, YG Entertainment has to deal with the fallout from the Burning Sun scandal that rocked Big Bang. Seungri of Big Bang has left the group. In addition, B.I of iKON was also recently involved in a drug scandal. Both of them have since kept a low profile out of the public eye.

The company is hoping that Black Pink’s global success will help carry the company and make up for Big Bang.

YG Entertainment by the Numbers

At the time of writing, YG Entertainment is trading at a price of 52,300 won (S$59.9) with a market capitalisation of about 960.4 billion won (S$1.1 billion).

Here are some key statistics:

• Price to Book Ratio: 2.78
• Price to Sales Ratio: 4.11

In 2019, YG Entertainment recorded revenue of $304 billion won (S$177.2 million) and 25 billion won (-S$28.6 million) loss.

For Q2 2020, YG Entertainment recorded revenue of 55,153 million won (S$63.2 million) with a net profit of 7,216 million won (S$8.3 million)

The company has a profit margin of 13.08 per cent and debt to asset ratio of just 6.02 per cent.

SM Entertainment Stock (KOSDAQ: 041510)

Last but not least we have SM Entertainment Co LTD, the third-largest listed record label in Korea by market capitalisation.

The company was started way back in 1995 by Lee Soo-man and has developed the careers of K-pop pioneers like H.O.T. and BoA.

The currently manages stars like:

• Red Velvet,
• EXO,
• S.E.S.,
• TVXQ,
• Girl’s Generation,
• Super Junior,
• SuperM,
• Shinee,
• f(x),
• EXO,
• NCT
• and BoA.

More recently, they have expanded into the China market in 2019, and have received investment from Alibaba and Tencent.

Due to their strategic partnership with Tencent Music Entertainment will be a great help for them to break into the Chinese market.

For context, Tencent Music Entertainment has about 900 million monthly active users across its four music service platforms in China which is about 4.5 times more than Spotify’s worldwide monthly active users,

In addition, they have partnered with Creative Artists Agency (CAA) located in Los Angeles

The companies will collaborate and hopefully, help SM Entertainment break into the US market.

SM Entertainment by the Numbers

At the time of writing, SM Entertainment is trading at a price of 38,700 won (S$44.4) with a market capitalisation of about 909.8 billion won (S$1.04 billion).

Here are some key statistics:

• Price to Book Ratio: 2.02
• Price to Sales Ratio: 1.39

In Q2 2020, SM Entertainment recorded revenue of 135,908 million won (S$39.1 million) with a net income of 2,347 million won (S$5.4 million)

Compared to JYP, they have a lower profit margin of 1.37% and a higher debt to asset ratio of just 7.9%

How Do I Invest in the Korea Stock Exchange (KRX) From Singapore?

With the exception of Big Hit Entertainment, all these three companies are listed on the KOSDAQ/KRX.

For Big Hit Entertainment, retail investors located in Korea will be able to participate in the subscription on 5 Oct and 6 Oct 2020. However, foreigners living outside of Korea cannot participate.

But you can still buy the shares after the initial offering when Big Hit shares are traded on the open stock market/KRX.

If you are a retail investor based in Singapore, you can currently buy JYP, YG and SM Entertainment stocks on the KRX via a stock brokerage like PhillipCapital (POEMS).

As for Big Hit Entertainment stock, you will have to wait for a while longer for it to be traded on the open market.