“The offering price is too high relative to corporate value. I’m planning to sell as soon as it goes public.” – a 72-year-old investor.

“BTS is going to become even more popular. This is some pricey merchandise, but I’m willing to buy it.” – a BTS fan

Amid conflicting appraisals, Big Hit Entertainment, the management company behind high-flying boy band BTS, wrapped up subscriptions on its initial public offering (IPO) on Oct. 6.

Subscribers were competing for shares at a ratio of 606.97 to 1, with subscription deposits amounting to 58.42 trillion won (US$50.41 billion). The oversubscription ratio was higher than SK Biopharmaceuticals (323 to 1) but lower than Kakao Games (1,525 to 1), while deposits came close to the record set by Kakao Games (58.55 trillion won, or US$50.52 billion).

With a deposit of 100 million won (US$86,277), subscribers could receive two shares in the company. Before subscriptions began, it was widely thought that a 100 million won deposit would bring one share — based on the estimated oversubscription ratio of 1,117 to 1 among institutional investors — but competition wasn’t as fierce as expected.

Since Big Hit Entertainment’s offering price of 135,000 won (US$116) per share is higher than other recently listed stocks such as Kakao Games (24,000 won, or US$21) and SK Biopharmaceuticals (49,000 won, or US$42), many investors were reluctant to subscribe. A company’s price-earnings ratio (PER) is one way to gauge whether stock prices are overrated relative to profit. Big Hit Entertainment has a price-earnings ratio of about 76 (based on net profit at companies it controls in the first half of the year), nearly double the ratio for its main competitor, JYP Entertainment (40). If the market concludes that a stock price is too high relative to corporate earnings, it’s liable to fall in the long term.

Furthermore, the limited number of shares for which investors can subscribe relative to capital means that their return on investment (ROI) might not meet expectations. Suppose an investor has subscribed for two shares in Big Hit Entertainment with a two-week deposit of 100 million won. Even assuming that the opening price is double the asking price and that the stock value rises to the maximum 30% allowed in a single day, the investor will only see a margin of 432,000 won (US$373), a ROI of 0.4%. That’s less than the 1,019,200 won (US$879, an ROI of 1%) that the investor could have earned with the same 100 million won on the first day of trading for SK Biopharmaceuticals.

Divided opinions on how much stock will go up and its inherent risks

A 72-year-old investor surnamed Yang spoke with the Hankyoreh at a branch of a securities firm in Seoul’s Mapo District. “I went ahead and subscribed for the stock, but the offering price is too high, and revenue from concerts is down because of COVID-19. I don’t think the stock price is going to rise very much,” Yang opined.

“I gave up on subscribing because they aren’t giving enough shares relative to the money you have to put in. Signing up for another financial product would be better than subscribing for this,” said a 62-year-old investor surnamed Park.

Other risk factors for investors are that 80% of Big Hit Entertainment’s revenue is based on BTS and that some of BTS’ main members may soon have to enlist for military service, a requirement for Korean men.

Nonetheless, investors who focused on BTS’ global popularity and the growth potential of the fan platform Weverse jumped on the opportunity to subscribe in the IPO. “I expect that the stock will keep going up because of BTS’ incredible popularity and name recognition,” said a 43-year-old housewife surnamed Lee, who took out money from the bank to cover the subscription deposit.

Some BTS fans joined the ranks of subscribers, regarding the initial offering as an unusually expensive kind of merchandise, while individual investors joined the subscription through a loan event called “Big Hit IPO Project” at K Bank.

In an open chat room focusing on Big Hit stock, quite a few investors seemed to be counting on the company’s stock price to go up. “The price is undervalued compared to the value of BTS and Weverse,” one person wrote. “When the company goes public, a lot of fans and foreigners are going to buy up stock,” another said.

Financial analysts offer a dizzying range of targets for Big Hit stock prices. IBK Securities said the stock will hit 240,000 won (US$207), while Hana Financial Investment expects it to reach 380,000 won (US$328).

By Shin Da-eun, staff reporter

Please direct comments or questions to [english@hani.co.kr]