BTS performs during New Year's Eve celebrations in Times Square, New York on Dec 31, 2019. (Photo: REUTERS/Jeenah Moon/Files)

The agency that manages Korean boy band BTS, Big Hit Entertainment, filed for an IPO in late May. But mandatory military service for the band’s members is set to pause the phenomenal growth it has driven.

Fans of Korean boy band BTS are nicknamed ARMY (Adorable Representative MC for Youth). The band’s hauls of merchandise could soon include shares in the agency that manages them. A planned float is expected to value the company, Big Hit Entertainment, at as much as 5.2 trillion won (S$6 billion). But South Korea’s actual army could bring the music to a halt. Mandatory military service for the band’s members is set to pause the phenomenal growth it has driven.

BTS is the most successful export of the musical phenomenon that is Korean pop. They exemplify K-pop’s formula of catchy tunes, slick dance routines and well-groomed stars, which has caught on around the world. As a result, plans to list Big Hit Entertainment have stirred global interest.

Korean music agencies have a lucrative business model. One or two bands generally make most – about 80 per cent – of a company’s revenues, which keeps costs low. Fans put their cash into concert tickets, albums and branded products ranging from coat hangers to pound cakes and electric massage chairs.

That keeps the sector’s profit margins high – more than 32 per cent for JYP Entertainment, one of the four biggest agencies – while investor returns can be sensational. JYP shares rose by about 3,000 per cent in the eight years to their 2018 peak.

Bankers have high hopes for the Big Hit listing: If expectations are met, it would value the company at more than the other top three local agencies combined. Top end forecasts imply a price-to-earnings ratio of almost 50 times optimistic forward earnings and a premium of a quarter over the sector average.

Many will be more than happy to ignore the steep price. There have been very few sellers of the company’s existing over-the-counter shares, which tend to go for about US$700 (S$975) each. Retail demand, it seems, is ready and waiting to buy the sector and back BTS at any cost.