Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

Kakao has seen around 9% correction in the last two trading days.In the case of last Thursday, Kakao was attacked by a short sale of ₩121.5B, which is the largest amount of short selling among KOSPI stocks that day.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/412/original/Kakao.png?1624677796" class="editor-image img-responsive" data-smartkarma-image-id="215412"></figure></section>Nevertheless, Kakao is still recording a share price increase of close to 100% on a YTD basis. Therefore, it is necessary to examine Kakao's valuation at this point carefully.This is to determine whether to continue to hold the short position or to use the stock price correction of the last two trading days as the time to close the position.

Kakao has seen around 9% correction in the last two trading days.In the case of last Thursday, Kakao was attacked by a short sale of ₩121.5B, which is the largest amount of short selling among KOSPI stocks that day.Nevertheless, Kakao is still recording a share price increase of close to 100% on a YTD basis. Therefore, it is necessary to examine Kakao's valuation at this point carefully.This is to determine whether to continue to hold the short position or to use the stock price correction of the last two trading days as the time to close the position.

Kakao Valuation Studies: 12M Forward PER, Enterprise Multiples, & Discount to NAV

Equity Capital Markets

<div>The Financial Supervisory Service (FSS) reviews an IPO prospectus for 15 days. Only after approval by The FSS will Krafton be able to market to investors.</div><div>
The Financial Supervisory Service may request amendments to an IPO prospectus if it determines that any part of the disclosure may interfere with the good judgment of investors or may cause serious misunderstanding.
Similar to the case of SD Biosensor recently, in Krafton's case, market dissatisfaction with the overly high price is intensifying. So, the FSS may ask Krafton to revise its offering price.
At the same time, another issue is emerging. Again, this could lead to the FSS requesting amendments to the IPO prospectus.
The issue is that Krafton has so far denied the business structure in which Tencent provides PUBG (PlayerUnknown's Battlegrounds) in the name of Peacekeeper Elite (和平精英) in the Chinese market and Krafton receives a portion of its sales as royalties.
However, Krafton recognized for the first time a royalty income relationship with Tencent through this IPO prospectus. In this regard, the FSS is examining whether the IPO prospectus has sufficiently explained the business risks that such a business relationship would bring and, furthermore, whether such a change of word has any legal problems.
</div>

The Financial Supervisory Service (FSS) reviews an IPO prospectus for 15 days. Only after approval by The FSS will Krafton be able to market to investors.
The Financial Supervisory Service may request amendments to an IPO prospectus if it determines that any part of the disclosure may interfere with the good judgment of investors or may cause serious misunderstanding.
Similar to the case of SD Biosensor recently, in Krafton's case, market dissatisfaction with the overly high price is intensifying. So, the FSS may ask Krafton to revise its offering price.
At the same time, another issue is emerging. Again, this could lead to the FSS requesting amendments to the IPO prospectus.
The issue is that Krafton has so far denied the business structure in which Tencent provides PUBG (PlayerUnknown's Battlegrounds) in the name of Peacekeeper Elite (和平精英) in the Chinese market and Krafton receives a portion of its sales as royalties.
However, Krafton recognized for the first time a royalty income relationship with Tencent through this IPO prospectus. In this regard, the FSS is examining whether the IPO prospectus has sufficiently explained the business risks that such a business relationship would bring and, furthermore, whether such a change of word has any legal problems.


Krafton's Biggest Lie About Tencent Relationship & Regulation Risk in China

Index Rebalance

What is the KRX BBIG K-New Deal Index?The KRX BBIG K-New Deal Index consists of 12 stocks, each of which is a representative company in four industries, including rechargeable Batteries, Bio, Internet, and Games, which are the leading industries in the Korean stock market.It is important to note that this is a mother index, under which there are four sub-indices, like one for each sector. Each sub-index has ten constituents selected based on market capitalization.Index weight &amp; number of constituentsThe mother index is an equal-weighted index, in which each index constituent is allocated the same weight at each balancing, 1/12 = 8.33%.But the four sub-indices employ a hybrid weight system. The top-three group is given the weight of 75%, in which each stock is allocated the same weight of 25% at each rebalancing. In comparison, the plus group consisting of the remaining seven constituents is given the remaining weight of 25%, in which their float-adjusted market capitalization weights the seven stocks.Screening criteria, period, base date, &amp; implementation dateScreening for index inclusion is based on the average daily market capitalization and the average daily trading value of an eligible company over the screening period. Companies are screened over the three months preceding the screening base date.Regular rebalancings are made at the end of February and August every year. This year, February 26 and August 31 are the implementation dates of the regular rebalancing.Therefore, the screening base date is January 29 and July 30, which are the last days of the previous month.
Screening details

Criteria
Average daily market capitalization


Period
3 months preceding the screening base date


Base date

Last trading day of January and July
: January 29 and July 30 



Implementation date

Last trading day of February and August
: February 26 &amp; August 31 


Source: KRX
Current constituents &amp; index weights, as of June 18, 2021Below is the index weight of the constituent stocks of each index based on last Friday's closing price. The index weight reset on February 26 changed in proportion to the share price increase (or decrease).









KRX BBIG K-New Deal Index
Ticker
Weight
Market cap
30-day average daily trade value


LG Chem Ltd
051910
7.58%
₩58,026.9B
₩254.2B


Samsung SDI Co Ltd
006400
7.86%
₩46,347.3B
₩181.5B


SK Innovation Co Ltd
096770
8.42%
₩25,613.0B
₩228.0B


Samsung Biologics Co Ltd
207940
8.85%
₩55,313.9B
₩196.2B


Celltrion, Inc.
068270
7.19%
₩33,625.7B
₩164.3B


SK Biopharmaceuticals Co Ltd
326030
8.30%
₩9,984.9B
₩41.1B


Kakao Corp
035720
13.13%
₩68,809.1B
₩405.9B


Naver Corp
035420
8.53%
₩65,376.8B
₩245.8B


Duzon Bizon Co Ltd
012510
6.38%
₩2,530.4B
₩17.5B


NCSoft Corp
036570
7.02%
₩17,958.4B
₩74.0B


Netmarble Corp
251270
8.49%
₩11,560.7B
₩46.2B


Kakao Games Corp
293490
8.44%
₩4,305.6B
₩30.4B

Source: KRX











KRX Secondary Battery K-New Deal Index
Ticker
Weight
Market cap
30-day average daily trade value


LG Chem Ltd
051910
23.22%
₩58,026.9B
₩254.2B


Samsung SDI Co Ltd
006400
24.07%
₩46,347.3B
₩181.5B


SK Innovation Co Ltd
096770
25.79%
₩25,613.0B
₩228.0B


Posco Chemical Co Ltd
003670
7.83%
₩9,117.7B
₩38.9B


SKC Co Ltd
011790
5.53%
₩5,509.8B
₩50.1B


Ecopro BM Co Ltd
247540
3.87%
₩4,546.1B
₩26.3B


Iljin Materials Co Ltd
020150
2.77%
₩3,255.4B
₩15.5B


L&amp;F Co., Ltd.
066970
2.85%
₩2,625.4B
₩41.6B


SoulBrain Co Ltd
357780
2.58%
₩2,568.5B
₩9.4B


Chunbo Co Ltd
278280
1.50%
₩1,853.0B
₩9.2B

Source: KRX











KRX Bio K-New Deal Index
Ticker
Weight
Market cap
30-day average daily trade value


Samsung Biologics Co Ltd
207940
27.57%
₩55,313.9B
₩196.2B


Celltrion, Inc.
068270
22.41%
₩33,625.7B
₩164.3B


Celltrion HealthCare Co Ltd
091990
10.79%
₩18,490.4B
₩107.9B


SK Biopharmaceuticals Co Ltd
326030
25.87%
₩9,984.9B
₩41.1B


Celltrion Pharm Inc
068760
2.39%
₩5,653.7B
₩36.5B


Hanmi Science Co Ltd
008930
1.41%
₩4,691.1B
₩15.9B


Yuhan Corp
000100
3.16%
₩4,478.3B
₩16.2B


Shinpoong Pharmaceutical Co Ltd
019170
2.66%
₩4,339.5B
₩216.5B


Green Cross Corp
006280
1.61%
₩3,728.0B
₩52.2B


Seegene Inc
096530
2.12%
₩3,352.9B
₩58.6B

Source: KRX











KRX Internet K-New Deal Index
Ticker
Weight
Market cap
30-day average daily trade value


Kakao Corp
035720
36.25%
₩68,809.1B
₩405.9B


Naver Corp
035420
23.55%
₩65,376.8B
₩245.8B


Duzon Bizon Co Ltd
012510
17.42%
₩2,530.4B
₩17.5B


KMW Co Ltd
032500
6.74%
₩2,289.7B
₩15.6B


NHN KCP Corp
060250
3.60%
₩1,450.6B
₩6.5B


AfreecaTV Co Ltd
067160
4.14%
₩1,249.5B
₩13.4B


Ace Technologies Corp.
088800
2.65%
₩852.8B
₩12.2B


Seojin System Co Ltd
178320
2.55%
₩839.0B
₩8.8B


Ahnlab Inc
053800
1.95%
₩720.0B
₩6.4B


Rsupport Co Ltd
131370
1.15%
₩470.9B
₩2.7B

Source: KRX











KRX Game K-New Deal Index
Ticker
Weight
Market cap
30-day average daily trade value


NCSoft Corp
036570
21.23%
₩17,958.4B
₩74.0B


Netmarble Corp
251270
26.10%
₩11,560.7B
₩46.2B


PearlAbyss Corp
263750
8.85%
₩4,410.4B
₩12.2B


Kakao Games Corp
293490
25.95%
₩4,305.6B
₩30.4B


Com2uS Corp
078340
4.92%
₩1,688.1B
₩31.4B


NHN Corp
181710
3.38%
₩1,543.7B
₩5.7B


Doubleu Games Co Ltd
192080
2.55%
₩1,205.2B
₩7.1B


Webzen Inc
069080
3.05%
₩1,145.8B
₩9.8B


Wemade Co Ltd
112040
2.16%
₩971.0B
₩10.1B


Neptune Co
217270
1.81%
₩819.8B
₩4.1B

Source: KRX



KRX BBIG Index Rebalancing Preview: SK IE Tech, SK Bioscience, Krafton, Kakao Games, & Pearl Abyss

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

The KRX will announce the results of the September review of the BBIG indices in August and the changes will become effective after the close of trading on 9 September.The BBIG (secondary Battery, Bio, Internet and Gaming sectors) indices were launched late last year. ETFs were subsequently launched on the 5 indices and the BBIG ETF and the Secondary Battery ETF have gathered a significant amount of assets since then.At the September rebalance we expect the following changes:<ul>
<li>Secondary Battery ETF: <a href="https://www.smartkarma.com/entities/sk-ie-technology" target="_blank" data-smartkarma-citation="entities:29207:1" rel="noopener">SK IE Technology (361610 KS)</a> replaces <a href="https://www.smartkarma.com/entities/chunbo-co-ltd" target="_blank" data-smartkarma-citation="entities:27848:1" rel="noopener">Chunbo Co Ltd (278280 KS)</a>
</li>
<li>Bio ETF: <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> joins the index and the top 3 stocks. This moves <a href="https://www.smartkarma.com/entities/sk-biopharmaceuticals-co-ltd" target="_blank" data-smartkarma-citation="entities:28966:1" rel="noopener">SK Biopharmaceuticals Co Ltd (326030 KS)</a> to the plus group; <a href="https://www.smartkarma.com/entities/hanmi-pharm-co-ltd" target="_blank" data-smartkarma-citation="entities:12476:1" rel="noopener">Hanmi Pharm (128940 KS)</a> joins the index and <a href="https://www.smartkarma.com/entities/seegene-inc" target="_blank" data-smartkarma-citation="entities:11483:1" rel="noopener">Seegene Inc (096530 KS)</a> and <a href="https://www.smartkarma.com/entities/green-cross-corp" target="_blank" data-smartkarma-citation="entities:2969:1" rel="noopener">Green Cross (006280 KS)</a> are deleted.</li>
<li>Internet ETF: <a href="https://www.smartkarma.com/entities/kg-inicis-co-ltd" target="_blank" data-smartkarma-citation="entities:5234:1" rel="noopener">KG Inicis Co Ltd (035600 KS)</a> replaces <a href="https://www.smartkarma.com/entities/rsupport-co-ltd" target="_blank" data-smartkarma-citation="entities:14783:1" rel="noopener">Rsupport Co Ltd (131370 KS)</a> </li>
<li>Game ETF: <a href="https://www.smartkarma.com/entities/devsisters-co-ltd" target="_blank" data-smartkarma-citation="entities:14096:1" rel="noopener">Devsisters (194480 KS)</a> replaces <a href="https://www.smartkarma.com/entities/neptune-company" target="_blank" data-smartkarma-citation="entities:28826:1" rel="noopener">Neptune Company (217270 KS)</a>.</li>
<li>BBIG ETF: <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> replaces <a href="https://www.smartkarma.com/entities/sk-biopharmaceuticals-co-ltd" target="_blank" data-smartkarma-citation="entities:28966:1" rel="noopener">SK Biopharmaceuticals Co Ltd (326030 KS)</a> </li>
</ul>There could be more interesting changes if <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (1486402D KS)</a> lists before end July as expected.The first rebalance of the index took place in February this year and the inclusions outperformed the exclusions by nearly 8% between announcement of the changes and implementation. So this rebalance is something worth looking at.

The KRX will announce the results of the September review of the BBIG indices in August and the changes will become effective after the close of trading on 9 September.The BBIG (secondary Battery, Bio, Internet and Gaming sectors) indices were launched late last year. ETFs were subsequently launched on the 5 indices and the BBIG ETF and the Secondary Battery ETF have gathered a significant amount of assets since then.At the September rebalance we expect the following changes:
Secondary Battery ETF: SK IE Technology (361610 KS) replaces Chunbo Co Ltd (278280 KS)

Bio ETF: SK Bioscience (302440 KS) joins the index and the top 3 stocks. This moves SK Biopharmaceuticals Co Ltd (326030 KS) to the plus group; Hanmi Pharm (128940 KS) joins the index and Seegene Inc (096530 KS) and Green Cross (006280 KS) are deleted.
Internet ETF: KG Inicis Co Ltd (035600 KS) replaces Rsupport Co Ltd (131370 KS) 
Game ETF: Devsisters (194480 KS) replaces Neptune Company (217270 KS).
BBIG ETF: SK Bioscience (302440 KS) replaces SK Biopharmaceuticals Co Ltd (326030 KS) 
There could be more interesting changes if  Krafton Inc (1486402D KS) lists before end July as expected.The first rebalance of the index took place in February this year and the inclusions outperformed the exclusions by nearly 8% between announcement of the changes and implementation. So this rebalance is something worth looking at.

KRX BBIG Index Rebalance Preview: Worth a Look

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

In this insight, we discuss our initial thoughts on the Krafton IPO. According to the bankers' valuation, the expected market cap of the company is expected to be from 23.7 trillion won to 28.8 trillion won (IPO price range of 458,000 won to 557,000 won).<div class="content-highlight">Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Our valuation sensitivity suggests a valuation range from 18.3 trillion won to 30.6 trillion won. Our base case valuation of 465,055 won is close to the low end of the IPO price range of 458,000 won to 557,000 won. Given the lack of upside, we would PASS on this IPO deal. </div>

In this insight, we discuss our initial thoughts on the Krafton IPO. According to the bankers' valuation, the expected market cap of the company is expected to be from 23.7 trillion won to 28.8 trillion won (IPO price range of 458,000 won to 557,000 won).Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Our valuation sensitivity suggests a valuation range from 18.3 trillion won to 30.6 trillion won. Our base case valuation of 465,055 won is close to the low end of the IPO price range of 458,000 won to 557,000 won. Given the lack of upside, we would PASS on this IPO deal. 

Initial Thoughts on the Krafton IPO Valuation

South Korea

Kakao Games Corp. operates as a multiply platform gaming company. The Company provides mobile games, computer games, virtual reality games, and other related products. Kakao Games markets its products worldwide.

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Kakao Games (293490 KS)

Kakao Valuation Studies: 12M Forward PER, Enterprise Multiples, & Discount to NAV

This is a valuation study of Kakao to determine whether to continue to hold the short position or to use the stock price correction of the last two...

Sanghyun Park

Krafton's Biggest Lie About Tencent Relationship & Regulation Risk in China

Krafton officially recognized the relationship with Tencent's Peacekeeper Elite through this IPO prospectus. Now, we need to consider what...

Sanghyun Park

KRX BBIG Index Rebalancing Preview: SK IE Tech, SK Bioscience, Krafton, Kakao Games, & Pearl Abyss

This post previews the KRX BBIG Index (including 4 sub-indices) scheduled for August 31, 2021. The notable names include SK Bioscience, SK IE...

Sanghyun Park

KRX BBIG Index Rebalance Preview: Worth a Look

There are lots of changes expected to the KRX BBIG indices at the September review. With a large amount of assets tracking the indices, some of the...

Brian Freitas

Initial Thoughts on the Krafton IPO Valuation

Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Given the lack of upside relative to the...

Douglas Kim

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