Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Event-Driven

Kakao Games is undergoing the second day of a well-anticipated correction.It is now down -7.7% this morning. The current TV is already one fourth that of yesterday, which soared to ₩1.5tril, 25% of the market cap.Again, as well expected, the foreign short-term IPO money has all left Kakao G. As of the previous close, the FO % was 0.59%, down by 2.04 percent point from 2.63%. Presumably, it is even lower now.













Date
Close (₩)
%
TV
TV (₩B)
Local inst.
Foreign
FO
FO %


2020.09.15
68,100
-7.72%
5,400,000
367.7
-
-
-
-


2020.09.14
73,800
-9.00%
20,213,705
1,491.8
-578,393
-999,063
428,995
0.59%


2020.09.11
81,100
29.97%
5,013,124
406.6
-786,093
-397,435
1,428,058
1.95%


2020.09.10
62,400
30.00%
561,750
35.1
-100,870
-99,289
1,825,493
2.49%


- Opening price
48,000
100.00%
-
-
-
-
1,924,782
2.63%


- IPO price
24,000
-
-
-
-
-
-
-

Source: KRX

At the current price, the PERs range from 63.4x to 85.2x on FY20E earnings (an EPS band of ₩800~1,074).









PERs/FY20E earnings (₩B)
Earnings
EPS
Price
PER


1H20 annualized
65.0
₩858
₩68,100
79.36


Hanwha
68.7
₩907
₩68,100
75.11


Daishin
81.4
₩1,074
₩68,100
63.39


Shinyoung
75.0
₩990
₩68,100
68.80


- Case 1
60.6
₩800
₩68,100
85.15


- Case 2
66.9
₩883
₩68,100
77.13


- Case 3
73.2
₩966
₩68,100
70.49

Source: DART, KRX, &amp; HK Consensus













Consolidated (₩B)
2020E
2021E


Sales
505.0
557.5
610.0
602.0
738.0
874.0


- Existing lineup
400.0
400.0
400.0
300.0
300.0
300.0


- Guardian Tales
75.0
112.5
150.0
180.0
270.0
360.0


: Release date
July 29, 2020


: Daily est. sales
0.50
0.75
1.00
0.50
0.75
1.00


- Elyon
30.0
45.0
60.0
72.0
108.0
144.0


: Release date
November 1, 2020


: Daily est. sales
0.50
0.75
1.00
0.20
0.30
0.40


- Other
0.0
0.0
0.0
50.0
60.0
70.0


OP
70.7
78.1
85.4
84.3
103.3
122.4


NP
60.6
66.9
73.2
72.2
88.6
104.9


Post-IPO SO
75,768,385
75,768,385
75,768,385
75,768,385
75,768,385
75,768,385


EPS (₩)
(Case 1) 800
 (Case 2) 883
 (Case 3) 966
953
1,169
1,384


P/E multiple
34.90
34.90
34.90
34.90
34.90
34.90


Target price (₩)
27,915
30,817
33,719
33,277
40,795
48,313


- Lower-end discount
28.35%
35.10%
40.69%
39.90%
50.97%
58.60%


- Upper-end discount
14.03%
22.12%
28.82%
27.88%
41.17%
50.32%


- OTC price discount
-179.42%
-153.10%
-131.32%
-134.40%
-91.20%
-61.45%

Source: DART

Even at today's harshly corrected price, Kakao G still stands at Korea's most expensive game stock as even the lower end of the PER range is higher than Netmarble, which is the second over-inflated game company.











PERs/FY20E earnings (₩B)
Sales
OP
Earnings
PER
OPM
NPM


Netmarble Corp
2,597.3
272.7
270.3
58.25
10.50%
10.41%


NCSoft Corp
2,561.9
947.5
733.9
24.56
36.98%
28.65%


PearlAbyss Corp
524.6
185.3
150.4
17.48
35.32%
28.67%


Com2uS Corp
513.8
128.6
121.0
12.97
25.03%
23.55%


WE MADE Co Ltd
121.4
6.4
13.8
46.87
5.27%
11.37%


Webzen Inc
257.7
79.4
63.2
21.04
30.81%
24.52%


Neowiz
296.0
67.8
58.5
11.01
22.91%
19.76%


Doubleu Games Co Ltd
662.8
204.5
145.0
9.41
30.85%
21.88%


Kakao Games Corp
557.5
78.1
66.9
74.52
14.00%
12.00%

Source: KRX &amp; DART



Kakao Games: Current Selloff & KOSDAQ 150 Inclusion

Equity Capital Markets

Today is the first trading day of Kakao Games.The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.More importantly, Kakao Games' trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/093/original/1.png?1599685671" class="editor-image img-responsive" data-smartkarma-image-id="158093"></figure>But the street consensus is substantially lower.Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/097/original/11.png?1599686118" class="editor-image img-responsive" data-smartkarma-image-id="158097"></figure>It is pretty much in line with my projected range (₩60.6~73.2bil).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/098/original/13.png?1599686149" class="editor-image img-responsive" data-smartkarma-image-id="158098"></figure>The PER range is 22.34~26.47x at the offering price of ₩24,000.If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/099/original/12.png?1599686265" class="editor-image img-responsive" data-smartkarma-image-id="158099"></figure>

Today is the first trading day of Kakao Games.The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.More importantly, Kakao Games' trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.But the street consensus is substantially lower.Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).It is pretty much in line with my projected range (₩60.6~73.2bil).The PER range is 22.34~26.47x at the offering price of ₩24,000.If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. 

Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">
Based on the Smartkarma's platform interest rates comparison, there is overwhelming evidence that suggests the LACK of interest in the Big Hit Entertainment IPO as compared to the Kakao Games and SK Biopharm IPOs. In fact, the IPO interest levels of Kakao Games and SK Biopharm are similar (100 for Kakao Games and 97 for SK Biopharm). However, the interest levels for the Big Hit Entertainment is much lower (36) than those for Kakao Games and SK Biopharm.
In other words, the viewers of our insights already have figured out that the IPO price range of Big Hit Entertainment is TOO HIGH and as a result, there is not much to gain from this IPO. The bookbuilding for the Big Hit Entertainment IPO starts on September 24th and based on the Smartkarma interest level comparisons combined with our own valuation assessment, the institutional investors' interest in the Big Hit's IPO will be much lower than those for Kakao Games and SK Biopharm. 
</div>


Based on the Smartkarma's platform interest rates comparison, there is overwhelming evidence that suggests the LACK of interest in the Big Hit Entertainment IPO as compared to the Kakao Games and SK Biopharm IPOs. In fact, the IPO interest levels of Kakao Games and SK Biopharm are similar (100 for Kakao Games and 97 for SK Biopharm). However, the interest levels for the Big Hit Entertainment is much lower (36) than those for Kakao Games and SK Biopharm.
In other words, the viewers of our insights already have figured out that the IPO price range of Big Hit Entertainment is TOO HIGH and as a result, there is not much to gain from this IPO. The bookbuilding for the Big Hit Entertainment IPO starts on September 24th and based on the Smartkarma interest level comparisons combined with our own valuation assessment, the institutional investors' interest in the Big Hit's IPO will be much lower than those for Kakao Games and SK Biopharm. 


Interest Comparisons of Upcoming Korean Large-Cap IPOs: Kakao Games & Big Hit Entertainment

Kakao Games seems to be following the footsteps of its predecessor, SK Biopharm, in many ways.
First, despite super hot demand in subscription, they stayed within the indicative price range as they set the final price at the upper end (₩24,000).
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/360/original/31.png?1599413991" class="editor-image img-responsive" data-smartkarma-image-id="157360"></figure>
The final institutional subscription rate was 1,478 to 1, which is a record, of which 20% came from foreign institutions (pretty much in line with a usual level).
The public subscription also ended at a record high, with nearly ₩60tril sitting in subscription deposits.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/361/original/32.png?1599414003" class="editor-image img-responsive" data-smartkarma-image-id="157361"></figure>
Everyone placed their bet on 75~100% of high end or above, including unspecified. 94% are above high end.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/362/original/33.png?1599414014" class="editor-image img-responsive" data-smartkarma-image-id="157362"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/363/original/34.png?1599414025" class="editor-image img-responsive" data-smartkarma-image-id="157363"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/364/original/35.png?1599414036" class="editor-image img-responsive" data-smartkarma-image-id="157364"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/365/original/36.png?1599414045" class="editor-image img-responsive" data-smartkarma-image-id="157365"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/366/original/37.png?1599414053" class="editor-image img-responsive" data-smartkarma-image-id="157366"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/367/original/38.png?1599414063" class="editor-image img-responsive" data-smartkarma-image-id="157367"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/368/original/39.png?1599414072" class="editor-image img-responsive" data-smartkarma-image-id="157368"></figure>
Lock-up is a bit less aggressive than SK Biopharm. 58.59% of the total demand carry lock-up from 15 days to 6 months.
The number for SK Biopharm was 81.15%.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/369/original/40.png?1599414084" class="editor-image img-responsive" data-smartkarma-image-id="157369"></figure>

Kakao Games seems to be following the footsteps of its predecessor, SK Biopharm, in many ways.
First, despite super hot demand in subscription, they stayed within the indicative price range as they set the final price at the upper end (₩24,000).

The final institutional subscription rate was 1,478 to 1, which is a record, of which 20% came from foreign institutions (pretty much in line with a usual level).
The public subscription also ended at a record high, with nearly ₩60tril sitting in subscription deposits.

Everyone placed their bet on 75~100% of high end or above, including unspecified. 94% are above high end.







Lock-up is a bit less aggressive than SK Biopharm. 58.59% of the total demand carry lock-up from 15 days to 6 months.
The number for SK Biopharm was 81.15%.


Kakao Games IPO: Subscription, Allocation, & Immediate Float

<div class="content-highlight">
Kakao Games announced spectacular IPO book building results today. The IPO price has been confirmed at 24,000 won, which is at the top of the IPO price range. At the IPO price of 24,000 won, the company will raise 384 billion won and its initial market cap will be 1.8 trillion won. 
A total of 1,745 institutional investors participated in this IPO and the demand ratio for the IPO was 1,479to 1, which was even higher than the SK Biopharm demand ratio of 836 to 1. Also, 1,076 institutional investors participated in the IPO survey, which was 38% lower than the number of institution investors in this Kakao Games IPO.   
We remain very POSITIVE on this Kakao Games IPO.
</div>


Kakao Games announced spectacular IPO book building results today. The IPO price has been confirmed at 24,000 won, which is at the top of the IPO price range. At the IPO price of 24,000 won, the company will raise 384 billion won and its initial market cap will be 1.8 trillion won. 
A total of 1,745 institutional investors participated in this IPO and the demand ratio for the IPO was 1,479to 1, which was even higher than the SK Biopharm demand ratio of 836 to 1. Also, 1,076 institutional investors participated in the IPO survey, which was 38% lower than the number of institution investors in this Kakao Games IPO.   
We remain very POSITIVE on this Kakao Games IPO.


Trading Strategy for Kakao Games Post IPO Pricing

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 Games: Current Selloff & KOSDAQ 150 Inclusion

Kakao Games is undergoing the second day of??

Sanghyun Park

Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

Today is the first trading day of Kakao Gam???

Sanghyun Park

Interest Comparisons of Upcoming Korean Large-Cap IPOs: Kakao Games & Big Hit Entertainment

Based on the Smartkarma's platform interest rates comparison, there is overwhelming evidence that suggests the LACK of interest in the Big Hit...

Douglas Kim

Kakao Games IPO: Subscription, Allocation, & Immediate Float

Kakao Games seems to be following the footsteps of its predecessor, SK Biopharm, in many ways. First, despite super hot demand in subscription,...

Sanghyun Park

Trading Strategy for Kakao Games Post IPO Pricing

Kakao Games announced spectacular IPO book building results today. The IPO price has been confirmed at 24,000 won, which is at the top of the IPO...

Douglas Kim

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