Fundamental Short Selling Research

Eric Fernandez, CFA

TwoRiversAnalytics

Event-Driven

<ul>
<li>This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short term maturities for additional input. </li>
<li>The companies may not be viable given cash flows and capital structures.  These shorts tend to have  higher betas  and can have strong down moves as the crisis is recognized. </li>
<li>This week we flag: Carvana, Life Time Group, Bed Bath &amp; Beyond, Surgery Partners</li>
</ul>


This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short term maturities for additional input. 
The companies may not be viable given cash flows and capital structures.  These shorts tend to have  higher betas  and can have strong down moves as the crisis is recognized. 
This week we flag: Carvana, Life Time Group, Bed Bath &amp; Beyond, Surgery Partners


Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<h2>Bookbuilding Results of K Car IPO</h2><p><a href="https://www.smartkarma.com/entities/k-car" target="_blank" data-smartkarma-citation="entities:34118:1" rel="noopener">K Car (381970 KS)</a> announced today that the <a href="https://www.newsis.com/view/?id=NISX20210929_0001597864&amp;cID=15001&amp;pID=15000" target="_blank" rel="noopener">IPO price</a> has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. </p><p>On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> and <a href="https://www.smartkarma.com/entities/lotte-rental-co-ltd" target="_blank" data-smartkarma-citation="entities:33445:1" rel="noopener">Lotte Rental (089860 KS)</a>. Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  </p><div class="content-highlight">
<p>We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.</p>
<p>We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). </p>
</div>

Bookbuilding Results of K Car IPOK Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including  Krafton Inc (259960 KS) and Lotte Rental (089860 KS). Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  
We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.
We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). 


Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><p><a href="https://www.smartkarma.com/entities/k-car" target="_blank" data-smartkarma-citation="entities:34118:1" rel="noopener">K Car (KCAR KS)</a>  is looking to raise up to US$629m in its upcoming South Korea IPO.</p></div><div>
<p>K Car is a used car marketplace and dealership operating in South Korea. The company operates 41 offline dealership branches across South Korea, as of July, 2021. The company also operates online platforms like <a href="https://www.smartkarma.com/compose/insight/57212/www.kcar.com" target="_blank" rel="noopener">www.kcar.com</a> and K Car App that allows customers purchase used cars.</p>
<p>In this note, we will look at deal dynamics, assumptions, and share our thoughts on valuation.</p>
<p>Our previous coverage of the IPO:</p>
<ul><li>
<a href="https://www.smartkarma.com/insights/k-car-pre-ipo-dominant-leadership-in-the-online-space" target="_blank" data-smartkarma-citation="insights:57212" rel="noopener">K Car Pre-IPO - Dominant Leadership in the Online Space</a> </li></ul>
</div>

K Car (KCAR KS)  is looking to raise up to US$629m in its upcoming South Korea IPO.
K Car is a used car marketplace and dealership operating in South Korea. The company operates 41 offline dealership branches across South Korea, as of July, 2021. The company also operates online platforms like www.kcar.com and K Car App that allows customers purchase used cars.
In this note, we will look at deal dynamics, assumptions, and share our thoughts on valuation.
Our previous coverage of the IPO:

K Car Pre-IPO - Dominant Leadership in the Online Space 


K Car IPO - Peer Comparison and Valuation

<p>Our base case valuation of K Car is implied market cap of 2.8 trillion won or 55,441 won per share, which is 28% higher than the high end of the IPO price range of 43,200 won per share. Given the attractive upside, we have a POSITIVE view of the K Car IPO and we would subscribe to the IPO deal. </p><p><em>Given K Car's solid financials combined with its dominant market share in the online used car segment in Korea, we believe that many investors would be willing to attach higher valuation multiples on the company than its peers. In the first few days of trading, we believe that investors could push K Car's shares higher towards the high end of our valuation range 67,084 won per share, which would be 55% higher than the high end of the IPO valuation range. </em></p>

Our base case valuation of K Car is implied market cap of 2.8 trillion won or 55,441 won per share, which is 28% higher than the high end of the IPO price range of 43,200 won per share. Given the attractive upside, we have a POSITIVE view of the K Car IPO and we would subscribe to the IPO deal. Given K Car's solid financials combined with its dominant market share in the online used car segment in Korea, we believe that many investors would be willing to attach higher valuation multiples on the company than its peers. In the first few days of trading, we believe that investors could push K Car's shares higher towards the high end of our valuation range 67,084 won per share, which would be 55% higher than the high end of the IPO valuation range. 

<p>K Car is another interesting upcoming IPO in Korea. K Car, the largest used car e-commerce player in Korea, is getting ready to complete its IPO in early October. The IPO price range is from 34,300 won to 43,200 won per share. The IPO base deal size is from US$498 million to US$627 million. Of the 16.8m shares offered in the IPO, 15.6m shares are old shares and 1.2m are new shares).</p><p>According to the bankers' valuation, the expected market cap of the company is from 1.8 trillion won to 2.2 trillion won. The lead underwriters include NH Investment &amp; Securities and Goldman Sachs. The book building for the institutional investors starts on 27 September 2021. </p><p>K Car is mainly in the used car and rental car businesses. Hahn &amp; Co, a private equity firm in Korea, acquired the controlling stake in K Car in April 2018. Hahn &amp; Co Auto Service Holdings currently has a 100% stake in K Car. Post the IPO, it will have a 61% stake in K Car. </p><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td><div><strong>Deal Specifics of K Car IPO</strong></div></td>
<td style="width: 258pt;"> </td>
</tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 258pt;">NH Investment &amp; Securities, Goldman Sachs</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 258pt;">34,300 won (low)/43,200 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 258pt;">16.83m shares (15.6mn old shares; 1.2mn new shares)</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 258pt;">US$498mn (low);  US$627mn (high)</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 258pt;">50.89m shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 258pt;">1,745 billion won (low)/2,198 billion won (high)</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 258pt;">27-Sep-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 258pt;">28-Sep-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 258pt;">TBC</td>
</tr>
<tr>
<td>Source: Company data</td>
<td style="width: 258pt;"></td>
</tr>
</tbody>
</table>

K Car is another interesting upcoming IPO in Korea. K Car, the largest used car e-commerce player in Korea, is getting ready to complete its IPO in early October. The IPO price range is from 34,300 won to 43,200 won per share. The IPO base deal size is from US$498 million to US$627 million. Of the 16.8m shares offered in the IPO, 15.6m shares are old shares and 1.2m are new shares).According to the bankers' valuation, the expected market cap of the company is from 1.8 trillion won to 2.2 trillion won. The lead underwriters include NH Investment &amp; Securities and Goldman Sachs. The book building for the institutional investors starts on 27 September 2021. K Car is mainly in the used car and rental car businesses. Hahn &amp; Co, a private equity firm in Korea, acquired the controlling stake in K Car in April 2018. Hahn &amp; Co Auto Service Holdings currently has a 100% stake in K Car. Post the IPO, it will have a 61% stake in K Car. 






Deal Specifics of K Car IPO
 


Lead underwriters of the IPO: 
NH Investment &amp; Securities, Goldman Sachs


Expected IPO price per share: 
34,300 won (low)/43,200 won (high)


Number of Shares for IPO:
16.83m shares (15.6mn old shares; 1.2mn new shares)


IPO base deal size: 
US$498mn (low);  US$627mn (high)


Expected common shares outstanding, fully diluted (post-IPO):  
50.89m shares


Expected market cap after IPO:
1,745 billion won (low)/2,198 billion won (high)


Book open: 
27-Sep-21


Book closed:
28-Sep-21


Listing date: 
TBC


Source: Company data





United States

Carvana Co. operates an online platform for buying used cars. The Company offers test drives, vehicle financing, and car reviews. Carvana serves customers in the United States.

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Carvana (CVNA US)

Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners

This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. This week we flag: Carvana, Life Time...

Eric Fernandez, CFA

K-Car IPO Bookbuilding Results Analysis

K Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and...

Douglas Kim

K Car IPO - Peer Comparison and Valuation

K Car (KCAR KS) is looking to raise up to US$629m in its upcoming South Korea IPO. K Car is a used car marketplace and dealership operating in...

Sumeet Singh

K Car IPO Valuation Analysis

Our base case valuation of K Car is implied market cap of 2.8 trillion won or 55,441 won per share, which is 28% higher than the high end of the...

Douglas Kim

K Car IPO Preview

K Car, the largest used car e-commerce player in Korea, is getting ready to complete its IPO in early October. The IPO base deal size is from...

Douglas Kim

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