Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>On 31 August, <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> finally launched its 'Amazon Global Store' in South Korea in partnership with <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a>'s e-commerce platform 11th. Amazon and 11th have been working on the details of this new service for many months and it has finally become available for millions of consumers in Korea.</p><div class="content-highlight">
<p>With the launch of Amazon Global Store Korea, this has been the end of a long decade plus journey of when Amazon would enter Korea. For now, Amazon has joined hands with SK Telecom although this partnership could change several years from now when Amazon could decide to operate alone Korea. In the next few months, we see millions of Korean consumers flocking to the Amazon Global Store Korean website (<a href="https://www.11st.co.kr/amazon/best" target="_blank" rel="noopener">https://www.11st.co.kr/amazon/best).</a> 11st (SK Telecom) will play a pivotal role in this roll-out as a key partner. </p>
<p><strong>Trading Ideas</strong> - In our view, we like a long-short trading idea of long <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a> and short <a href="https://www.smartkarma.com/entities/coupang-inc" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US) </a>at current levels. With the launch of Amazon Global Store in Korea, this will directly threat Coupang and likely to result in lower sales growth for the company for the rest of 2021. We also continue to have a positive view of <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a>.</p>
</div>

On 31 August, Amazon.com Inc (AMZN US) finally launched its 'Amazon Global Store' in South Korea in partnership with SK Telecom (017670 KS)'s e-commerce platform 11th. Amazon and 11th have been working on the details of this new service for many months and it has finally become available for millions of consumers in Korea.
With the launch of Amazon Global Store Korea, this has been the end of a long decade plus journey of when Amazon would enter Korea. For now, Amazon has joined hands with SK Telecom although this partnership could change several years from now when Amazon could decide to operate alone Korea. In the next few months, we see millions of Korean consumers flocking to the Amazon Global Store Korean website (https://www.11st.co.kr/amazon/best). 11st (SK Telecom) will play a pivotal role in this roll-out as a key partner. 
Trading Ideas - In our view, we like a long-short trading idea of long SK Telecom (017670 KS) and short Coupang (CPNG US) at current levels. With the launch of Amazon Global Store in Korea, this will directly threat Coupang and likely to result in lower sales growth for the company for the rest of 2021. We also continue to have a positive view of SK Telecom (017670 KS).


Amazon Global Store Finally Launches in Korea - In Partnership with 11st (SK Telecom)

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.

Equity Capital Markets

<p>Korea Post plans to raise around US$947m via selling all of its 2.5% stake in <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a>. </p><div><p>We have covered various aspects of the deal in our previous notes:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/kakao-bank-ipo-riding-on-parent-s-network-but-boundaries-with-kakao-pay-remain-unclear" target="_blank" rel="noopener">Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear</a>, </li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-pricey-as-it-should-be" target="_blank" rel="noopener">Kakao Bank IPO - Pricey as It Should Be</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-lack-of-lock-up-and-msci-ftse-index-implications" target="_blank" rel="noopener">Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications, and</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-trading-one-for-instis-closer-look-at-ftse-and-msci-inclusion-remain-buyers" target="_blank" rel="noopener">Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-msci-done-missed-ftse-by-a-whisker" target="_blank" rel="noopener">Kakao Bank - MSCI Done, Missed FTSE by a Whisker</a></li>
</ul></div><p> In this note we will talk about the deal dynamics and provide updates since our previous note.</p>

Korea Post plans to raise around US$947m via selling all of its 2.5% stake in KakaoBank (323410 KS). We have covered various aspects of the deal in our previous notes:

Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear, 
Kakao Bank IPO - Pricey as It Should Be
Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications, and
Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers
Kakao Bank - MSCI Done, Missed FTSE by a Whisker
 In this note we will talk about the deal dynamics and provide updates since our previous note.

Kakao Bank Placement - Its Expensive but the Discount Is Enticing

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.

<h2>Why is Coupang below $30?</h2><p>Coupang's stock price finally fell below $30.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/696/original/Screen+Shot+2021-08-29+at+1.50.45+AM.png?1630216270" class="editor-image img-responsive" data-smartkarma-image-id="226696"></figure><p></p></section><p>As we all know, the main reason for this is the disappointment with the second-quarter results announced on August 11th. Coupang's stock has plummeted nearly 20% since the 11th.</p><p>Coupang posted sales of $4.48B in the second quarter, which is pretty much in line with the market average forecast of $4.45B. However, EPS was -0.30 dollars, which fell short of the market average forecast of -0.13 dollars.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/695/original/Screen+Shot+2021-08-29+at+1.48.52+AM.png?1630216183" class="editor-image img-responsive" data-smartkarma-image-id="226695"></figure><p></p></section><p>It is true that the cost of the fire at the Deokpyeong Logistics Center that occurred on June 17, which was $295M, resulted in a significant increase in the net loss. Coupang has insurance to cover this cost. So, it is expected that insurance payments will cover these fire-related losses in the third quarter.</p><p><strong>However, even excluding these costs, the key point is that Coupang failed to reduce the size of its net loss as much as the market expected in the second quarter.</strong></p><section class="figure"><p>Although Coupang is not yet in the black, the secret to maintaining a huge market cap is the declining SG&amp;A ratio through economies of scale.</p>
<p>In fact, the SG&amp;A ratio to Coupang's total sales has continuously decreased from 31% in 2018 to 27% in 2019 and 22% in 2020. So, the market predicted that Coupang could turn to the black from 2023. The current market cap size requires both sales growth and SG&amp;A decline. However, as the SG&amp;A decline did not continue in the second quarter as in the first quarter, investors began to feel anxious.</p>
<p>These results are sufficiently expected. In the absence of a profitable anchor business like Amazon's AWS, Coupang's survival strategy is to continuously expand its market share. However, there are many questions about how Coupang could overcome and survive it from a cost perspective when the bleeding competition of local competitors intensifies to the extent that has never been seen.</p>
<p>Competition with Naver, an existing online commerce powerhouse, is a concern. But even more worrisome is Shinsegae, the strongest player in the local offline commerce market. It is making every effort to secure liquidity, which is the basis of the bleeding competition against Coupang, by selling most of its real estate assets.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/698/original/Screen+Shot+2021-08-29+at+1.59.49+AM.png?1630217189" class="editor-image img-responsive" data-smartkarma-image-id="226698"></figure></section></section>

Why is Coupang below $30?Coupang's stock price finally fell below $30.As we all know, the main reason for this is the disappointment with the second-quarter results announced on August 11th. Coupang's stock has plummeted nearly 20% since the 11th.Coupang posted sales of $4.48B in the second quarter, which is pretty much in line with the market average forecast of $4.45B. However, EPS was -0.30 dollars, which fell short of the market average forecast of -0.13 dollars.It is true that the cost of the fire at the Deokpyeong Logistics Center that occurred on June 17, which was $295M, resulted in a significant increase in the net loss. Coupang has insurance to cover this cost. So, it is expected that insurance payments will cover these fire-related losses in the third quarter.However, even excluding these costs, the key point is that Coupang failed to reduce the size of its net loss as much as the market expected in the second quarter.Although Coupang is not yet in the black, the secret to maintaining a huge market cap is the declining SG&amp;A ratio through economies of scale.
In fact, the SG&amp;A ratio to Coupang's total sales has continuously decreased from 31% in 2018 to 27% in 2019 and 22% in 2020. So, the market predicted that Coupang could turn to the black from 2023. The current market cap size requires both sales growth and SG&amp;A decline. However, as the SG&amp;A decline did not continue in the second quarter as in the first quarter, investors began to feel anxious.
These results are sufficiently expected. In the absence of a profitable anchor business like Amazon's AWS, Coupang's survival strategy is to continuously expand its market share. However, there are many questions about how Coupang could overcome and survive it from a cost perspective when the bleeding competition of local competitors intensifies to the extent that has never been seen.
Competition with Naver, an existing online commerce powerhouse, is a concern. But even more worrisome is Shinsegae, the strongest player in the local offline commerce market. It is making every effort to secure liquidity, which is the basis of the bleeding competition against Coupang, by selling most of its real estate assets.


Thoughts on Short-Selling Coupang Aimed at September 6th Massive Lockup Release

Telco/Internet specialist

Kirk Boodry

Redex Research

<p>Virtuous circle themes of Vision Fund IPOs, ongoing buybacks/MBOs and Alibaba expansion have been replaced by vicious circle narratives of China regulation, the reality of weak liquidity events and another pause in returns to shareholders. The net result is Softbank trades at a similar price and discount to what it did in September last year even as NASDAQ has climbed 25%. The sell off in Softbank shares since Q4 results in May was initially driven by disappointment on a buyback but the discount has stabilized and recent weakness reflects erosion in the underlying value/share.     </p>

Virtuous circle themes of Vision Fund IPOs, ongoing buybacks/MBOs and Alibaba expansion have been replaced by vicious circle narratives of China regulation, the reality of weak liquidity events and another pause in returns to shareholders. The net result is Softbank trades at a similar price and discount to what it did in September last year even as NASDAQ has climbed 25%. The sell off in Softbank shares since Q4 results in May was initially driven by disappointment on a buyback but the discount has stabilized and recent weakness reflects erosion in the underlying value/share.     

Softbank Group - The Great Unwinding Has Shifted from the Discount to Underlying Value

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<p>Coupang's share price fell 8% in the first-day trading session after the company's 2Q21 results were announced.  Does this present an entry opportunity?  No, I believe there is still a downside to Coupang's story. </p><p>I believe the results validated my concerns highlighted in my previous two reports ( <a href="https://www.smartkarma.com/insights/coupang-cpng-us-crack-in-the-armor" target="_blank" data-smartkarma-citation="insights:51455" rel="noopener">Coupang (CPNG US): Crack in the Armor</a> and <a href="https://www.smartkarma.com/insights/coupang-cpng-us-going-mano-e-mano-with-jd-com" target="_blank" data-smartkarma-citation="insights:49065" rel="noopener">Coupang (CPNG US): Going Mano E Mano with JD.com</a>): </p><ol>
<li>
<strong>Coupang's revenue growth is sharply decelerating towards 60% in 2H21.  </strong>In my "Mano e Mano" report, I highlight what happened to high-growth stocks when their growth slowed to 50% - 60% (e.g.,<a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>, <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a>).</li>
<li>
<strong>Operating leverage has not been reached yet.</strong> In fact, operating losses still doubled even after excluding costs associated with the FC Fire as losses from Eats and Rocket Fresh grocery delivery continues.  </li>
<li>
<strong> Adding new customers is key</strong> as revenue per customer growth continues to decelerate. </li>
</ol><p><strong>Valuations remain uncompelling.</strong> Coupang trades at a significant premium to JD.com on EV/revenue and EV/Gross Profit even after considering the difference in growth. </p><p>The key upside risk is if investors rotate from Chinese platforms to Coupang to mitigate Chinese regulatory risk.  I would note though that Coupang also faces regulatory risk and poor public perception as highlighted in my previous report, <a href="https://www.smartkarma.com/insights/coupang-cpng-us-under-the-regulator-s-microscope" target="_blank" data-smartkarma-citation="insights:54103" rel="noopener">Coupang (CPNG US): Under the Regulator's Microscope.</a></p>

Coupang's share price fell 8% in the first-day trading session after the company's 2Q21 results were announced.  Does this present an entry opportunity?  No, I believe there is still a downside to Coupang's story. I believe the results validated my concerns highlighted in my previous two reports ( Coupang (CPNG US): Crack in the Armor and Coupang (CPNG US): Going Mano E Mano with JD.com): 

Coupang's revenue growth is sharply decelerating towards 60% in 2H21.  In my "Mano e Mano" report, I highlight what happened to high-growth stocks when their growth slowed to 50% - 60% (e.g.,JD.com Inc (ADR) (JD US), Vipshop Holdings (VIPS US)).

Operating leverage has not been reached yet. In fact, operating losses still doubled even after excluding costs associated with the FC Fire as losses from Eats and Rocket Fresh grocery delivery continues.  

 Adding new customers is key as revenue per customer growth continues to decelerate. 
Valuations remain uncompelling. Coupang trades at a significant premium to JD.com on EV/revenue and EV/Gross Profit even after considering the difference in growth. The key upside risk is if investors rotate from Chinese platforms to Coupang to mitigate Chinese regulatory risk.  I would note though that Coupang also faces regulatory risk and poor public perception as highlighted in my previous report, Coupang (CPNG US): Under the Regulator's Microscope.

Coupang (CPNG US): Heavier Bleeding Takes the Wind Out of Coupang's Sails

South Korea

Coupang, Inc. operates as an e-commerce company. The Company offers dynamic end-to-end e-commerce and logistic solutions. Coupang serves customers worldwide.

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Coupang (CPNG US)

Amazon Global Store Finally Launches in Korea - In Partnership with 11st (SK Telecom)

Amazon Global Store Korea has finally launched (in partnership with SK Telecom's 11st) and this is likely to lead to a big increase in millions of...

Douglas Kim

Kakao Bank Placement - Its Expensive but the Discount Is Enticing

Korea Post plans to raise around US$947m via selling all of its 2.5% stake in KakaoBank (323410 KS). This is a clean-up trade.

Sumeet Singh

Thoughts on Short-Selling Coupang Aimed at September 6th Massive Lockup Release

This post delivers my thoughts on the short-selling opportunity on Coupang with a massive lockup release on September 6.

Sanghyun Park

Softbank Group - The Great Unwinding Has Shifted from the Discount to Underlying Value

Virtuous circle themes have been replaced by vicious circle narratives and share price weakness is now driven by declines in asset value with BABA...

Kirk Boodry

Coupang (CPNG US): Heavier Bleeding Takes the Wind Out of Coupang's Sails

Coupang's share price fell 8% after the company's 2Q21 results were announced. Does this present an entry opportunity? I believe there is still a...

Mitchell Kim

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