Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<ul class=""><li>Our base case implied target price (one-year) of <a href="https://www.smartkarma.com/entities/26028" target="_blank" data-smartkarma-citation="entities:26028:1">Jin Air Co. Ltd (272450 KS)</a> is 26,800 won per share, which is at the low end of the IPO range. As such, we would avoid the Jin Air IPO deal, since we do not expect a sufficient upside to the IPO price. To value this deal, we used an estimated EBITDA of 149.2 billion won in 2018. </li><li>We used the base case 5.1x EV/EBITDA valuation multiple of Jeju Air to value Jin Air, resulting in EV of 761.1 billion won. After adjusting for net cash, this results in implied market cap of 802.8 billion won and using 30m in shares outstanding, the implied target price is 26,800 won per share. </li><li>Under current regulations, a company needs to have at least 3 airplanes and 15 billion won in capital to apply for an LCC license in Korea. It is expected that the Korean regulators will grant more LCC licenses in the years ahead. Currently, it is expected that the competition in the LCC market will heighten and there could be as many as 12 LCCs (6 current, 6 new) that are operating in Korea in the next few years.</li><li>We believe that this will pose a major competitive threat on Jin Air's profitability.  </li></ul>

Our base case implied target price (one-year) of Jin Air Co. Ltd (272450 KS) is 26,800 won per share, which is at the low end of the IPO range. As such, we would avoid the Jin Air IPO deal, since we do not expect a sufficient upside to the IPO price. To value this deal, we used an estimated EBITDA of 149.2 billion won in 2018. We used the base case 5.1x EV/EBITDA valuation multiple of Jeju Air to value Jin Air, resulting in EV of 761.1 billion won. After adjusting for net cash, this results in implied market cap of 802.8 billion won and using 30m in shares outstanding, the implied target price is 26,800 won per share. Under current regulations, a company needs to have at least 3 airplanes and 15 billion won in capital to apply for an LCC license in Korea. It is expected that the Korean regulators will grant more LCC licenses in the years ahead. Currently, it is expected that the competition in the LCC market will heighten and there could be as many as 12 LCCs (6 current, 6 new) that are operating in Korea in the next few years.We believe that this will pose a major competitive threat on Jin Air's profitability.  

Jin Air IPO (Part 2) - Unattractive Valuations and Greater Competitive Pressures

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

<a href="https://www.smartkarma.com/entities/26028" target="_blank" data-smartkarma-citation="entities:26028:1">Jin Air Co. Ltd (272450 KS)</a>'s IPO valuation is still one of the hot topics in the Korean stock market. In its IPO book, it says it should deserve a 15.0x PER. It then applies this 15.0x PER to its annualized FY17 earnings (simply multiply its 1H17 earnings by two). This gives a ₩1,005bil valuation. The company sets an IPO discount at 5-20%, so its suggested market cap range is ₩804 - ₩904bil<table class="table table-striped"><tbody><tr><td colspan="3" data-sheets-value='{"1":2,"2":"구분"}'>Jin Air's IPO valuation calculation</td></tr><tr><td data-sheets-value='{"1":2,"2":"당기순이익"}'>1H17 earnings</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"33,507 백만원"}'>₩33,507mil</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>A</td></tr><tr><td data-sheets-value='{"1":2,"2":"적용 당기순이익 (주1)"}'>FY17 annualized earnings</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"67,015 백만원"}'>₩67,015mil</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>B = A x 2</td></tr><tr><td data-sheets-value='{"1":2,"2":"적용 PER 배수 (주2)"}'><div>PER multiple</div></td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"15.0배"}'>15.0x</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>C</td></tr><tr><td data-sheets-value='{"1":2,"2":"평가 시가총액"}'>Market cap</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"1,005,224백만원"}'>₩1,005bil</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"C = A ×B"}'>D = B x C</td></tr><tr><td data-sheets-value='{"1":2,"2":"적용 주식수 (주3)"}'>Number of issued shares</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"30,000,000 주"}'>30,000,000 shares</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"D"}'>E</td></tr><tr><td data-sheets-value='{"1":2,"2":"주당 평가가액"}'>Price per share</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"33,507 원"}'>₩33,507</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"E = C ÷ D"}'>F = D / E</td></tr><tr><td data-sheets-value='{"1":2,"2":"주당 평가가액"}'>Discount</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"33,507 원"}'>5% - 20%</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"E = C ÷ D"}'>G</td></tr><tr><td data-sheets-value='{"1":2,"2":"주당 평가가액"}'>Indicative price band</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"33,507 원"}'>₩26,800 - ₩31,800</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"E = C ÷ D"}'>H = F x (1-G)</td></tr><tr><td data-sheets-value='{"1":2,"2":"주당 평가가액"}'>Suggested market cap</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"33,507 원"}'>₩804 - ₩954bil</td><td style="text-align: right;" data-sheets-value='{"1":2,"2":"E = C ÷ D"}'>I = H x E</td></tr><tr><td colspan="3" data-sheets-value='{"1":2,"2":"주당 평가가액"}'>Source: DART</td></tr></tbody></table>How did the company and the bookbuilder <a href="https://www.smartkarma.com/entities/12061" target="_blank" data-smartkarma-citation="entities:12061:1">Mirae Asset Daewoo Securities Co Ltd (006800 KS)</a> arrive at this 15.0x PER? They picked a total of 6 valuation peers including Jeju Air, which I believe the only realistically suitable comp that truly matters for this IPO. They get the 1H17 earnings of these 6 valuation peers and simply multiply the numbers by two to get annualized earnings for FY17. This way, they get an average PER of 15.0x.<table class="table table-striped"><tbody><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"구분"}'>(₩ mil)</td><td style="text-align: right; width: 118px;" data-sheets-value='{"1":2,"2":"SPRING \nAIRLINES"}'><a href="https://www.smartkarma.com/entities/25905" target="_blank" data-smartkarma-citation="entities:25905:1">Spring Airlines Co Ltd (601021 CH)</a></td><td style="text-align: right; width: 85px;" data-sheets-value='{"1":2,"2":"AIRASIA"}'><a href="https://www.smartkarma.com/entities/115" target="_blank" data-smartkarma-citation="entities:115:1">Airasia Bhd (AIRA MK)</a></td><td style="text-align: right; width: 100px;" data-sheets-value='{"1":2,"2":"VIETJET AVIATION"}'><a href="https://www.smartkarma.com/entities/22639" target="_blank" data-smartkarma-citation="entities:22639:1">Vietjet Aviation Jsc (VJC VN)</a></td><td style="text-align: right; width: 72.8206787109375px;" data-sheets-value='{"1":2,"2":"CEBU AIR"}'><a href="https://www.smartkarma.com/entities/22984" target="_blank" data-smartkarma-citation="entities:22984:1">Cebu Air Inc (CEB PM)</a></td><td style="text-align: right; width: 98.1793212890625px;" data-sheets-value='{"1":2,"2":"ASIA AVIATION"}'><a href="https://www.smartkarma.com/entities/7706" target="_blank" data-smartkarma-citation="entities:7706:1">Asia Aviation Pcl (AAV TB)</a></td><td style="text-align: right; width: 98px;" data-sheets-value='{"1":2,"2":"제주항공"}'><a href="https://www.smartkarma.com/entities/26027" target="_blank" data-smartkarma-citation="entities:26027:1">Jeju Air Co., Ltd. (089590 KS)</a></td></tr><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"당기순이익 (A)"}'>FY17 annualized earnings</td><td style="text-align: right; width: 118px;" data-sheets-value='{"1":3,"3":184240}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>184,240</td><td style="text-align: right; width: 85px;" data-sheets-value='{"1":3,"3":367518}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>367,518</td><td style="text-align: right; width: 100px;" data-sheets-value='{"1":3,"3":178896}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>178,896</td><td style="text-align: right; width: 72.8206787109375px;" data-sheets-value='{"1":3,"3":197502}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>197,502</td><td style="text-align: right; width: 98.1793212890625px;" data-sheets-value='{"1":3,"3":48684}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>48,684</td><td style="text-align: right; width: 98px;" data-sheets-value='{"1":3,"3":64616}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>64,616</td></tr><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"발행주식총수 (B)"}'>Total shares (thousand)</td><td style="text-align: right; width: 118px;" data-sheets-value='{"1":3,"3":800580}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>800,580</td><td style="text-align: right; width: 85px;" data-sheets-value='{"1":3,"3":3341874}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>3,341,874</td><td style="text-align: right; width: 100px;" data-sheets-value='{"1":3,"3":451343}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>451,343</td><td style="text-align: right; width: 72.8206787109375px;" data-sheets-value='{"1":3,"3":605953}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>605,953</td><td style="text-align: right; width: 98.1793212890625px;" data-sheets-value='{"1":3,"3":4850000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>4,850,000</td><td style="text-align: right; width: 98px;" data-sheets-value='{"1":3,"3":26357}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>26,357</td></tr><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"EPS (C=A÷B)"}'>EPS (₩)</td><td style="text-align: right; width: 118px;" data-sheets-value='{"1":3,"3":230}'>230</td><td style="text-align: right; width: 85px;" data-sheets-value='{"1":3,"3":110}'>110</td><td style="text-align: right; width: 100px;" data-sheets-value='{"1":3,"3":396}'>396</td><td style="text-align: right; width: 72.8206787109375px;" data-sheets-value='{"1":3,"3":326}'>326</td><td style="text-align: right; width: 98.1793212890625px;" data-sheets-value='{"1":3,"3":10}'>10</td><td style="text-align: right; width: 98px;" data-sheets-value='{"1":3,"3":2452}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>2,452</td></tr><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"기준주가 (D)"}'>Reference price (₩)</td><td style="text-align: right; width: 118px;" data-sheets-value='{"1":3,"3":5881}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>5,881</td><td style="text-align: right; width: 85px;" data-sheets-value='{"1":3,"3":900}'>900</td><td style="text-align: right; width: 100px;" data-sheets-value='{"1":3,"3":5398}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>5,398</td><td style="text-align: right; width: 72.8206787109375px;" data-sheets-value='{"1":3,"3":2395}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>2,395</td><td style="text-align: right; width: 98.1793212890625px;" data-sheets-value='{"1":3,"3":218}'>218</td><td style="text-align: right; width: 98px;" data-sheets-value='{"1":3,"3":33600}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>33,600</td></tr><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"PER (E=D÷C)"}'>PER (x)</td><td style="text-align: right; width: 118px;" data-sheets-value='{"1":3,"3":25.6}'>25.6</td><td style="text-align: right; width: 85px;" data-sheets-value='{"1":3,"3":8.2}'>8.2</td><td style="text-align: right; width: 100px;" data-sheets-value='{"1":3,"3":13.6}'>13.6</td><td style="text-align: right; width: 72.8206787109375px;" data-sheets-value='{"1":3,"3":7.3}'>7.3</td><td style="text-align: right; width: 98.1793212890625px;" data-sheets-value='{"1":3,"3":21.7}'>21.7</td><td style="text-align: right; width: 98px;" data-sheets-value='{"1":3,"3":13.7}'>13.7</td></tr><tr><td style="width: 144px;" data-sheets-value='{"1":2,"2":"3개사 평균 PER"}'>Avg. PER (x)</td><td colspan="6" rowspan="1" style="text-align: center; width: 572px;" data-sheets-value='{"1":3,"3":15}'>15.0</td></tr><tr><td colspan="7" style="width: 716px;" data-sheets-value='{"1":2,"2":"3개사 평균 PER"}'>Note: FY17 annualized earnings are derived based on 1H17 earnings (by simply doubling 1H17 earnings).Source: DART</td></tr></tbody></table><div class="content-highlight">Well, would it matter to discuss whether this valuation approach is appropriate or not? I don't think it matters now. Why? It is because Jin Air has a very clear and obvious comp right now, which is Jeju Air. My point is, it is just better to do a thorough apple-to-apple comparison with Jin Air to determine whether this ₩804 - ₩904bil valuation suggested by the company is at an appropriate level.</div>

Jin Air Co. Ltd (272450 KS)'s IPO valuation is still one of the hot topics in the Korean stock market. In its IPO book, it says it should deserve a 15.0x PER. It then applies this 15.0x PER to its annualized FY17 earnings (simply multiply its 1H17 earnings by two). This gives a ₩1,005bil valuation. The company sets an IPO discount at 5-20%, so its suggested market cap range is ₩804 - ₩904bilJin Air's IPO valuation calculation1H17 earnings₩33,507milAFY17 annualized earnings₩67,015milB = A x 2PER multiple15.0xCMarket cap₩1,005bilD = B x CNumber of issued shares30,000,000 sharesEPrice per share₩33,507F = D / EDiscount5% - 20%GIndicative price band₩26,800 - ₩31,800H = F x (1-G)Suggested market cap₩804 - ₩954bilI = H x ESource: DARTHow did the company and the bookbuilder Mirae Asset Daewoo Securities Co Ltd (006800 KS) arrive at this 15.0x PER? They picked a total of 6 valuation peers including Jeju Air, which I believe the only realistically suitable comp that truly matters for this IPO. They get the 1H17 earnings of these 6 valuation peers and simply multiply the numbers by two to get annualized earnings for FY17. This way, they get an average PER of 15.0x.(₩ mil)Spring Airlines Co Ltd (601021 CH)Airasia Bhd (AIRA MK)Vietjet Aviation Jsc (VJC VN)Cebu Air Inc (CEB PM)Asia Aviation Pcl (AAV TB)Jeju Air Co., Ltd. (089590 KS)FY17 annualized earnings184,240367,518178,896197,50248,68464,616Total shares (thousand)800,5803,341,874451,343605,9534,850,00026,357EPS (₩)230110396326102,452Reference price (₩)5,8819005,3982,39521833,600PER (x)25.68.213.67.321.713.7Avg. PER (x)15.0Note: FY17 annualized earnings are derived based on 1H17 earnings (by simply doubling 1H17 earnings).Source: DARTWell, would it matter to discuss whether this valuation approach is appropriate or not? I don't think it matters now. Why? It is because Jin Air has a very clear and obvious comp right now, which is Jeju Air. My point is, it is just better to do a thorough apple-to-apple comparison with Jin Air to determine whether this ₩804 - ₩904bil valuation suggested by the company is at an appropriate level.

South Korea

Jeju Air Co., Ltd. operates as an airline carrier in the aviation industry.   The Company provides air transportation services for passengers, baggage, and cargo within South Korea, Japan, and Southeastern Asian countries.

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Jeju Air (089590 KS)

Jin Air IPO (Part 2) - Unattractive Valuations and Greater Competitive Pressures

Our base case implied target price (one-year) of Jin Air Co. Ltd (272450 KS) is 26,800 won per share, which is at the low end of the IPO range. As...

Douglas Kim

Jin Air IPO Valuation Study

Jin Air Co. Ltd (272450 KS)'s IPO valuation is still one of the hot topics in the Korean stock market. In its IPO book, it says it should deserve a...

Sanghyun Park

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