Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Private Capital Markets

In this insight, we provide the top 100 unicorns in Asia (including summaries), broken down by the major countries in Asia. China, India, and Korea lead the Asian countries in having the most number of Asian unicorns. We used the standard definition of a unicorn which refers to a privately held startup company valued at over $1 billion.
Clearly, one of the key differences in the global markets now as compared to a decade or two decades ago is the fact that the world's biggest venture capital and private equity firms are willing to invest a greater amount of capital in attractive Unicorns and "Pre-Unicorns" which has resulted in many of these private companies delaying their potential exit to IPO at later stages of their businesses. 
There has been so much money made from the first generation tech giants such as Google, Facebook, Amazon, Netflix, Alibaba, and Tencent. Many of these companies were not profitable in their early stages of growth but later gained tremendous economies of scale. Therefore, many investors in the Asian unicorns that have seen the progress of the first-generation tech giants are willing to invest in promising, young companies without profitability now to see their business development take place which could potentially reward them with outstanding returns later on.

In this insight, we provide the top 100 unicorns in Asia (including summaries), broken down by the major countries in Asia. China, India, and Korea lead the Asian countries in having the most number of Asian unicorns. We used the standard definition of a unicorn which refers to a privately held startup company valued at over $1 billion.
Clearly, one of the key differences in the global markets now as compared to a decade or two decades ago is the fact that the world's biggest venture capital and private equity firms are willing to invest a greater amount of capital in attractive Unicorns and "Pre-Unicorns" which has resulted in many of these private companies delaying their potential exit to IPO at later stages of their businesses. 
There has been so much money made from the first generation tech giants such as Google, Facebook, Amazon, Netflix, Alibaba, and Tencent. Many of these companies were not profitable in their early stages of growth but later gained tremendous economies of scale. Therefore, many investors in the Asian unicorns that have seen the progress of the first-generation tech giants are willing to invest in promising, young companies without profitability now to see their business development take place which could potentially reward them with outstanding returns later on. 

Equity Capital Markets

In this insight, we provide the price action comparisons of <a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Holdings (034730 KS),</a><a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS),</a> and <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a> prior to the IPOs and their bookbuilding dates of SK Biopharm, Kakao Games, and Big Hit Entertainment. 
Unlike SK Holdings and Kakao Corp whose share price prices increased in the one and two weeks prior to the start of the bookbuilding of SK Biopharm and Kakao Games, Netmarble Corp's share price has been declining in the one and two weeks prior to the start of the bookbuilding of Big Hit Entertainment. 
<div class="content-highlight">
We believe this is a BAD sign for the Big Hit Entertainment IPO since it could signal that after analyzing the prospectus of Big Hit Entertainment IPO, many institutional investors may conclude this IPO will be disappointing. 
</div>

In this insight, we provide the price action comparisons of SK Holdings (034730 KS),Kakao Corp (035720 KS), and Netmarble Corporation (251270 KS) prior to the IPOs and their bookbuilding dates of SK Biopharm, Kakao Games, and Big Hit Entertainment. 
Unlike SK Holdings and Kakao Corp whose share price prices increased in the one and two weeks prior to the start of the bookbuilding of SK Biopharm and Kakao Games, Netmarble Corp's share price has been declining in the one and two weeks prior to the start of the bookbuilding of Big Hit Entertainment. 

We believe this is a BAD sign for the Big Hit Entertainment IPO since it could signal that after analyzing the prospectus of Big Hit Entertainment IPO, many institutional investors may conclude this IPO will be disappointing. 


Comparison of SK Holdings, Kakao, & Netmarble Prior to IPOs of SK Biopharm, Kakao Games, & Big Hit

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.So, let's make a more reasonable approach with PER.Korea has three major entertainment talent agencies. They are often called Big Three.<ul>
<li>
<a href="https://www.smartkarma.com/entities/s-m-entertainment-co" target="_blank" data-smartkarma-citation="entities:3500:1" rel="noopener">S.M.Entertainment Co (041510 KS)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/yg-entertainment-inc" target="_blank" data-smartkarma-citation="entities:16138:1" rel="noopener">YG Entertainment (122870 KS)</a> </li>
<li><a href="https://www.smartkarma.com/entities/jyp-entertainment-corp" target="_blank" data-smartkarma-citation="entities:17598:1" rel="noopener">JYP Entertainment (035900 KS)</a></li>
</ul>Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. <table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY20E earnings (₩B)"}'>PERs/FY20E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OP"}'>OP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER"}'>PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OPM"}'>OPM</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NPM"}'>NPM</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":569}'>569.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":37.3}'>37.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.2}'>10.2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":87.47769980882353}'>87.48</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.06555360281195079}'>6.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.017926186291739893}'>1.79%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":237}'>237.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":8.3}'>8.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.3}'>10.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":103.03534913592232}'>103.04</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.035021097046413506}'>3.50%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.04345991561181435}'>4.35%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":137.4}'>137.4</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":41}'>41.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":30.7}'>30.7</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":46.94456596742671}'>46.94</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.29839883551673946}'>29.84%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.22343522561863172}'>22.34%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (1H×2/upper)"}'>Big Hit (1H×2/upper)</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[54]C[0]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":587.991592}'>588.0</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[55]C[-1]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":99.50966}'>99.5</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[56]C[-2]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":66.339512}'>66.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":68.87653801251959}'>68.88</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.1692365356135909}'>16.92%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.11282391262492747}'>11.28%</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.Below is the 12M forward PER comparison, which should be a more normalized picture.Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY21E earnings (₩B)"}'>PERs/FY21E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER (x)"}'>PER (x)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M lower)"}'>Big Hit (12M lower)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":75}'>75.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60.92}'>60.92</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'>Big Hit (12M mid)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":82.5}'>82.5</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":55.38}'>55.38</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M upper)"}'>Big Hit (12M upper)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90}'>90.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":50.77}'>50.77</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"12M PER (₩B)"}'>12M PER (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"12M PER (x)"}'>12M PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MC"}'>MC</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TP"}'>TP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Δ"}'>Δ</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Coverage"}'>Coverage</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":28.78}'>28.78</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":37950}'>₩37,950</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":891.100038}'>891.1</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":46800}'>₩46,800</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.233201581027668}'>23.32%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":10}'>10</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":45.4}'>45.40</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":58500}'>₩58,500</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1068.595275}'>1,068.6</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":55250}'>₩55,250</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":-0.05555555555555555}'>-5.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":8}'>8</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":35.99}'>35.99</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":40750}'>₩40,750</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1446.522799}'>1,446.5</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":43722}'>₩43,722</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.07293251533742331}'>7.29%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":9}'>9</td>
</tr>
<tr><td colspan="7" rowspan="1" style="text-align: left;" data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'>Big Hit (12M mid)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Lower"}'>- Lower</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":43.076971636363645}'>43.08</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-20]C[-1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":105000}'>₩105,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":3553.85016}'>3,553.9</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper"}'>- Upper</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":55.38467781818183}'>55.38</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-21]C[1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":135000}'>₩135,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":4569.23592}'>4,569.2</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2"}'>- Upper×2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":110.76935563636366}'>110.77</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*2" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":270000}'>₩270,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":9138.47184}'>9,138.5</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3"}'>- Upper×2×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":144.00016232727273}'>144.00</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":351000}'>₩351,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":11880.013392}'>11,880.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3×1.3"}'>- Upper×2×1.3×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":187.20021102545456}'>187.20</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":456300}'>₩456,300</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":15444.0174096}'>15,444.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>

We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.So, let's make a more reasonable approach with PER.Korea has three major entertainment talent agencies. They are often called Big Three.

S.M.Entertainment Co (041510 KS) 

YG Entertainment (122870 KS) 
JYP Entertainment (035900 KS)
Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. 











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


SM Entertainment Co Ltd
569.0
37.3
10.2
87.48
6.56%
1.79%


YG Entertainment Inc
237.0
8.3
10.3
103.04
3.50%
4.35%


JYP Entertainment Corp
137.4
41.0
30.7
46.94
29.84%
22.34%


Big Hit (1H×2/upper)
588.0
99.5
66.3
68.88
16.92%
11.28%

Source: KRX &amp; FnGuide

But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.Below is the 12M forward PER comparison, which should be a more normalized picture.Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.







PERs/FY21E earnings (₩B)
Earnings
PER (x)


Big Hit (12M lower)
75.0
60.92


Big Hit (12M mid)
82.5
55.38


Big Hit (12M upper)
90.0
50.77

Source: KRX &amp; FnGuide

At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.











12M PER (₩B)
12M PER (x)
Price
MC
TP
Δ
Coverage


SM Entertainment Co Ltd
28.78
₩37,950
891.1
₩46,800
23.32%
10


YG Entertainment Inc
45.40
₩58,500
1,068.6
₩55,250
-5.56%
8


JYP Entertainment Corp
35.99
₩40,750
1,446.5
₩43,722
7.29%
9

Big Hit (12M mid)

- Lower
43.08
₩105,000
3,553.9
-
-
-


- Upper
55.38
₩135,000
4,569.2
-
-
-


- Upper×2
110.77
₩270,000
9,138.5
-
-
-


- Upper×2×1.3
144.00
₩351,000
11,880.0
-
-
-


- Upper×2×1.3×1.3
187.20
₩456,300
15,444.0
-
-
-

Source: KRX &amp; FnGuide



Big Hit Ent. IPO: Valuations & Exit Price Level

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

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

South Korea

Kakao Corp. provides Internet portal services such as news, free e-mail, and leisure information.  The Company also offers cross-platform mobile messaging application that allows users to exchange messages.

Price Gauge
52-week Range	0.00 - 0.00
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52-week Range

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P/E

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