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

Cross Asset Strategy

<div class="content-highlight">It has been reported in the past few days that <a href="http://www.koreaninvestors.com/?p=12175" target="_blank" rel="noopener">NPS</a> is likely to put a greater emphasis on ESG (environmental, social, &amp; governance) based investing for Korean stocks and bonds starting 2021. NPS has currently given a mandate to a company to help NPS to apply ESG based investment system. The ESG evaluations are expected to aid NPS to actively exercise shareholder rights and also to carry out negative screening of stocks.</div><h3>Implications of NPS Incorporating More ESG Criteria on Domestic Investments (Bonds &amp; Stocks)</h3><ul>
<li>Negative Impact on VICE industries </li>
<li>Positive Impact on Renewable Energy Industries</li>
<li>Negative Impact on Coal &amp; Oil Industries</li>
<li>Greater Representation of Women in Senior Management Team/BOD</li>
</ul>

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, &amp; governance) based investing for Korean stocks and bonds starting 2021. NPS has currently given a mandate to a company to help NPS to apply ESG based investment system. The ESG evaluations are expected to aid NPS to actively exercise shareholder rights and also to carry out negative screening of stocks.Implications of NPS Incorporating More ESG Criteria on Domestic Investments (Bonds &amp; Stocks)
Negative Impact on VICE industries 
Positive Impact on Renewable Energy Industries
Negative Impact on Coal &amp; Oil Industries
Greater Representation of Women in Senior Management Team/BOD


NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

Korea Investment Holdings Co, Ltd. / Equity Capital Markets

<div class="content-highlight">
Kakao Bank is one of the <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a> affiliates which is expected to complete its IPO in 1H 2021. Kakao Bank is expected to be one of the largest IPOs in Korea in 2021. The local media have mentioned the <a href="http://www.thebell.co.kr/free/content/ArticleView.asp?key=202007021435091720105091&amp;svccode=00&amp;page=1&amp;sort=thebell_check_time" target="_blank" rel="noopener">value of Kakao Bank</a> to be about 8 trillion won to 9 trillion won.
Korea Investment Holdings (KIH) has a 33.5% stake in Kakao Bank (indirectly owned through KIH's subsidiaries Korea Investment &amp; Securities and Korea Value Asset Management. <a href="https://www.smartkarma.com/entities/korea-investment-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14839:1" rel="noopener">Korea Investment Holdings Co, Ltd. (071050 KS) </a>currently has a market cap of 4.4 trillion won so this 2.7 trillion won (33.5% stake in Kakao Bank at a value of 8 trillion won) would be worth 61% of Korea Investment Holding's market cap.
</div>


Kakao Bank is one of the Kakao Corp (035720 KS) affiliates which is expected to complete its IPO in 1H 2021. Kakao Bank is expected to be one of the largest IPOs in Korea in 2021. The local media have mentioned the value of Kakao Bank to be about 8 trillion won to 9 trillion won.
Korea Investment Holdings (KIH) has a 33.5% stake in Kakao Bank (indirectly owned through KIH's subsidiaries Korea Investment &amp; Securities and Korea Value Asset Management. Korea Investment Holdings Co, Ltd. (071050 KS) currently has a market cap of 4.4 trillion won so this 2.7 trillion won (33.5% stake in Kakao Bank at a value of 8 trillion won) would be worth 61% of Korea Investment Holding's market cap.


Kakao Bank (One of the Biggest IPOs in Korea in 2021) - Big Boost to Korea Investment & Holdings

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

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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Kakao Corp (035720 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

NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, & governance) based...

Douglas Kim

Kakao Bank (One of the Biggest IPOs in Korea in 2021) - Big Boost to Korea Investment & Holdings

Kakao Bank is expected to be one of the largest IPOs in Korea in 2021. The local media have mentioned the value of Kakao Bank to be about 8...

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

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52-week Range

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