Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>In this insight, we analyze why the Korean FTC is investigating K-Cube Holdings, which is 100% owned by the Kakao Group Chairman Kim Beom-Soo (born in 1966). It was reported on 13 September that the Korean Fair Trade Commission (FTC) may be taking sanctions against the Kakao Group Chairman Kim Beom-Soo, which comes after the Financial Services Commission (FSC) announced measures last week that unless Kakao Pay changes the way it currently provides its financial services, there could be further sanctions on the company.</p><p>Following this news, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>'s share price fell another 4.2% today. Since the recent peak share price of 173,000 won on 24 June, Kakao Corp's share price has declined 28%. </p><div class="content-highlight"><p>In our view, the two biggest issues potentially facing K-Cube Holdings is the <em>'separation of the industrial and financial capital' (금산분리)</em> as well as concerns about K-Cube Holdings that could be used to benefit the children of Kakao Group's Chairman at the expense of the minority shareholders of Kakao Cop. </p></div>

In this insight, we analyze why the Korean FTC is investigating K-Cube Holdings, which is 100% owned by the Kakao Group Chairman Kim Beom-Soo (born in 1966). It was reported on 13 September that the Korean Fair Trade Commission (FTC) may be taking sanctions against the Kakao Group Chairman Kim Beom-Soo, which comes after the Financial Services Commission (FSC) announced measures last week that unless Kakao Pay changes the way it currently provides its financial services, there could be further sanctions on the company.Following this news, Kakao Corp (035720 KS)'s share price fell another 4.2% today. Since the recent peak share price of 173,000 won on 24 June, Kakao Corp's share price has declined 28%. In our view, the two biggest issues potentially facing K-Cube Holdings is the 'separation of the industrial and financial capital' (금산분리) as well as concerns about K-Cube Holdings that could be used to benefit the children of Kakao Group's Chairman at the expense of the minority shareholders of Kakao Cop. 

Why Is the Korean FTC Investigating K-Cube Holdings? (Owned by Kakao Group Chairman Kim Beom-Soo)

Event-Driven

<p><strong><a href="https://www.smartkarma.com/entities/woori-financial-group-inc" target="_blank" data-smartkarma-citation="entities:27995:1" rel="noopener">Woori Financial Group (316140 KS)</a> announced that it plans a full privatization of the company by the end of 2021.</strong> Currently, Woori Financial's largest shareholder is Korea Deposit Insurance Corporation (KDIC) which has a 15.1% in the company. Korean government backed KDIC plans to sell at least 10% stake in <a href="https://m.stock.naver.com/index.html#/news/ranknews/view/018/0005034309" target="_blank" rel="noopener">Woori Financial</a> by the end of 2021.</p><div class="content-highlight">
<p>One of the positives of Woori Financial after the privatization is completed is that the new controlling shareholder may try to improve various corporate governance policies in order to boost the total shareholder returns including paying higher dividends and completing higher share buyback with cancellations. </p>
<p>With the announcement of the privatization of Woori Financial Holdings by the end of 2021, an attractive long-short trading idea in the Korean financial sector would be to go long <a href="https://www.smartkarma.com/entities/woori-financial-group-inc" target="_blank" data-smartkarma-citation="entities:27995:1" rel="noopener">Woori Financial Group (316140 KS)</a> and go short <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a>.</p>
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Woori Financial Group (316140 KS) announced that it plans a full privatization of the company by the end of 2021. Currently, Woori Financial's largest shareholder is Korea Deposit Insurance Corporation (KDIC) which has a 15.1% in the company. Korean government backed KDIC plans to sell at least 10% stake in Woori Financial by the end of 2021.
One of the positives of Woori Financial after the privatization is completed is that the new controlling shareholder may try to improve various corporate governance policies in order to boost the total shareholder returns including paying higher dividends and completing higher share buyback with cancellations. 
With the announcement of the privatization of Woori Financial Holdings by the end of 2021, an attractive long-short trading idea in the Korean financial sector would be to go long Woori Financial Group (316140 KS) and go short KakaoBank (323410 KS).


Privatization of Woori Financial by the End of 2021

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.

<p>From today, September 10, it will be possible to short sell Kakao Bank and Krafton.</p><div class="content-highlight"><p><strong>Both Kakao Bank and Krafton have rapidly increased their loan balances over the past few days. This should be due to the increase in loan transactions in line with the start date of the short sale.</strong></p></div><p>As of yesterday, Kakao Bank's loan balance was 4,336,765 shares. This represents <strong>0.91%</strong> of the total number of outstanding shares. Although the ratio of the loan balance to SO is not yet high, it is worth paying attention to the recent rate of increase. In particular, since local ETFs/index funds that have completed KOSPI 200 rebalancing trading will enter the loan transaction market from now on, the current growth rate is highly likely to be maintained for the time being.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/980/original/image_94683396021631210485211.png?1631210485" class="editor-image img-responsive" data-smartkarma-image-id="228980"></figure><p>Krafton's situation is no different. There has been a sharp increase in recent days. As of yesterday, the loan balance is 528,702, which is <strong>1.08%</strong> of the outstanding shares. Similarly, stocks owned by local ETFs/index funds, which have completed KOSPI 200 rebalancing trading, will also flow in for Krafton. Hence, an increase in loan balance is unavoidable for the time being.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/981/original/image_74455773731631210911666.png?1631210912" class="editor-image img-responsive" data-smartkarma-image-id="228981"></figure>

From today, September 10, it will be possible to short sell Kakao Bank and Krafton.Both Kakao Bank and Krafton have rapidly increased their loan balances over the past few days. This should be due to the increase in loan transactions in line with the start date of the short sale.As of yesterday, Kakao Bank's loan balance was 4,336,765 shares. This represents 0.91% of the total number of outstanding shares. Although the ratio of the loan balance to SO is not yet high, it is worth paying attention to the recent rate of increase. In particular, since local ETFs/index funds that have completed KOSPI 200 rebalancing trading will enter the loan transaction market from now on, the current growth rate is highly likely to be maintained for the time being.Krafton's situation is no different. There has been a sharp increase in recent days. As of yesterday, the loan balance is 528,702, which is 1.08% of the outstanding shares. Similarly, stocks owned by local ETFs/index funds, which have completed KOSPI 200 rebalancing trading, will also flow in for Krafton. Hence, an increase in loan balance is unavoidable for the time being.

Short-Selling Kakao Bank & Krafton Begins Today: Here Are Some Data Worth Checking

Equity Capital Markets

<p>In this insight, we provide a scenarios analysis of the current situation between Kakao Pay and the financial regulators in Korea. The timing of this uncertainty is awful as the company is getting ready to complete its IPO next month. </p><div class="content-highlight"><ul>
<li>In our view, Kakao Pay is most likely to find some kind of a compromise with the regulators in order to continue to operate its financial services. </li>
<li>The higher probability scenario is for Kakao Pay make changes to how its current app operates (including having separate buttons that guide the users to separate subsidiaries windows) so that it is very clear from the consumers' point of view what subsidiaries/companies that are purchasing various financial services from. </li>
<li>Our guess is that it is likely to add one or two extra steps/layers for the consumers that use Kakao Pay to access the various financial services under the new system, as compared to the current system. In that sense, it would remove one of the key advantages that Kakao Pay has had in making the system more convenient to use as compared to its leading competitor Toss. </li>
</ul></div>

In this insight, we provide a scenarios analysis of the current situation between Kakao Pay and the financial regulators in Korea. The timing of this uncertainty is awful as the company is getting ready to complete its IPO next month. 
In our view, Kakao Pay is most likely to find some kind of a compromise with the regulators in order to continue to operate its financial services. 
The higher probability scenario is for Kakao Pay make changes to how its current app operates (including having separate buttons that guide the users to separate subsidiaries windows) so that it is very clear from the consumers' point of view what subsidiaries/companies that are purchasing various financial services from. 
Our guess is that it is likely to add one or two extra steps/layers for the consumers that use Kakao Pay to access the various financial services under the new system, as compared to the current system. In that sense, it would remove one of the key advantages that Kakao Pay has had in making the system more convenient to use as compared to its leading competitor Toss. 


Kakao Pay - One Third of Revenues in Jeopardy or Reach a Compromise with the Regulators?

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>Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.</p></div><div><p>As of 1H21, KP had a total of 36m users and around 20m monthly active users (MAU). It processed a total GMV of KRW66.9tn in 2020 and it had already generated KRW47.9tn GMV in 1H21 itself. As of the end of 1H21, it had dealings with more than 610,000 affiliated stores and 100 financial institutions.</p></div><div><p>Since spinning out from Kakao in 2017, the number of MAUs have grown 14x from 2Q17 to 2Q21, while the quarterly transaction amount grew 61x from KRW0.4tn in 2Q17 to KRW24.5tn in 2Q21. </p></div><div><p>Over the past few years the company has been expanding its offering beyond payment processing to include other financial products. On the back of this, its revenue has been growing faster than its GMV.</p></div><div>
<p>We have covered most aspects of the deal in our earlier notes, <a href="https://www.smartkarma.com/insights/kakao-pay-ipo-guided-by-ant-financial-to-be-a-mini-ant" target="_blank" rel="noopener">Kakao Pay IPO - Guided by Ant Financial to be a mini Ant </a>and  <a href="https://www.smartkarma.com/insights/kakao-pay-ipo-peer-comparison-local-and-international" target="_blank" rel="noopener">Kakao Pay IPO - Peer comparison - local and international</a>.</p>
<p>In this note we will talk about valuations and the latest announcement by the regulators.</p>
</div>

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.As of 1H21, KP had a total of 36m users and around 20m monthly active users (MAU). It processed a total GMV of KRW66.9tn in 2020 and it had already generated KRW47.9tn GMV in 1H21 itself. As of the end of 1H21, it had dealings with more than 610,000 affiliated stores and 100 financial institutions.Since spinning out from Kakao in 2017, the number of MAUs have grown 14x from 2Q17 to 2Q21, while the quarterly transaction amount grew 61x from KRW0.4tn in 2Q17 to KRW24.5tn in 2Q21. Over the past few years the company has been expanding its offering beyond payment processing to include other financial products. On the back of this, its revenue has been growing faster than its GMV.
We have covered most aspects of the deal in our earlier notes, Kakao Pay IPO - Guided by Ant Financial to be a mini Ant and  Kakao Pay IPO - Peer comparison - local and international.
In this note we will talk about valuations and the latest announcement by the regulators.


Kakao Pay IPO - Valuation and Likely Impact of Latest Announcement

South Korea

KakaoBank Corp. operates bank businesses. The Company provides deposit money, withdraw money, credit cards, stock accounts, linked loans, and other services. KakaoBank conducts businesses in South Korea.

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KakaoBank (323410 KS)

Why Is the Korean FTC Investigating K-Cube Holdings? (Owned by Kakao Group Chairman Kim Beom-Soo)

In this insight, we analyze why the Korean FTC is investigating K-Cube Holdings, which is 100% owned by the Kakao Group Chairman Kim Beom-Soo.

Douglas Kim

Privatization of Woori Financial by the End of 2021

Woori Financial Group announced it plans a full privatization of the company by the end of 2021. An attractive long-short trading idea would be to...

Douglas Kim

Short-Selling Kakao Bank & Krafton Begins Today: Here Are Some Data Worth Checking

We can short sell Kakao Bank and Krafton from today (September 10), as they are officially KOSPI 200 members. This post contains some data worth...

Sanghyun Park

Kakao Pay - One Third of Revenues in Jeopardy or Reach a Compromise with the Regulators?

In this insight, we provide a scenarios analysis of the current situation between Kakao Pay and the regulators in Korea. The timing of this is...

Douglas Kim

Kakao Pay IPO - Valuation and Likely Impact of Latest Announcement

Kakao Pay, one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55%...

Sumeet Singh

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