Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

After an extremely successful book-building that saw an oversubscription of 1,714x the shares offered, <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a> has raised 1.53 trillion won at 90,000 won per share (at the higher end of the offer price range of 60,000-90,000 won per share).At 90,000 won per share, Kakao Pay is priced at 35.4x EV/ LTM Sales with revenue growth of 102% YoY. This is towards the expensive side compared to the IPO multiples of global fintech peers. However, popular South Korean IPOs are almost a one-way bet these days. Nevertheless, we wouldn’t recommend holding onto Kakao Pay for too long.

After an extremely successful book-building that saw an oversubscription of 1,714x the shares offered, Kakao Pay (377300 KS) has raised 1.53 trillion won at 90,000 won per share (at the higher end of the offer price range of 60,000-90,000 won per share).At 90,000 won per share, Kakao Pay is priced at 35.4x EV/ LTM Sales with revenue growth of 102% YoY. This is towards the expensive side compared to the IPO multiples of global fintech peers. However, popular South Korean IPOs are almost a one-way bet these days. Nevertheless, we wouldn’t recommend holding onto Kakao Pay for too long.

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.

Order tableThe final institutional subscription rate of Kakao Pay was 1,714.47 to 1. It is close to the historical high of SKIET (1,883 to 1).There is a notable pattern in this bookbuilding. Foreign institutions account for more than 10% of the number of institutions. However, they do not exceed 4% based on the order volume. It is because most of the local institutions placed the maximum order to secure as many as possible. Of course, this pattern isn't unfamiliar at all, but it's gotten worse in this event.









By investor type
Institution
%
Demand
%


1. Local publicly raised funds
615
39.81%
7,086,056,400
44.20%


2. Local brokerages/investment advisories
32
2.07%
340,522,933
2.12%


3. Local pensions, funds managing proprietary assets, banks, and insurance companies
248
16.05%
2,827,447,500
17.64%


4. Local - Other (discretionary investment companies, primarily local hedge funds)
462
29.90%
5,223,138,145
32.58%


5. Foreign (foreign IPO funds &amp; hedge funds)
166
10.74%
285,333,793
1.78%


6. Foreign - Other (mostly local hot money)
22
1.42%
267,757,000
1.67%


Total
1,545
100.00%
16,030,255,771
100.00%


Subscription rate
1,714.47

Source: DART

There seem to be three explanations that local institutions rushed to this IPO like this.
First, the IPO price of Kakao Pay may have provided valuation merit.
Second, in terms of demand interference within the same corporate group and within the same sector, there might have been many local institutions that wanted to include Kakao Pay in their portfolios rather than Kakao Bank.
Third, Kakao Pay is the last mega IPO of this year in a situation where LGES's listing within this year has gone awry, so the competition between local IPO funds that have not yet achieved satisfactory results may have erupted this time.
This reasoning is evidenced by the fact that 100% of the orders are above 75% of the upper end. The "Unspecified" is generally considered "Above the upper end" in Korea's local IPO bookbuildings.









By price
Institution
%
Demand
%


Above high end
446
28.87%
5,205,975,000
32.48%


75-100% of high end
1,029
66.60%
10,219,345,229
63.75%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
0
0.00%
0
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
0
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
4
0.26%
1,453,942
0.01%


Low end or below
0
0.00%
0
0.00%


Unspecified
66
4.27%
603,481,600
3.76%


Total
1,545
100.00%
16,030,255,771
100.00%

Source: DART

Regardless of whether the holding tendencies are long-term or short-term, all institutions have been pricing fairly aggressively. It shows once again that there is fierce competition among institutions to secure the target allocation volume.








Institution type
Above 75% of the upper end + Unspecified
% of total demands
Holding tendencies


1. Local publicly raised funds
100.00%
44.20%
Long-term


2. Local brokerages/investment advisories
100.00%
2.12%
Short-term


3. Local pensions, funds managing proprietary assets, banks, and insurance companies
100.00%
17.64%
Long-term


4. Local - Other (discretionary investment companies, primarily local hedge funds)
100.00%
32.58%
Short-term


5. Foreign (foreign IPO funds &amp; hedge funds)
97.59%
1.77%
Long or short-term, depends


6. Foreign - Other (mostly local hot money)
100.00%
1.67%
Short-term

Source: DART

Additional data:The order table for each institutional type is below.The daily bookbuilding participation quantity is as follows.

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Maeil Business Daily <a href="https://finance.naver.com/news/news_read.naver?article_id=0004867946&amp;office_id=009&amp;mode=LSS3D&amp;type=0&amp;section_id=101&amp;section_id2=258&amp;section_id3=402&amp;date=20211021&amp;page=1" target="_blank" rel="noopener">reported</a> after the market close today that <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a> has successfully completed its IPO book building with the IPO price of 90,000 won, which was at the high end of the IPO price range. As of 2PM, it was estimated that the competition rate for the IPO shares was about 1,400 to 1. It is estimated that the final competition rate could be closer to about 2,000 to 1.More than 70% of the subscription shares included lock-up periods, which is quite high. There is a good chance that Kakao Pay could be the last major IPO with market cap of more than 10 trillion won and many institutional investors subscribed to this IPO. The successful IPO of Kakao Bank also likely to have played an important role in the strong IPO demand of Kakao Pay as well.Valuation - Our one year base case valuation of Kakao Pay is implied market cap of 11.1 trillion won or 81,829 won per share, which is based on EV/S of 10x using our estimated sales of 919 billion won in 2022. However, given the excellent book building results, we believe that there is a strong likelihood of a short term pop on the share price after the IPO. Our sensitivity analysis suggests a high end price of 103,366 won and we believe that it is likely to reach/surpass this high end level in the first few hours of trading. In the first few days of trading Kakao Pay IPO, it may not be as bullish as Kakao Bank's IPO in the first two weeks of trading. However, there is a good probability that Kakao Pay's stock price will likely exceed our high end valuation levels (103,366 won). Nonetheless, over a longer period of time (1 year), we believe that the share price of Kakao Pay will likely come down closer to our base case (81,829 won) as investors become more concerned about the heightened competitive pressures and the company's growth rate starts to decline.

Maeil Business Daily reported after the market close today that Kakao Pay (377300 KS) has successfully completed its IPO book building with the IPO price of 90,000 won, which was at the high end of the IPO price range. As of 2PM, it was estimated that the competition rate for the IPO shares was about 1,400 to 1. It is estimated that the final competition rate could be closer to about 2,000 to 1.More than 70% of the subscription shares included lock-up periods, which is quite high. There is a good chance that Kakao Pay could be the last major IPO with market cap of more than 10 trillion won and many institutional investors subscribed to this IPO. The successful IPO of Kakao Bank also likely to have played an important role in the strong IPO demand of Kakao Pay as well.Valuation - Our one year base case valuation of Kakao Pay is implied market cap of 11.1 trillion won or 81,829 won per share, which is based on EV/S of 10x using our estimated sales of 919 billion won in 2022. However, given the excellent book building results, we believe that there is a strong likelihood of a short term pop on the share price after the IPO. Our sensitivity analysis suggests a high end price of 103,366 won and we believe that it is likely to reach/surpass this high end level in the first few hours of trading. In the first few days of trading Kakao Pay IPO, it may not be as bullish as Kakao Bank's IPO in the first two weeks of trading. However, there is a good probability that Kakao Pay's stock price will likely exceed our high end valuation levels (103,366 won). Nonetheless, over a longer period of time (1 year), we believe that the share price of Kakao Pay will likely come down closer to our base case (81,829 won) as investors become more concerned about the heightened competitive pressures and the company's growth rate starts to decline. 

After multiple delays, the book-building period for the <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a> IPO started today (20th October 2021) at an offer price range of 60,000-90,000 won per share.Tightening regulations on fintech and internet platforms in South Korea has somewhat dampened the investor enthusiasm towards fintech and internet platforms. <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/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> have lost 17.7% and 7.2% of their respective market caps since Kakao Pay revised down its IPO price range by 4.8-6.3% to 60,000-90,000 won per share on 31st August 2021.Therefore, we are expecting subdued investor interest in the Kakao Pay IPO near the top end of the offer range. Nevertheless, we see value in Kakao Pay’s financial services business in the long term.

After multiple delays, the book-building period for the Kakao Pay (377300 KS) IPO started today (20th October 2021) at an offer price range of 60,000-90,000 won per share.Tightening regulations on fintech and internet platforms in South Korea has somewhat dampened the investor enthusiasm towards fintech and internet platforms. Kakao Corp (035720 KS) and Naver Corp (035420 KS) have lost 17.7% and 7.2% of their respective market caps since Kakao Pay revised down its IPO price range by 4.8-6.3% to 60,000-90,000 won per share on 31st August 2021.Therefore, we are expecting subdued investor interest in the Kakao Pay IPO near the top end of the offer range. Nevertheless, we see value in Kakao Pay’s financial services business in the long term.

In this insight, we provide an updated valuation analysis of <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a>. We update our financials to account for the company's 1H 2021 results. In addition, we have used the updated financials comparisons of the comps.<div class="content-highlight">Our base case valuation of Kakao Pay is an implied market cap of 11.1 trillion won or 81,829 won per share. Our base case valuation of the company is reduced by 9% mainly due to lower sales estimates in 2022 combined with lower valuation multiple (EV/S of 10x in 2022 versus 10.6x previously). <ul style="list-style-type: disc;"><li>Our base case valuation is based on 10.0x EV/Sales multiple and applying this to our estimated sales of 919 billion won in 2022. </li><li>The EV/S multiple of 10.0x is based on the median valuation multiple of the comps in 2022. Among the comps, the valuation multiple of Upstart Holdings has increased materially in the past two months, which was offset by lower valuation multiples of 360 Digitech and Lemonade.</li></ul>The IPO price range is from 60,000 won to 90,000 won. If the IPO is priced near the mid to high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.Furthermore, although our one year base case valuation is 81,829 won per share, we do think there could be moderate (but not excessive) pop in the first 1-2 days of trading rising to as high as 103,366 won per share. We believe that many investors may opt to take some profits if the stock pops to more than 100,000 won per share. </div>

In this insight, we provide an updated valuation analysis of Kakao Pay (377300 KS). We update our financials to account for the company's 1H 2021 results. In addition, we have used the updated financials comparisons of the comps.Our base case valuation of Kakao Pay is an implied market cap of 11.1 trillion won or 81,829 won per share. Our base case valuation of the company is reduced by 9% mainly due to lower sales estimates in 2022 combined with lower valuation multiple (EV/S of 10x in 2022 versus 10.6x previously). Our base case valuation is based on 10.0x EV/Sales multiple and applying this to our estimated sales of 919 billion won in 2022. The EV/S multiple of 10.0x is based on the median valuation multiple of the comps in 2022. Among the comps, the valuation multiple of Upstart Holdings has increased materially in the past two months, which was offset by lower valuation multiples of 360 Digitech and Lemonade.The IPO price range is from 60,000 won to 90,000 won. If the IPO is priced near the mid to high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.Furthermore, although our one year base case valuation is 81,829 won per share, we do think there could be moderate (but not excessive) pop in the first 1-2 days of trading rising to as high as 103,366 won per share. We believe that many investors may opt to take some profits if the stock pops to more than 100,000 won per share. 

Kakao Pay - Slightly Lower Our Base Case Valuation

South Korea

Kakao Pay Corp. operates financial businesses. The Company provides online payment, currency encryption, and other services. Kakao Pay conducts businesses in South Korea.

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Kakaopay (377300 KS)

Kakao Pay IPO: First Day Trading

At 90,000 won per share, Kakao Pay is priced at 35.4x EV/ LTM Sales with revenue growth of 102% YoY. This is towards the expensive side compared to...

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This post details and explains Kakao Pay's extremely successful bookbuilding results, officially published on DART late last Friday.

Sanghyun Park

Kakao Pay Book Building Results

Maeil Business Daily reported after the market close today that Kakao Pay has successfully completed its IPO book building with the IPO price of...

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Kakao Pay IPO: Valuation

With regulations surrounding fintech and internet platforms in South Korea starting to tighten, investors are showing less enthusiasm and seem...

Oshadhi Kumarasiri

Kakao Pay - Slightly Lower Our Base Case Valuation

Our base case valuation of Kakao Pay is 81,829 won per share, which is reduced by 9% than previously mainly due to lower sales estimates in 2022...

Douglas Kim

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