Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

KMH Shilla Leisure Co Ltd / Equity Capital Markets

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To value KMH Shilla Leisure, we used three comps including <a href="https://www.smartkarma.com/entities/27513" target="_blank" data-smartkarma-citation="entities:27513:1">Yong Pyong Resort Co Ltd (070960 KS)</a>, <a href="https://www.smartkarma.com/entities/6409" target="_blank" data-smartkarma-citation="entities:6409:1">E World (084680 KS)</a>, and Ananti (025980 KS). KMH Shilla Leisure has a stronger balance sheet than its peers with a net debt to equity ratio of 6.3% at end of 1H18, versus its peers which had an average ratio of 45.7% at end of 1H18. KMH Shilla Leisure also generates higher ROE than its peers who had an average ROE of 2.6% in 2017 and 4.9% in 2018. </li>
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What are the appropriate valuation multiples for the company? We believe that 1.1-1.3x P/B valuation multiples are appropriate for KMH Shilla Leisure. Our base case valuation multiple is 1.2x P/B, which is 20% discount to the average P/B of our comps analysis and 8% lower than the bankers' average valuation multiple. We estimate the company's base case equity (controlling interest) to be 215.3 billion won at end of 2018. Applying a P/B valuation of 1.2x would suggest a market cap of 258.3 billion won or 16,269 won per share. This would represent a 38% higher implied price than the high end of the IPO price range (11,800 won). As such, we would take this deal since it offers an attractive upside potential. </li>
<li>When <a href="https://www.smartkarma.com/entities/27563" target="_blank" data-smartkarma-citation="entities:27563:1">KMH Shilla Leisure Co Ltd (275720 KS)</a> completes its IPO next month, it will become the first "pure play" operator of public golf courses that will be listed on the Korean stock market. Following close behind KMH Shilla Leisure is another company called Namwha Industrial which is also trying to complete its IPO in November. We think that KMH Shilla Leisure will receive greater interests among investors than Namwha Industrial. The overall sales and profits of KMH Shilla Leisure are higher than those of Namwha Industrial. </li>
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To value KMH Shilla Leisure, we used three comps including Yong Pyong Resort Co Ltd (070960 KS), E World (084680 KS), and Ananti (025980 KS). KMH Shilla Leisure has a stronger balance sheet than its peers with a net debt to equity ratio of 6.3% at end of 1H18, versus its peers which had an average ratio of 45.7% at end of 1H18. KMH Shilla Leisure also generates higher ROE than its peers who had an average ROE of 2.6% in 2017 and 4.9% in 2018. 

What are the appropriate valuation multiples for the company? We believe that 1.1-1.3x P/B valuation multiples are appropriate for KMH Shilla Leisure. Our base case valuation multiple is 1.2x P/B, which is 20% discount to the average P/B of our comps analysis and 8% lower than the bankers' average valuation multiple. We estimate the company's base case equity (controlling interest) to be 215.3 billion won at end of 2018. Applying a P/B valuation of 1.2x would suggest a market cap of 258.3 billion won or 16,269 won per share. This would represent a 38% higher implied price than the high end of the IPO price range (11,800 won). As such, we would take this deal since it offers an attractive upside potential. 
When KMH Shilla Leisure Co Ltd (275720 KS) completes its IPO next month, it will become the first "pure play" operator of public golf courses that will be listed on the Korean stock market. Following close behind KMH Shilla Leisure is another company called Namwha Industrial which is also trying to complete its IPO in November. We think that KMH Shilla Leisure will receive greater interests among investors than Namwha Industrial. The overall sales and profits of KMH Shilla Leisure are higher than those of Namwha Industrial. 


KMH Shilla Leisure IPO Preview (Part 2) - Valuation Analysis

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<a href="https://www.smartkarma.com/entities/27563" target="_blank" data-smartkarma-citation="entities:27563:1">KMH Shilla Leisure Co Ltd (275720 KS)</a> is the first "pure play" operator of public golf courses that will be listed on the Korean stock market. The IPO bookbuilding for institutional investors starts on November 14th, 2018. This company has one of the highest profit margins among the IPOs we covered this year. KMH Shilla Leisure generated an operating margin of 51.8% in 2017. The IPO price range is 9,200 won to 11,800 won. According to the bankers' valuation, the expected market cap after the IPO will be between 146 billion won to 187 billion won. </li>
<li>The company was operating membership based golf course since 1995 and it converted this into a public golf course operation in December 2014. The company mainly generates revenue by golf course fees, rental fees, F&amp;B, and other golf products sales. Through its affiliate KA Leisure, it also provides overseas golf tour packages in the Philippines.  The company's strategy to convert a private to public golf course has been an excellent success with the company benefiting from the strong demand for public golf courses among Korean golfers. </li>
<li>The company also wants to expand into the golf course outsourced management services. KMH Shilla Leisure believes that it has a strong background and experience in expanding into the outsourced golf course management services not just in Korea, but also in a few countries in Southeast Asia including Vietnam and the Philippines. The company will be competing other companies such as MBK Partners/Golfzon who are also trying to expand their market shares in this segment in Korea. </li>
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KMH Shilla Leisure Co Ltd (275720 KS) is the first "pure play" operator of public golf courses that will be listed on the Korean stock market. The IPO bookbuilding for institutional investors starts on November 14th, 2018. This company has one of the highest profit margins among the IPOs we covered this year. KMH Shilla Leisure generated an operating margin of 51.8% in 2017. The IPO price range is 9,200 won to 11,800 won. According to the bankers' valuation, the expected market cap after the IPO will be between 146 billion won to 187 billion won. 
The company was operating membership based golf course since 1995 and it converted this into a public golf course operation in December 2014. The company mainly generates revenue by golf course fees, rental fees, F&amp;B, and other golf products sales. Through its affiliate KA Leisure, it also provides overseas golf tour packages in the Philippines.  The company's strategy to convert a private to public golf course has been an excellent success with the company benefiting from the strong demand for public golf courses among Korean golfers. 
The company also wants to expand into the golf course outsourced management services. KMH Shilla Leisure believes that it has a strong background and experience in expanding into the outsourced golf course management services not just in Korea, but also in a few countries in Southeast Asia including Vietnam and the Philippines. The company will be competing other companies such as MBK Partners/Golfzon who are also trying to expand their market shares in this segment in Korea. 


KMH Shilla Leisure IPO Preview (Part 1) - Highly Profitable Operator of Public Golf Courses in Korea

South Korea

KMH Shilla Leisure Co.,Ltd provides golf club operating services. The Company offers golf facility management, golf course designing, and other services. KMH Shilla Leisure provides services in Korea.

KMH Shilla Leisure Co Ltd (275720 KS)

KMH Shilla Leisure IPO Preview (Part 2) - Valuation Analysis

To value KMH Shilla Leisure, we used three comps including Yong Pyong Resort Co Ltd (070960 KS), E World (084680 KS), and Ananti (025980 KS). KMH...

Douglas Kim

KMH Shilla Leisure IPO Preview (Part 1) - Highly Profitable Operator of Public Golf Courses in Korea

KMH Shilla Leisure Co Ltd (275720 KS) is the first "pure play" operator of public golf courses that will be listed on the Korean stock...

Douglas Kim