Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>In the past several days, there have been numerous news accounts about the Indian government cracking down on Krafton's Battlegrounds Mobile India (BGMI) game.</li>
<li>We believe there are several reasons why Indian government is cracking down on BGMI including concerns about this game potentially leading to greater violence among children and ties to Tencent.</li>
<li>At current valuation levels, we like a pair trade between Krafton (go short) and NCSOFT Corp (036570 KS) (go long).</li>
</ul>


In the past several days, there have been numerous news accounts about the Indian government cracking down on Krafton's Battlegrounds Mobile India (BGMI) game.
We believe there are several reasons why Indian government is cracking down on BGMI including concerns about this game potentially leading to greater violence among children and ties to Tencent.
At current valuation levels, we like a pair trade between Krafton (go short) and NCSOFT Corp (036570 KS) (go long).


A Pair Trade Between Krafton & NCsoft (India's Crackdown on Krafton's BGMI)

Equity Capital Markets

<ul>
<li>WCP announced today that it will delay its IPO. The book building for the institutional investors will start on 14 September (from 1 August previously).</li>
<li>Our guess for the delay is because the company may have tapped some major institutions and they may not have been so bullish on the IPO at current IPO valuation.</li>
<li>Our base case valuation of WCP is price of 87,805 won. Given the lack of upside relative to the IPO price range, we would PASS on this IPO deal.</li>
</ul>


WCP announced today that it will delay its IPO. The book building for the institutional investors will start on 14 September (from 1 August previously).
Our guess for the delay is because the company may have tapped some major institutions and they may not have been so bullish on the IPO at current IPO valuation.
Our base case valuation of WCP is price of 87,805 won. Given the lack of upside relative to the IPO price range, we would PASS on this IPO deal.


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.

Event-Driven

<ul>
<li>Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.</li>
<li>At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.</li>
<li>It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.</li>
</ul>


Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.
At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.
It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.


Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

<ul>
<li>In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their IPOs).</li>
<li>The potential sale of more ESOP shares could further negatively impact their share prices. In addition, they face significant competition and their near term financial outlook is less clear.</li>
<li>Although their valuation multiples have declined materially in the past year due to declining share prices, their valuation levels are still not overly attractive. </li>
</ul>


In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their IPOs).
The potential sale of more ESOP shares could further negatively impact their share prices. In addition, they face significant competition and their near term financial outlook is less clear.
Although their valuation multiples have declined materially in the past year due to declining share prices, their valuation levels are still not overly attractive. 


More End of Lock-Up Shares (ESOP) For Kakao Bank, Krafton, and Lotte Rental in August

<ul>
<li>The KRX will list 20 new single stock futures (SSF) and 5 single stock options (SSO) next Monday, July 25, including <strong><a href="https://www.smartkarma.com/entities/lg-energy-solution" target="_blank" data-smartkarma-citation="entities:33464:1" rel="noopener">LG Energy Solution (373220 KS)</a></strong>.</li>
<li>It seems very probable that the replacement demand for futures (short) will increase substantially due to a possible saturation of the loan market.</li>
<li>This situation, coupled with local pensions' basis trading, can lead to a significantly distorted basis. We should do basis trading or play pair trading (with LG Chem) on this.</li>
</ul>


The KRX will list 20 new single stock futures (SSF) and 5 single stock options (SSO) next Monday, July 25, including LG Energy Solution (373220 KS).
It seems very probable that the replacement demand for futures (short) will increase substantially due to a possible saturation of the loan market.
This situation, coupled with local pensions' basis trading, can lead to a significantly distorted basis. We should do basis trading or play pair trading (with LG Chem) on this.


Korea's New SSF/SSO Listing on July 25 & LG Energy's Massive Lockup Release on July 27

South Korea

Krafton, Inc. operates as a game development company. The Company develops console games, mobile games, computer games, and other related products. Krafton markets its products throughout South Korea.

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Krafton (259960 KS)

A Pair Trade Between Krafton & NCsoft (India's Crackdown on Krafton's BGMI)

We believe there are several reasons why Indian government is cracking down on Krafton's BGMI including concerns about this game leading to greater...

Douglas Kim

WCP Delays IPO

WCP announced today that it will delay its IPO. The book building for the institutional investors will start on 14 September (from 1 August...

Douglas Kim

Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

This post investigates the ESOP margin call situation for Kakao Bank and Krafton, which are about to face the ESOP lockup releases on August 6 and...

Sanghyun Park

More End of Lock-Up Shares (ESOP) For Kakao Bank, Krafton, and Lotte Rental in August

In August, there will be material ESOP related shares of Kakao Bank, Krafton, and Lotte Rental shares that could be released (one year after their...

Douglas Kim

Korea's New SSF/SSO Listing on July 25 & LG Energy's Massive Lockup Release on July 27

This post details Korea's new SSF/SSO listing on July 25 and investigates potential basis & pair trading opportunities on LG Energy Solution amid...

Sanghyun Park

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