Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight"><p><strong>In this insight, we discuss the 9 major risks (excluding valuation issues) for Krafton.</strong> Overall, we believe these significant risk factors could result in much lower than expected demand for the Krafton IPO shares, especially among the institutional investors unless the IPO price range is lowered significantly. </p></div><p style="padding-left: 25px;"><strong>1) Too much dependent on one game PUBG</strong></p><p style="padding-left: 25px;"><strong>2) Krafton's big political risk with China (<em>Game for Peace)</em></strong></p><p style="padding-left: 25px;"><strong>3) Political risks of operating PUBG in overseas countries such as India  </strong></p><p style="padding-left: 25px;"><strong>4) Company's sales growth in 2020 helped by COVID-19</strong></p><p style="padding-left: 25px;"><strong>5) Declining sales and profit growth in 1Q 2021</strong></p><p style="padding-left: 25px;"><strong>6) Comparable companies' worsening sales and profit trend in 1Q 2021</strong></p><p style="padding-left: 25px;"><strong>7) Potential acquisitions may not add value</strong></p><p style="padding-left: 25px;"><strong>8) Expansion into other entertainment related business may involve execution risks</strong></p><p style="padding-left: 25px;"><strong>9) Insiders are selling too much in this IPO </strong></p>

In this insight, we discuss the 9 major risks (excluding valuation issues) for Krafton. Overall, we believe these significant risk factors could result in much lower than expected demand for the Krafton IPO shares, especially among the institutional investors unless the IPO price range is lowered significantly. 1) Too much dependent on one game PUBG2) Krafton's big political risk with China (Game for Peace)3) Political risks of operating PUBG in overseas countries such as India  4) Company's sales growth in 2020 helped by COVID-195) Declining sales and profit growth in 1Q 20216) Comparable companies' worsening sales and profit trend in 1Q 20217) Potential acquisitions may not add value8) Expansion into other entertainment related business may involve execution risks9) Insiders are selling too much in this IPO 

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>As soon as Krafton submitted its IPO book, it sparked a valuation controversy. Krafton's revenue is still unusually dependent on a single game, PUBG (PlayerUnknown's Battlegrounds). However, even PUBG, which accounts for a significant portion of sales, has markedly slowed its sales growth. Nevertheless, Krafton unreasonably set a high IPO price. The atmosphere of the local street is clear. This level of public offering price is difficult to accept in the market.</p><p>So, the below DETAIL section details several talking points causing the current valuation controversy.</p>

As soon as Krafton submitted its IPO book, it sparked a valuation controversy. Krafton's revenue is still unusually dependent on a single game, PUBG (PlayerUnknown's Battlegrounds). However, even PUBG, which accounts for a significant portion of sales, has markedly slowed its sales growth. Nevertheless, Krafton unreasonably set a high IPO price. The atmosphere of the local street is clear. This level of public offering price is difficult to accept in the market.So, the below DETAIL section details several talking points causing the current valuation controversy.

Several Controversial Issues About Krafton IPO Valuation

Latest News from the World’s Leading Innovators

Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

<p>Headline Developments SpaceX (private) is set to launch The Pentagon’s next-generation national security satellite to orbit - the first launch with a reused rocket.  The launch of the GPS III SV05 for Space Force (below) will take place using the same Falcon 9 rocket booster that launched GPS III SV04 last November.</p>

Headline Developments SpaceX (private) is set to launch The Pentagon’s next-generation national security satellite to orbit - the first launch with a reused rocket.  The launch of the GPS III SV05 for Space Force (below) will take place using the same Falcon 9 rocket booster that launched GPS III SV04 last November.

<h2>Offering size</h2><p>Krafton, one of the hottest IPOs of the year, has released its IPO book. Krafton is a Korean game developer established in March 2007. It offers 10.06M shares, representing <strong>23.25% of the total shares</strong>, of which 55~75% will be institutional allocation.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Offering size"}'>Offering size</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TBA"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[1]C[0]">TBA</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Bourse"}'>Bourse</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"KOSPI"}'>KOSPI</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Pre-IPO SO"}'><strong>Pre-IPO SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43274070}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[1]C[0]"><strong>43,274,070</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering"}'><strong>Offering</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10060230}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[3]C[0]"><strong>10,060,230</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"- % of SO"}'><strong>- % of SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.23247709309524156}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[5]C[0]"><strong>23.25%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"- Institutional allotment"}'>- Institutional allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"55.00~75.00%"}' data-sheets-formula="=Terms!R[5]C[0]">55.00~75.00%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>Split</h2><p>This is a split offering at a ratio of 69.88% (primary) and 30.12% (secondary). As a result, this offering will see a capital increase rate of 16.25%. This IPO is free of any additional option: cornerstone, clawback, or greenshoe.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Split"}'>Split</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Primary %"}'><strong>Primary %</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6987911807185323}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[3]C[0]"><strong>69.88%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Secondary %"}'><strong>Secondary %</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3012088192814677}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]"><strong>30.12%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Post-IPO shares outstanding"}'>Post-IPO shares outstanding</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":53334300}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-9]C[0]+R[-8]C[0]"><span data-sheets-value='{"1":3,"3":50304070}' data-sheets-userformat='{"2":15041,"3":{"1":0},"9":2,"10":1,"12":0,"14":{"1":2,"2":3815996},"15":"Courier New","16":9}' data-sheets-formula="=R[-9]C[0]+Terms!R[2]C[0]">50,304,070</span></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Capital increase rate"}'><strong>Capital increase rate</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.16245294237403599}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]"><strong>16.25%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dilution"}'>Dilution</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.139750123598349}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]">13.98%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>Schedule</h2><p>The <strong>book opens</strong> on <strong>June 28</strong> for both local and overseas and runs until July 9. The <strong>allotment</strong> will be on <strong>July 12</strong> with a final offering price. The <strong>subscription</strong> follows on June <strong>July 1</strong>4.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Schedule"}'>Schedule</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book open"}'><strong>Book open</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44375}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 6. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book close"}'>Book close</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44386}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 9</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Allotment"}'>Allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44389}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 12</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription"}'><strong>Subscription</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44391}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 14</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Payment"}'><strong>Payment</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44396}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 19</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TBA"}'>TBA</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>Pricing</h2><p>The IPO book features 7 valuation peers: Walt Disney, NetEase, Activision Blizzard, Take-Two, INC Common Stock, Warner Music, NCSoft, and Netmarble. The earnings used in this valuation are the 1Q21 based annualized earnings. The average P/E multiple came at 45.20x.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PER valuation"}'>PER valuation</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Walt Disney Co"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Walt Disney</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NetEase Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>NetEase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Activision Blizzard, Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Activision Blizzard</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TAKE-TWO INTERACTIVE SOFTWARE, INC Common Stock"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Take-Two Interactive Software</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Warner Music Group Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Warner Music Group</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NCSoft Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>NCSoft</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Netmarble Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Netmarble</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"DIS"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="DIS"'>DIS</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"9999"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="9999"'>9999</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"ATVI"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="ATVI"'>ATVI</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TTWO"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="TTWO"'>TTWO</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"WMG"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="WMG"'>WMG</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"036570"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="036570"'>036570</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"251270"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="251270"'>251270</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":357657.17}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩357,657.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":84181.24}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩84,181.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":82893.153}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩82,893.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23133.711}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩23,133.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":19927.275}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩19,927.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18507.241}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩18,507.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11627.165}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩11,627.2B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4028.263}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩4,028.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3100.659}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩3,100.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2767.475}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩2,767.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":978.282}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩978.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":523.093}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩523.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":323.509}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩323.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":225.698}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩225.7B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"P/E"}'><strong>P/E</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":88.7869461353442}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>88.79x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":27.149467258411843}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>27.15x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":29.952629382379246}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>29.95x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23.64728268536066}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>23.65x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":38.09509016561109}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>38.10x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":57.20780874720642}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>57.21x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":51.51647334048153}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>51.52x</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Average"}'><strong>Average</strong></td>
<td colspan="7" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":45.2}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}'><strong>45.20x</strong></td>
</tr>
<tr><td colspan="8" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>A 45.20x multiple to a 1Q21-based annualized earnings of ₩776.1B implies a market cap of <strong>₩35.07T</strong> for Krafton. </p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PER valuation"}'>PER valuation</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Krafton"}'>Krafton</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1Q21 earnings"}'>1Q21 earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":194.018}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩194.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Annualized earnings"}'><strong>Annualized earnings</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":776.072}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*4"><strong>₩776.1B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"P/E"}'><strong>P/E</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":45.2}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-6]C[0]"><strong>45.20x</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'><strong>Market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":35073.588}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩35,073.6B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Post IPO SO, incl. stock options"}'>Post-IPO SO, incl. stock options</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":51766185}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>51,766,185</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price per share"}'><strong>Price per share</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":677538.590104718}' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]"><strong>₩677,539</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p><strong>A 17.79~32.40% discount</strong> sets up an indicative price band of ₩458,000~557,000, implying a market cap of <strong>₩23.04~28.02T</strong>.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Pricing"}'>Pricing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Low"}'>Low</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"High"}'>High</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price"}'><strong>Price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":458000}'><strong>₩458,000</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":557000}'><strong>₩557,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Base deal size"}'>Base deal size</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4607.58534}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩4,607.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5603.54811}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩5,603.5B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Institutional allotment"}'>- Institutional allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2534.171937}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C4">₩2,534.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3081.9514605}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C4">₩3,082.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Implied market cap"}'><strong>Implied market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23039.26406}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-3]C[0]*(Terms!R5C2+Terms!R15C2)/1000000000"><strong>₩23,039.3B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":28019.36699}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-3]C[0]*(Terms!R5C2+Terms!R15C2)/1000000000"><strong>₩28,019.4B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Discount"}'><strong>- Discount</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3240237431653699}' data-sheets-formula="=(R23C2-R[-4]C[0])/R23C2"><strong>32.40%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.17790660467928177}' data-sheets-formula="=(R23C2-R[-4]C[0])/R23C2"><strong>17.79%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Offering sizeKrafton, one of the hottest IPOs of the year, has released its IPO book. Krafton is a Korean game developer established in March 2007. It offers 10.06M shares, representing 23.25% of the total shares, of which 55~75% will be institutional allocation.





Offering size

Ticker
TBA


Bourse
KOSPI


Pre-IPO SO
43,274,070


Offering
10,060,230


- % of SO
23.25%


- Institutional allotment
55.00~75.00%

Source: DART

SplitThis is a split offering at a ratio of 69.88% (primary) and 30.12% (secondary). As a result, this offering will see a capital increase rate of 16.25%. This IPO is free of any additional option: cornerstone, clawback, or greenshoe.





Split

Primary %
69.88%


Secondary %
30.12%


Post-IPO shares outstanding
50,304,070


Capital increase rate
16.25%


Dilution
13.98%

Source: DART

ScheduleThe book opens on June 28 for both local and overseas and runs until July 9. The allotment will be on July 12 with a final offering price. The subscription follows on June July 14.





Schedule

Book open
2021. 6. 28


Book close
2021. 7. 9


Allotment
2021. 7. 12


Subscription
2021. 7. 14


Payment
2021. 7. 19


Listing
TBA

Source: DART

PricingThe IPO book features 7 valuation peers: Walt Disney, NetEase, Activision Blizzard, Take-Two, INC Common Stock, Warner Music, NCSoft, and Netmarble. The earnings used in this valuation are the 1Q21 based annualized earnings. The average P/E multiple came at 45.20x.












PER valuation
Walt Disney
NetEase
Activision Blizzard
Take-Two Interactive Software
Warner Music Group
NCSoft
Netmarble


Ticker
DIS
9999
ATVI
TTWO
WMG
036570
251270


Market cap
₩357,657.2B
₩84,181.2B
₩82,893.2B
₩23,133.7B
₩19,927.3B
₩18,507.2B
₩11,627.2B


Earnings
₩4,028.3B
₩3,100.7B
₩2,767.5B
₩978.3B
₩523.1B
₩323.5B
₩225.7B


P/E
88.79x
27.15x
29.95x
23.65x
38.10x
57.21x
51.52x


Average
45.20x

Source: DART

A 45.20x multiple to a 1Q21-based annualized earnings of ₩776.1B implies a market cap of ₩35.07T for Krafton. 






PER valuation
Krafton


1Q21 earnings
₩194.0B


Annualized earnings
₩776.1B


P/E
45.20x


Market cap
₩35,073.6B


Post-IPO SO, incl. stock options
51,766,185


Price per share
₩677,539

Source: DART

A 17.79~32.40% discount sets up an indicative price band of ₩458,000~557,000, implying a market cap of ₩23.04~28.02T.







Pricing
Low
High


Price
₩458,000
₩557,000


Base deal size
₩4,607.6B
₩5,603.5B


- Institutional allotment
₩2,534.2B
₩3,082.0B


Implied market cap
₩23,039.3B
₩28,019.4B


- Discount
32.40%
17.79%

Source: DART



Krafton IPO: Offering Detail, Valuation Issue, & Index Fast Entry

<p>Krafton announced its IPO price range of 458,000 won to 557,000 won. There will be 10 million shares offered in this IPO including 7 million new shares and 3 million old shares. At the high end of the IPO price range, the company would be raising 5.6 trillion won ($5 billion). This would be the biggest ever amount of money raised in Korea for an IPO since Samsung Life Insurance when it raised 4.8 trillion won in 2010. </p><p>According to the bankers' valuation, the expected market cap of the company is expected to be from 23.7 trillion won to 28.8 trillion won. The book building for the institutional investors starts on 28 June 2021.  </p><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 208pt;">Deal Specifics of the Krafton IPO:</td>
<td style="width: 278pt;"> </td>
</tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 278pt;">Mirae Asset Daewoo Securities, Credit Suisse, NH Investment Securities, Citi Global Markets Securities, JP Morgan </td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 278pt;">458,000 won (low)/557,000 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 278pt;">10m shares (7m new shares; 3m old shares)</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 278pt;">US$4.1 bn (low);  US$5.0 bn (high)</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 278pt;">51.766 m shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 278pt;">23.7 trillion won (low)/28.8 trillion won (high)</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 278pt;">28-Jun-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 278pt;">9-Jul-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 278pt;">22-Jul-21</td>
</tr>
<tr>
<td>Source: Company data</td>
<td> </td>
</tr>
</tbody>
</table>

Krafton announced its IPO price range of 458,000 won to 557,000 won. There will be 10 million shares offered in this IPO including 7 million new shares and 3 million old shares. At the high end of the IPO price range, the company would be raising 5.6 trillion won ($5 billion). This would be the biggest ever amount of money raised in Korea for an IPO since Samsung Life Insurance when it raised 4.8 trillion won in 2010. According to the bankers' valuation, the expected market cap of the company is expected to be from 23.7 trillion won to 28.8 trillion won. The book building for the institutional investors starts on 28 June 2021.  






Deal Specifics of the Krafton IPO:
 


Lead underwriters of the IPO: 
Mirae Asset Daewoo Securities, Credit Suisse, NH Investment Securities, Citi Global Markets Securities, JP Morgan 


Expected IPO price per share: 
458,000 won (low)/557,000 won (high)


Number of Shares for IPO:
10m shares (7m new shares; 3m old shares)


IPO base deal size: 
US$4.1 bn (low);  US$5.0 bn (high)


Expected common shares outstanding, fully diluted (post-IPO):  
51.766 m shares


Expected market cap after IPO:
23.7 trillion won (low)/28.8 trillion won (high)


Book open: 
28-Jun-21


Book closed:
9-Jul-21


Listing date: 
22-Jul-21


Source: Company data
 




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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Krafton (259960 KS)

Krafton IPO - 9 Major Risks

We discuss the 9 major risks (excluding valuation issues) for Krafton. Overall, we believe these significant risk factors could result in much...

Douglas Kim

Several Controversial Issues About Krafton IPO Valuation

This post details several talking points causing the ongoing valuation controversy in the local market concerning the Krafton IPO.

Sanghyun Park

Weekly Innovation Review (WIRE) #36

Headline Developments: SpaceX (private) is set to launch The Pentagon’s next-generation national security satellite to orbit.

Granite Bay Capital

Krafton IPO: Offering Detail, Valuation Issue, & Index Fast Entry

This post contains the offering details, valuation issue, and index fast entry possibilities for Krafton, whose IPO book got released this morning.

Sanghyun Park

Krafton IPO Preview

According to the bankers' valuation, the expected market cap of Krafton is expected to be from 23.7 trillion won to 28.8 trillion won.

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)