Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight"><p><em>In July 2021, the Krafton and SD Biosensor are expected to complete their IPOs. We expect both of these two IPOs to be duds. The more we think about this, it appears that if indeed Krafton and SD Biosensor IPOs end up doing really poorly, this could upset the entire IPO market and change the investment sentiment for Korean IPOs which has been sizzling hot in the past 15 months.</em></p></div><p><em>In this insight, we also discuss some of the major new game launches by Krafton and its major competitors in the rest of 2021. </em></p><ul>
<li>
<strong>Krafton - </strong><a href="https://www.livemint.com/companies/news/kraftons-battlegrounds-mobile-india-receives-over-5-mn-downloads-in-two-days-11624182233199.html" target="_blank" rel="noopener">Battlegrounds Mobile India</a> (BGMI), Battleground: New State, The Callisto Protocol</li>
<li>
<strong>Netmarble - </strong>Second Country</li>
<li>
<strong>Kakao Games</strong> - ODIN: Valhalla Rising</li>
<li>
<strong>NCsoft</strong> - Blade &amp; Soul 2, Project TL (The Lineage), Aion 2</li>
</ul><p></p><p></p><p><em> </em></p>

In July 2021, the Krafton and SD Biosensor are expected to complete their IPOs. We expect both of these two IPOs to be duds. The more we think about this, it appears that if indeed Krafton and SD Biosensor IPOs end up doing really poorly, this could upset the entire IPO market and change the investment sentiment for Korean IPOs which has been sizzling hot in the past 15 months.In this insight, we also discuss some of the major new game launches by Krafton and its major competitors in the rest of 2021. 

Krafton - Battlegrounds Mobile India (BGMI), Battleground: New State, The Callisto Protocol

Netmarble - Second Country

Kakao Games - ODIN: Valhalla Rising

NCsoft - Blade &amp; Soul 2, Project TL (The Lineage), Aion 2
 

New Games Launches by Krafton & Its Major Competitors in 2021

<p>In this insight, we discuss our initial thoughts on the Krafton IPO. 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 (IPO price range of 458,000 won to 557,000 won).</p><div class="content-highlight"><p>Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Our valuation sensitivity suggests a valuation range from 18.3 trillion won to 30.6 trillion won. Our base case valuation of 465,055 won is close to the low end of the IPO price range of 458,000 won to 557,000 won. <strong>Given the lack of upside, we would PASS on this IPO deal. </strong></p></div>

In this insight, we discuss our initial thoughts on the Krafton IPO. 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 (IPO price range of 458,000 won to 557,000 won).Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Our valuation sensitivity suggests a valuation range from 18.3 trillion won to 30.6 trillion won. Our base case valuation of 465,055 won is close to the low end of the IPO price range of 458,000 won to 557,000 won. Given the lack of upside, we would PASS on this IPO deal. 

Initial Thoughts on the Krafton IPO Valuation

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

<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

Event-Driven

<p>On 21 May, <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a> announced that <a href="http://www.koreaherald.com/view.php?ud=20210521000303" target="_blank" rel="noopener">Jam City,</a> its mobile game subsidiary in the U.S. will merge with a SPAC (Special Purpose Acquisition Company) called DPCM Capital which is publicly trading on the NYSE. DPCM has a $300 million cash held in trust. Jam City will become a public company in the U.S. in 2H 2021 (likely to be sometime in October). The filing of this merger is <a href="https://sec.report/Document/0001213900-21-028052/" target="_blank" rel="noopener">here. </a></p><p>Jam City, which is based in Los Angeles, develops popular mobile games including Cookie Jam and Panda Pop. Jam City is one of the top 10 game publishers in the U.S. According to Jam City, the combined company will have a valuation of $1.2 billion. The newly combined company will be called Jam City Holdings and its stock will be relisted on the NYSE. </p><div class="content-highlight">
<p>As of end of 1Q 2021, Netmarble had a 58.69% stake in Jam City Inc.  Netmarble included a book value of 149.7 billion for its stake in Jam City. Netmarble purchased Jam City in 2015. Netmarble paid 149.7 billion won for its stake in Jam City in 2015 and the purchase value and book value (as of end of 1Q 2021) has remained the same. Adjusted EBITDA of the combined Jam City and Ludia is expected to increase from $33 million in 2020 to $54 million in 2021 and $112 million in 2022.</p>
<p>Since then, Jam City has made numerous acquisitions including buying rights to Disney’s popular game Emoji Blitz in 2018 and rights to Frozen intellectual properties in 2019. Jam City plans to use the cash proceeds from the public offering estimated to be about $400 million to buy a Canada based mobile game publisher called Ludia, which makes games based on the Jurassic World movies.</p>
<p>Overall, we believe this merger will have a positive impact on Netmarble Corp as it its controlling stake in Jam City will be valued at publicly listed market value, which is expected to be much larger than the book value of 149.7 billion won. In other words, Netmarble's stake in Jam City will be more clear and investors will be better able to put a firm value on this stake. Plus, the combined Jam City and Ludia entity has the potential to further capture higher market share in the North American game industry, in terms of both organic growth and strategic acquisitions. </p>
</div>

On 21 May, Netmarble Corporation (251270 KS) announced that Jam City, its mobile game subsidiary in the U.S. will merge with a SPAC (Special Purpose Acquisition Company) called DPCM Capital which is publicly trading on the NYSE. DPCM has a $300 million cash held in trust. Jam City will become a public company in the U.S. in 2H 2021 (likely to be sometime in October). The filing of this merger is here. Jam City, which is based in Los Angeles, develops popular mobile games including Cookie Jam and Panda Pop. Jam City is one of the top 10 game publishers in the U.S. According to Jam City, the combined company will have a valuation of $1.2 billion. The newly combined company will be called Jam City Holdings and its stock will be relisted on the NYSE. 
As of end of 1Q 2021, Netmarble had a 58.69% stake in Jam City Inc.  Netmarble included a book value of 149.7 billion for its stake in Jam City. Netmarble purchased Jam City in 2015. Netmarble paid 149.7 billion won for its stake in Jam City in 2015 and the purchase value and book value (as of end of 1Q 2021) has remained the same. Adjusted EBITDA of the combined Jam City and Ludia is expected to increase from $33 million in 2020 to $54 million in 2021 and $112 million in 2022.
Since then, Jam City has made numerous acquisitions including buying rights to Disney’s popular game Emoji Blitz in 2018 and rights to Frozen intellectual properties in 2019. Jam City plans to use the cash proceeds from the public offering estimated to be about $400 million to buy a Canada based mobile game publisher called Ludia, which makes games based on the Jurassic World movies.
Overall, we believe this merger will have a positive impact on Netmarble Corp as it its controlling stake in Jam City will be valued at publicly listed market value, which is expected to be much larger than the book value of 149.7 billion won. In other words, Netmarble's stake in Jam City will be more clear and investors will be better able to put a firm value on this stake. Plus, the combined Jam City and Ludia entity has the potential to further capture higher market share in the North American game industry, in terms of both organic growth and strategic acquisitions. 


Netmarble's U.S. Subsidiary Jam City to Merge with a SPAC & List on NYSE

South Korea

Netmarble Corporation develops and publishes mobile games. The Company develops and publishes casual games, action, sports games, strategy, simulation games, and social casino games. Netmarble offers services worldwide.

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Netmarble (251270 KS)

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