Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

It was announced after the market close that <a href="https://www.smartkarma.com/entities/big-hit-entertainment-co-ltd" target="_blank" data-smartkarma-citation="entities:28959:1" rel="noopener">HYBE (352820 KS)</a> will conduct a block deal worth 850 billion won. STIC Investment will sell its 2.867 million shares of HYBE at 283,000 won to 296,400 won per share, which would be 5% and 9.3% discount to the closing price on 28 June, respectively. All in all, we believe that STIC Investment selling nearly all of its remaining shares in HYBE is not a good sign for the company. We are especially wary of HYBE's burdensome valuations and as such we would avoid this block deal.

It was announced after the market close that HYBE (352820 KS) will conduct a block deal worth 850 billion won. STIC Investment will sell its 2.867 million shares of HYBE at 283,000 won to 296,400 won per share, which would be 5% and 9.3% discount to the closing price on 28 June, respectively. All in all, we believe that STIC Investment selling nearly all of its remaining shares in HYBE is not a good sign for the company. We are especially wary of HYBE's burdensome valuations and as such we would avoid this block deal. 

A Block Deal Sale of HYBE by STIC Investment

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/coway-co-ltd" target="_blank" data-smartkarma-citation="entities:3022:1" rel="noopener">Coway Co Ltd (021240 KS)</a>, the leading water- and air purifier rental company in South Korea was traditionally an attractive dividend yield play until early 2020 when ownership, and strategy, changed from upstreaming cash to private equity towards investing for longer-term sustainable growth. Since mid-2020 its share price has been under pressure given doubts on management’s ability to execute on reigniting growth, as well as perceptions around domestic market share losses. Even after its recent positive share price move, post 1Q21 results, Coway is still trading on just 12.3x NTM PE which is more than one standard deviation below its 5-year historical average trading range. This implies a PEG ratio of just over 1.5x, which is certainly not demanding for a company that delivers ROEs of well above 20%, is highly cash generative, and commands leading market share in its domestic and key overseas markets. In this insight I look at recent results, and catch up with management, to look for evidence that the strategy could be working and assess whether the potential for longer-term value unlock exists.

Coway Co Ltd (021240 KS), the leading water- and air purifier rental company in South Korea was traditionally an attractive dividend yield play until early 2020 when ownership, and strategy, changed from upstreaming cash to private equity towards investing for longer-term sustainable growth. Since mid-2020 its share price has been under pressure given doubts on management’s ability to execute on reigniting growth, as well as perceptions around domestic market share losses. Even after its recent positive share price move, post 1Q21 results, Coway is still trading on just 12.3x NTM PE which is more than one standard deviation below its 5-year historical average trading range. This implies a PEG ratio of just over 1.5x, which is certainly not demanding for a company that delivers ROEs of well above 20%, is highly cash generative, and commands leading market share in its domestic and key overseas markets. In this insight I look at recent results, and catch up with management, to look for evidence that the strategy could be working and assess whether the potential for longer-term value unlock exists.

Coway: Transitioning from Dividend Play to Growth Stock

<div class="content-highlight">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.</div>In this insight, we also discuss some of the major new game launches by Krafton and its major competitors in the rest of 2021. <ul>
<li>
Krafton - <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>
Netmarble - Second Country</li>
<li>
Kakao Games - ODIN: Valhalla Rising</li>
<li>
NCsoft - Blade &amp; Soul 2, Project TL (The Lineage), Aion 2</li>
</ul>

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

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).<div class="content-highlight">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. </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.

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.

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

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)

A Block Deal Sale of HYBE by STIC Investment

It was announced after the market close that HYBE will conduct a block deal worth 850 billion won. We are especially wary of HYBE's burdensome...

Douglas Kim

Coway: Transitioning from Dividend Play to Growth Stock

In this insight I look at Coway’s recent results, and catch up with management, to look for evidence that the new strategy is working and whether...

Wium Malan, CFA

New Games Launches by Krafton & Its Major Competitors in 2021

We discuss the major new game launches by Krafton and its major competitors in the rest of 2021. We also discuss how poor IPOs of Krafton and SD...

Douglas Kim

Initial Thoughts on the Krafton IPO Valuation

Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Given the lack of upside relative to the...

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

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