Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

One of the most important developments arising in Korea is the potential amendment of the<a href="https://n.news.naver.com/article/009/0004680246?cds=news_edit" target="_blank" rel="noopener">Fair Trade Act</a>, especially on the clause involving (일감몰아주기), which includes taking strict actions against excessive intra-affiliate transactions among large business groups. 
<div class="content-highlight">
Overall, it appears that the potential changes to the Fair Trade Act could be very disruptive for so many top Korean companies. Plus, although the incumbent party (Democratic Party of Korea) has a lot of power in the National Assembly, it remains uncertain whether the government will actually be able to make the amendments since the changes in regulations could be so burdensome on so many top business groups in Korea. In addition, even if they pass the amendments, it is not all sure if the controlling shareholders will reduce their ownership in their companies. 
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One of the most important developments arising in Korea is the potential amendment of theFair Trade Act, especially on the clause involving (일감몰아주기), which includes taking strict actions against excessive intra-affiliate transactions among large business groups. 

Overall, it appears that the potential changes to the Fair Trade Act could be very disruptive for so many top Korean companies. Plus, although the incumbent party (Democratic Party of Korea) has a lot of power in the National Assembly, it remains uncertain whether the government will actually be able to make the amendments since the changes in regulations could be so burdensome on so many top business groups in Korea. In addition, even if they pass the amendments, it is not all sure if the controlling shareholders will reduce their ownership in their companies. 


Will SK Holdings Required to Sell a 25% Stake in SK Biopharm Due to Changes in the Fair Trade Act?

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Equity Capital Markets

We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.So, let's make a more reasonable approach with PER.Korea has three major entertainment talent agencies. They are often called Big Three.<ul>
<li>
<a href="https://www.smartkarma.com/entities/s-m-entertainment-co" target="_blank" data-smartkarma-citation="entities:3500:1" rel="noopener">S.M.Entertainment Co (041510 KS)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/yg-entertainment-inc" target="_blank" data-smartkarma-citation="entities:16138:1" rel="noopener">YG Entertainment (122870 KS)</a> </li>
<li><a href="https://www.smartkarma.com/entities/jyp-entertainment-corp" target="_blank" data-smartkarma-citation="entities:17598:1" rel="noopener">JYP Entertainment (035900 KS)</a></li>
</ul>Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. <table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY20E earnings (₩B)"}'>PERs/FY20E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OP"}'>OP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER"}'>PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OPM"}'>OPM</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NPM"}'>NPM</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":569}'>569.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":37.3}'>37.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.2}'>10.2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":87.47769980882353}'>87.48</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.06555360281195079}'>6.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.017926186291739893}'>1.79%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":237}'>237.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":8.3}'>8.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.3}'>10.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":103.03534913592232}'>103.04</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.035021097046413506}'>3.50%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.04345991561181435}'>4.35%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":137.4}'>137.4</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":41}'>41.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":30.7}'>30.7</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":46.94456596742671}'>46.94</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.29839883551673946}'>29.84%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.22343522561863172}'>22.34%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (1H×2/upper)"}'>Big Hit (1H×2/upper)</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[54]C[0]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":587.991592}'>588.0</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[55]C[-1]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":99.50966}'>99.5</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[56]C[-2]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":66.339512}'>66.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":68.87653801251959}'>68.88</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.1692365356135909}'>16.92%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.11282391262492747}'>11.28%</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.Below is the 12M forward PER comparison, which should be a more normalized picture.Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.<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":"PERs/FY21E earnings (₩B)"}'>PERs/FY21E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER (x)"}'>PER (x)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M lower)"}'>Big Hit (12M lower)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":75}'>75.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60.92}'>60.92</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'>Big Hit (12M mid)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":82.5}'>82.5</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":55.38}'>55.38</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M upper)"}'>Big Hit (12M upper)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90}'>90.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":50.77}'>50.77</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"12M PER (₩B)"}'>12M PER (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"12M PER (x)"}'>12M PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MC"}'>MC</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TP"}'>TP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Δ"}'>Δ</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Coverage"}'>Coverage</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":28.78}'>28.78</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":37950}'>₩37,950</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":891.100038}'>891.1</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":46800}'>₩46,800</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.233201581027668}'>23.32%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":10}'>10</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":45.4}'>45.40</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":58500}'>₩58,500</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1068.595275}'>1,068.6</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":55250}'>₩55,250</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":-0.05555555555555555}'>-5.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":8}'>8</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":35.99}'>35.99</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":40750}'>₩40,750</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1446.522799}'>1,446.5</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":43722}'>₩43,722</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.07293251533742331}'>7.29%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":9}'>9</td>
</tr>
<tr><td colspan="7" rowspan="1" style="text-align: left;" data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'>Big Hit (12M mid)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Lower"}'>- Lower</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":43.076971636363645}'>43.08</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-20]C[-1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":105000}'>₩105,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":3553.85016}'>3,553.9</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper"}'>- Upper</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":55.38467781818183}'>55.38</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-21]C[1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":135000}'>₩135,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":4569.23592}'>4,569.2</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2"}'>- Upper×2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":110.76935563636366}'>110.77</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*2" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":270000}'>₩270,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":9138.47184}'>9,138.5</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3"}'>- Upper×2×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":144.00016232727273}'>144.00</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":351000}'>₩351,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":11880.013392}'>11,880.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3×1.3"}'>- Upper×2×1.3×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":187.20021102545456}'>187.20</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":456300}'>₩456,300</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":15444.0174096}'>15,444.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>

We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.So, let's make a more reasonable approach with PER.Korea has three major entertainment talent agencies. They are often called Big Three.

S.M.Entertainment Co (041510 KS) 

YG Entertainment (122870 KS) 
JYP Entertainment (035900 KS)
Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. 











PERs/FY20E earnings (₩B)
Sales
OP
Earnings
PER (x)
OPM
NPM


SM Entertainment Co Ltd
569.0
37.3
10.2
87.48
6.56%
1.79%


YG Entertainment Inc
237.0
8.3
10.3
103.04
3.50%
4.35%


JYP Entertainment Corp
137.4
41.0
30.7
46.94
29.84%
22.34%


Big Hit (1H×2/upper)
588.0
99.5
66.3
68.88
16.92%
11.28%

Source: KRX &amp; FnGuide

But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.Below is the 12M forward PER comparison, which should be a more normalized picture.Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.







PERs/FY21E earnings (₩B)
Earnings
PER (x)


Big Hit (12M lower)
75.0
60.92


Big Hit (12M mid)
82.5
55.38


Big Hit (12M upper)
90.0
50.77

Source: KRX &amp; FnGuide

At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.











12M PER (₩B)
12M PER (x)
Price
MC
TP
Δ
Coverage


SM Entertainment Co Ltd
28.78
₩37,950
891.1
₩46,800
23.32%
10


YG Entertainment Inc
45.40
₩58,500
1,068.6
₩55,250
-5.56%
8


JYP Entertainment Corp
35.99
₩40,750
1,446.5
₩43,722
7.29%
9

Big Hit (12M mid)

- Lower
43.08
₩105,000
3,553.9
-
-
-


- Upper
55.38
₩135,000
4,569.2
-
-
-


- Upper×2
110.77
₩270,000
9,138.5
-
-
-


- Upper×2×1.3
144.00
₩351,000
11,880.0
-
-
-


- Upper×2×1.3×1.3
187.20
₩456,300
15,444.0
-
-
-

Source: KRX &amp; FnGuide



Big Hit Ent. IPO: Valuations & Exit Price Level

Today is the first trading day of Kakao Games.The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.More importantly, Kakao Games' trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/093/original/1.png?1599685671" class="editor-image img-responsive" data-smartkarma-image-id="158093"></figure>But the street consensus is substantially lower.Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/097/original/11.png?1599686118" class="editor-image img-responsive" data-smartkarma-image-id="158097"></figure>It is pretty much in line with my projected range (₩60.6~73.2bil).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/098/original/13.png?1599686149" class="editor-image img-responsive" data-smartkarma-image-id="158098"></figure>The PER range is 22.34~26.47x at the offering price of ₩24,000.If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/099/original/12.png?1599686265" class="editor-image img-responsive" data-smartkarma-image-id="158099"></figure>

Today is the first trading day of Kakao Games.The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.More importantly, Kakao Games' trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.But the street consensus is substantially lower.Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).It is pretty much in line with my projected range (₩60.6~73.2bil).The PER range is 22.34~26.47x at the offering price of ₩24,000.If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. 

Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

"A huge leap forward for South Korea" is how President Moon described the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.
The expected spend of KRW 160 trillion (US$134.45bn) over 5 years will be financed by the Government (KRW 114.1 trillion) and from local Governments and the private sector (KRW 46 trillion) and is expected to create 1.9m jobs over the period based on the Digital New Deal and the Green New Deal that look to strengthen employment and the social safety net.
The KRX has created 4 new indices tracking the secondary Battery, Bio, Internet and Gaming sectors that are expected to benefit from the New Deal initiative plus an additional index (BBIG) that includes the top 3 stocks from each sector. While the BBIG is an equal weighted index, the sector indices allocate 75% of the index weight equally among the top 3 stocks while the remaining 25% weight is allocated to the rest of the stocks based on free float market cap. This will create some very interesting trades if ETFs that are launched on these indices gather a lot of assets.
Some stocks that have been included in these indices have already started to run up in anticipation of index flows and investors will need to monitor ETF asset gathering in determining entry/exit trades on these stocks. There are existing ETFs that track these sectors so it is hard to fathom why ETFs on the new indices would gather a lot of assets especially with a skewed weighting scheme.

"A huge leap forward for South Korea" is how President Moon described the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.
The expected spend of KRW 160 trillion (US$134.45bn) over 5 years will be financed by the Government (KRW 114.1 trillion) and from local Governments and the private sector (KRW 46 trillion) and is expected to create 1.9m jobs over the period based on the Digital New Deal and the Green New Deal that look to strengthen employment and the social safety net.
The KRX has created 4 new indices tracking the secondary Battery, Bio, Internet and Gaming sectors that are expected to benefit from the New Deal initiative plus an additional index (BBIG) that includes the top 3 stocks from each sector. While the BBIG is an equal weighted index, the sector indices allocate 75% of the index weight equally among the top 3 stocks while the remaining 25% weight is allocated to the rest of the stocks based on free float market cap. This will create some very interesting trades if ETFs that are launched on these indices gather a lot of assets.
Some stocks that have been included in these indices have already started to run up in anticipation of index flows and investors will need to monitor ETF asset gathering in determining entry/exit trades on these stocks. There are existing ETFs that track these sectors so it is hard to fathom why ETFs on the new indices would gather a lot of assets especially with a skewed weighting scheme.

Korean New Deal Fund - Could This Be a BBIG Deal?

<div class="content-highlight">
Based on the Smartkarma's platform interest rates comparison, there is overwhelming evidence that suggests the LACK of interest in the Big Hit Entertainment IPO as compared to the Kakao Games and SK Biopharm IPOs. In fact, the IPO interest levels of Kakao Games and SK Biopharm are similar (100 for Kakao Games and 97 for SK Biopharm). However, the interest levels for the Big Hit Entertainment is much lower (36) than those for Kakao Games and SK Biopharm.
In other words, the viewers of our insights already have figured out that the IPO price range of Big Hit Entertainment is TOO HIGH and as a result, there is not much to gain from this IPO. The bookbuilding for the Big Hit Entertainment IPO starts on September 24th and based on the Smartkarma interest level comparisons combined with our own valuation assessment, the institutional investors' interest in the Big Hit's IPO will be much lower than those for Kakao Games and SK Biopharm. 
</div>


Based on the Smartkarma's platform interest rates comparison, there is overwhelming evidence that suggests the LACK of interest in the Big Hit Entertainment IPO as compared to the Kakao Games and SK Biopharm IPOs. In fact, the IPO interest levels of Kakao Games and SK Biopharm are similar (100 for Kakao Games and 97 for SK Biopharm). However, the interest levels for the Big Hit Entertainment is much lower (36) than those for Kakao Games and SK Biopharm.
In other words, the viewers of our insights already have figured out that the IPO price range of Big Hit Entertainment is TOO HIGH and as a result, there is not much to gain from this IPO. The bookbuilding for the Big Hit Entertainment IPO starts on September 24th and based on the Smartkarma interest level comparisons combined with our own valuation assessment, the institutional investors' interest in the Big Hit's IPO will be much lower than those for Kakao Games and SK Biopharm. 


Interest Comparisons of Upcoming Korean Large-Cap IPOs: Kakao Games & Big Hit Entertainment

South Korea

SK Biopharmaceuticals Co., Ltd. researches and develops new drugs. The Company develops and markets brain disorders treatment drugs, central nervous system disorders treatment drugs, and other products. SK Biopharmaceuticals markets its products worldwide.

Price Gauge
52-week Range	0.00 - 0.00
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SK Biopharmaceuticals (326030 KS)

Will SK Holdings Required to Sell a 25% Stake in SK Biopharm Due to Changes in the Fair Trade Act?

One of the most important developments arising in Korea is the potential amendment of the Fair Trade Act, which includes taking strict actions...

Douglas Kim

Big Hit Ent. IPO: Valuations & Exit Price Level

Big Hit IPO book opened ???

Sanghyun Park

Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

Today is the first trading day of Kakao Gam???

Sanghyun Park

Korean New Deal Fund - Could This Be a BBIG Deal?

f

Brian Freitas

Interest Comparisons of Upcoming Korean Large-Cap IPOs: Kakao Games & Big Hit Entertainment

Based on the Smartkarma's platform interest rates comparison, there is overwhelming evidence that suggests the LACK of interest in the Big Hit...

Douglas Kim

Price Gauge

52-week Range

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