Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<h2>Bookbuilding Results of K Car IPO</h2><a href="https://www.smartkarma.com/entities/k-car" target="_blank" data-smartkarma-citation="entities:34118:1" rel="noopener">K Car (381970 KS)</a> announced today that the <a href="https://www.newsis.com/view/?id=NISX20210929_0001597864&amp;cID=15001&amp;pID=15000" target="_blank" rel="noopener">IPO price</a> has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> and <a href="https://www.smartkarma.com/entities/lotte-rental-co-ltd" target="_blank" data-smartkarma-citation="entities:33445:1" rel="noopener">Lotte Rental (089860 KS)</a>. Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  <div class="content-highlight">
We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.
We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). 
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Bookbuilding Results of K Car IPOK Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including  Krafton Inc (259960 KS) and Lotte Rental (089860 KS). Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  
We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.
We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). 


IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/cartrade-tech-ltd" target="_blank" data-smartkarma-citation="entities:33474:1" rel="noopener">Cartrade (0056989Z IN)</a> is a leading online destination for auto consumers in India. CarWale and BikeWale, key brands owned by CarTrade, ranked number one on relative online search popularity when compared to their key competitors over the last three years, according to Google Trends data. CarTrade’s shareholders include Warburg Pincus (34.44% of fully diluted shares), Temasek (26.48%), JP Morgan (11.93%) and March Capital (7.09%). CarTrade is looking to raise Rs28 billion ($375 million) through an IPO in India, according to press reports. The IPO comprises a pure offer for sale of 18.53 million shares by its existing shareholders and promoters. The IPO is set to launch on 9 August.  India was the fifth largest car market in the world in 2019 and is forecasted to become the third-largest auto market in the world as measured by volume in 2025, according to RedSeer. The COVID-19 pandemic has also resulted in a shift in preference towards used cars as people limit their use of public transportation. Indian auto OEMs spent only 14% of their total ad budgets on digital advertising, which is significantly lower than the global average of 42% in 2020, according to RedSeer. <div class="content-highlight">The growing auto market combined with the rising penetration of digital ad spend presents an attractive opportunity for auto transaction platforms such as CarTrade. CarTrade is capitalising on this market opportunity as evidenced by its highly popular platforms, solid organic growth, strong margins and healthy cash generation. Overall, we think that CarTrade is an attractive play on India’s new economy sector.</div>

Cartrade (0056989Z IN) is a leading online destination for auto consumers in India. CarWale and BikeWale, key brands owned by CarTrade, ranked number one on relative online search popularity when compared to their key competitors over the last three years, according to Google Trends data. CarTrade’s shareholders include Warburg Pincus (34.44% of fully diluted shares), Temasek (26.48%), JP Morgan (11.93%) and March Capital (7.09%). CarTrade is looking to raise Rs28 billion ($375 million) through an IPO in India, according to press reports. The IPO comprises a pure offer for sale of 18.53 million shares by its existing shareholders and promoters. The IPO is set to launch on 9 August.  India was the fifth largest car market in the world in 2019 and is forecasted to become the third-largest auto market in the world as measured by volume in 2025, according to RedSeer. The COVID-19 pandemic has also resulted in a shift in preference towards used cars as people limit their use of public transportation. Indian auto OEMs spent only 14% of their total ad budgets on digital advertising, which is significantly lower than the global average of 42% in 2020, according to RedSeer. The growing auto market combined with the rising penetration of digital ad spend presents an attractive opportunity for auto transaction platforms such as CarTrade. CarTrade is capitalising on this market opportunity as evidenced by its highly popular platforms, solid organic growth, strong margins and healthy cash generation. Overall, we think that CarTrade is an attractive play on India’s new economy sector.

CarTrade Tech IPO Initiation: Shifting Gears

BigCommerce Holdings / Equity Capital Markets

<a href="https://www.nasdaq.com/articles/e-commerce-platform-bigcommerce-sets-terms-for-%24130-million-ipo-2020-07-28" target="_blank" data-smartkarma-citation="entities:29196:1" rel="noopener">BigCommerce Holdings Inc (BIGC US)</a> plans to complete its IPO next week. The IPO price range has been determined at $18 to $20. The company plans to offer 6.9 million shares. At the high end of the IPO price (excluding greenshoe option), the company would raise nearly $138 million.Our valuation analysis of BigCommerce suggests an implied market cap of $2.3 billion and a target price per share of $30.9, which suggests a 62% upside to the mid-point of the IPO price range of $19. We are also including BigCommerce in our model stock portfolio. Our valuation is based on P/S, using our estimated sales of $189.4 million in 2021 and P/S multiple of 12x. We used fully diluted shares of 74 million shares to derive our target price valuation. Our P/S valuation multiple of 12x represents a 20% discount to the average P/S valuation of the comps in 2021. It also represents a 67% discount to the P/S multiple of 36.7x for Shopify.

BigCommerce Holdings Inc (BIGC US) plans to complete its IPO next week. The IPO price range has been determined at $18 to $20. The company plans to offer 6.9 million shares. At the high end of the IPO price (excluding greenshoe option), the company would raise nearly $138 million.Our valuation analysis of BigCommerce suggests an implied market cap of $2.3 billion and a target price per share of $30.9, which suggests a 62% upside to the mid-point of the IPO price range of $19. We are also including BigCommerce in our model stock portfolio. Our valuation is based on P/S, using our estimated sales of $189.4 million in 2021 and P/S multiple of 12x. We used fully diluted shares of 74 million shares to derive our target price valuation. Our P/S valuation multiple of 12x represents a 20% discount to the average P/S valuation of the comps in 2021. It also represents a 67% discount to the P/S multiple of 36.7x for Shopify.

DoubleDown Interactive / Equity Capital Markets

<div class="content-highlight">
Valuation multiple DoubleU Games paid for Double Down Interactive - In June 2017, DoubleU Games acquired Double Down Interactive for $825.6 million from International Game Technology, based on a 10.5x Double Down's 2016 adjusted EBITDA valuation multiple. So this would be a key valuation multiple to consider when valuing this company. 
We have assumed EBITDA of $117.3 million in 2021 so using EV/EBITDA multiple of 10.5x, this would suggest a forward EV of $1.2 billion or an implied market cap of $1.0 billion or $20.50 per share. We have assumed the company's IPO price at $18 per share (mid-point of IPO range of $17 to $19 per share).
Based on the 10.5x EBITDA, the implied price of $20.50 would be 14% higher than the IPO price of $18 per share. Thus, the IPO is acceptable at the low to mid-end of the IPO price range but becomes less attractive at the high end of the IPO price range. 
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Valuation multiple DoubleU Games paid for Double Down Interactive - In June 2017, DoubleU Games acquired Double Down Interactive for $825.6 million from International Game Technology, based on a 10.5x Double Down's 2016 adjusted EBITDA valuation multiple. So this would be a key valuation multiple to consider when valuing this company. 
We have assumed EBITDA of $117.3 million in 2021 so using EV/EBITDA multiple of 10.5x, this would suggest a forward EV of $1.2 billion or an implied market cap of $1.0 billion or $20.50 per share. We have assumed the company's IPO price at $18 per share (mid-point of IPO range of $17 to $19 per share).
Based on the 10.5x EBITDA, the implied price of $20.50 would be 14% higher than the IPO price of $18 per share. Thus, the IPO is acceptable at the low to mid-end of the IPO price range but becomes less attractive at the high end of the IPO price range. 


Double Down Interactive IPO Valuation Analysis

<ul>
<li>The bankers announced the IPO price range of $15 to $17 per share for <a href="https://www.smartkarma.com/entities/vroom" target="_blank" data-smartkarma-citation="entities:28967:1" rel="noopener">Vroom (VRM US)</a>, a leading e-commerce company in the U.S. that provides a platform for buying and selling used vehicles.</li>
<li>
Our base case valuation of Vroom is a market cap of $3.2 billion or $27.30 per share, which would represent a 60% upside from the high end of the IPO price range of $17 per share. Given the high upside, we have a positive view of this IPO. 
</li>
<li>In the midst of the COVID-19 pandemic, Carvana and Vroom's core business model of "non-contact" sales of used vehicles is definitely an advantage as millions of customers shy away from physically going to the auto dealers to buy their cars. In addition, millions of U.S. consumers need to become more frugal and buying used goods (such as cars) will be in higher demand, especially from the consumers that want to buy quality vehicles but willing to sacrifice buying new cars due to the need to save money. These trends are clear tailwinds for Vroom's business. </li>
</ul>


The bankers announced the IPO price range of $15 to $17 per share for Vroom (VRM US), a leading e-commerce company in the U.S. that provides a platform for buying and selling used vehicles.

Our base case valuation of Vroom is a market cap of $3.2 billion or $27.30 per share, which would represent a 60% upside from the high end of the IPO price range of $17 per share. Given the high upside, we have a positive view of this IPO. 

In the midst of the COVID-19 pandemic, Carvana and Vroom's core business model of "non-contact" sales of used vehicles is definitely an advantage as millions of customers shy away from physically going to the auto dealers to buy their cars. In addition, millions of U.S. consumers need to become more frugal and buying used goods (such as cars) will be in higher demand, especially from the consumers that want to buy quality vehicles but willing to sacrifice buying new cars due to the need to save money. These trends are clear tailwinds for Vroom's business. 


United States

Vroom, Inc. retails automobiles. The Company offers new and used cars, spare parts, and accessories, as well as provides maintenance, repairing, funding, insurance, and vehicle renting services. Vroom serves customers in the United States.

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Vroom (VRM US)

K-Car IPO Bookbuilding Results Analysis

K Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and...

Douglas Kim

CarTrade Tech IPO Initiation: Shifting Gears

CarTrade is looking to raise Rs28 billion ($375 million) through an IPO in India. Overall, we think that CarTrade is an attractive play on India’s...

Arun George

BigCommerce IPO Valuation Analysis

BigCommerce Holdings Inc (BIGC US) plans to complete its IPO next week. The IPO price range has been determined at $18 to $20. The company plans to...

Douglas Kim

Double Down Interactive IPO Valuation Analysis

Valuation multiple DoubleU Games paid for Double Down Interactive - In June 2017, DoubleU Games acquired Double Down Interactive for $825.6...

Douglas Kim

Vroom IPO Valuation Analysis

The bankers announced the IPO price range of $15 to $17 per share for Vroom (VRM US), a leading e-commerce company in the U.S. that provides a...

Douglas Kim

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