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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The Korea Exchange (KRX) launched 5 indices last year following the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.</p><p>The KRX created 4 indices tracking the Secondary Battery, Biotech, 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.</p><p>All indices have performed well since then. The KRX announced changes to the 5 indices late last week and the changes become effective post the close of trading on 25 February.</p><div><p><a href="https://www.smartkarma.com/entities/kakao-games-corp" target="_blank" data-smartkarma-citation="entities:26730:1" rel="noopener">Kakao Games Corp (293490 KS)</a> replaces <a href="https://www.smartkarma.com/entities/pearl-abyss-corp" target="_blank" data-smartkarma-citation="entities:24391:1" rel="noopener">Pearl Abyss (263750 KS)</a> in the BBIG Index.</p></div><div><p>In the Secondary Battery index, <a href="https://www.smartkarma.com/entities/soulbrain-co-ltd" target="_blank" data-smartkarma-citation="entities:16883:1" rel="noopener">Soulbrain (036830 KS)</a> and <a href="https://www.smartkarma.com/entities/l-f-co-ltd" target="_blank" data-smartkarma-citation="entities:14300:1" rel="noopener">L&amp;F Co Ltd (066970 KS)</a> replace <a href="https://www.smartkarma.com/entities/doosan-solus-co-ltd" target="_blank" data-smartkarma-citation="entities:28947:1" rel="noopener">Doosan Solus Co Ltd (336370 KS)</a> and <a href="https://www.smartkarma.com/entities/foosung-co-ltd" target="_blank" data-smartkarma-citation="entities:16811:1" rel="noopener">Foosung Co Ltd (093370 KS)</a>.</p></div><div><p>In the Biotech index, <a href="https://www.smartkarma.com/entities/shinpoong-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:7296:1" rel="noopener">Shinpoong Pharmaceutical (019170 KS)</a> and <a href="https://www.smartkarma.com/entities/green-cross-corp" target="_blank" data-smartkarma-citation="entities:2969:1" rel="noopener">Green Cross (006280 KS)</a> replace <a href="https://www.smartkarma.com/entities/alteogen-inc" target="_blank" data-smartkarma-citation="entities:15886:1" rel="noopener">Alteogen Inc (196170 KS)</a> and <a href="https://www.smartkarma.com/entities/hanmi-pharm-co-ltd" target="_blank" data-smartkarma-citation="entities:12476:1" rel="noopener">Hanmi Pharm (128940 KS)</a>.</p></div><div><p>In the Internet index, <a href="https://www.smartkarma.com/entities/ace-technologies-corp" target="_blank" data-smartkarma-citation="entities:7868:1" rel="noopener">Ace Technologies (088800 KS)</a> and <a href="https://www.smartkarma.com/entities/rsupport-co-ltd" target="_blank" data-smartkarma-citation="entities:14783:1" rel="noopener">Rsupport Co Ltd (131370 KS)</a> replace <a href="https://www.smartkarma.com/entities/kg-inicis-co-ltd" target="_blank" data-smartkarma-citation="entities:5234:1" rel="noopener">KG Inicis Co Ltd (035600 KS)</a> and <a href="https://www.smartkarma.com/entities/ubiquoss-inc" target="_blank" data-smartkarma-citation="entities:14341:1" rel="noopener">Ubiquoss Holding (078070 KS)</a>.</p></div><div><p>In the Gaming index, <a href="https://www.smartkarma.com/entities/kakao-games-corp" target="_blank" data-smartkarma-citation="entities:26730:1" rel="noopener">Kakao Games Corp (293490 KS)</a> and <a href="https://www.smartkarma.com/entities/neptune-company" target="_blank" data-smartkarma-citation="entities:28826:1" rel="noopener">Neptune Company (217270 KS)</a> replace <a href="https://www.smartkarma.com/entities/neowiz-games-corp" target="_blank" data-smartkarma-citation="entities:12425:1" rel="noopener">Neowiz Games (095660 KS)</a> and Golfzon (215000 KS).</p></div>

The Korea Exchange (KRX) launched 5 indices last year following the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.The KRX created 4 indices tracking the Secondary Battery, Biotech, 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.All indices have performed well since then. The KRX announced changes to the 5 indices late last week and the changes become effective post the close of trading on 25 February.Kakao Games Corp (293490 KS) replaces Pearl Abyss (263750 KS) in the BBIG Index.In the Secondary Battery index, Soulbrain (036830 KS) and L&amp;F Co Ltd (066970 KS) replace Doosan Solus Co Ltd (336370 KS) and Foosung Co Ltd (093370 KS).In the Biotech index, Shinpoong Pharmaceutical (019170 KS) and Green Cross (006280 KS) replace Alteogen Inc (196170 KS) and Hanmi Pharm (128940 KS).In the Internet index, Ace Technologies (088800 KS) and Rsupport Co Ltd (131370 KS) replace KG Inicis Co Ltd (035600 KS) and Ubiquoss Holding (078070 KS).In the Gaming index, Kakao Games Corp (293490 KS) and Neptune Company (217270 KS) replace Neowiz Games (095660 KS) and Golfzon (215000 KS).

KRX BBIG K-NewDeal Index Rebalance: First Set of Changes Announced

Julie Lee

Equity Bottom-Up

<p>Nexon had announced in-line 3Q20 results and lackluster guidance for 4Q20 as expected. Its 4Q20 results may not be strong as its mobile game ranking has declined in Korea during 4Q20, though it can be partially offset by potentially better than expected game industry sales in Korea amid worsening COVID. </p><p>However, we believe Nexon still has long-term investment value to be unlocked and a few positives may outweigh its near term weak earnings;  1) new games from Embark Studios, and 2) increasing possibility of DNF mobile launch and introduction of two new DNF IP based games. We will examine the details of these positives below. </p>

Nexon had announced in-line 3Q20 results and lackluster guidance for 4Q20 as expected. Its 4Q20 results may not be strong as its mobile game ranking has declined in Korea during 4Q20, though it can be partially offset by potentially better than expected game industry sales in Korea amid worsening COVID. However, we believe Nexon still has long-term investment value to be unlocked and a few positives may outweigh its near term weak earnings;  1) new games from Embark Studios, and 2) increasing possibility of DNF mobile launch and introduction of two new DNF IP based games. We will examine the details of these positives below. 

Nexon (3659.T): Games from Embark Studios and Improving Chance of DNF Launch

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.

Equity Capital Markets

DoubleDown Interactive / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/double-down-interactive" target="_blank" data-smartkarma-citation="entities:29018:1" rel="noopener">Double Down Interactive (DDI US)</a> is a leading game developer with a focus on social casino games where customers purchase virtual currency for use in non-wagering interactive games (“play for fun”). DoubleDown has launched its IPO at a price range of $17-19 per ADS. At the mid-point of the IPO price range, DoubleDown will raise net proceeds of $88 million. Selling shareholder, STIC Special Situation Diamond Limited, will raise an equivalent amount. </p></div><div>
<div><p>In <a href="https://www.smartkarma.com/insights/doubledown-interactive-ipo-initiation-a-last-roll-of-the-dice" target="_blank" rel="noopener">our initiation note</a>, we stated that DoubleDown is a clear beneficiary as its 1Q20 showed an acceleration in top-line growth. However, prior to the 1Q20 corona pandemic boost, DoubleDown’s fundamentals were deteriorating. On balance, we think that DoubleDown’s ability to sustain the 1Q20 momentum is highly uncertain and we would be inclined to give the IPO a pass (subject to valuation).</p></div>
<div><div class="content-highlight"><p>While the fundamentals are far from robust, we acknowledge that the valuation at the low-end of the IPO price range is attractive, particularly for those investors who think that the current COVID-19 outbreak driven growth spurt will have a lasting positive impact.</p></div></div>
</div>

Double Down Interactive (DDI US) is a leading game developer with a focus on social casino games where customers purchase virtual currency for use in non-wagering interactive games (“play for fun”). DoubleDown has launched its IPO at a price range of $17-19 per ADS. At the mid-point of the IPO price range, DoubleDown will raise net proceeds of $88 million. Selling shareholder, STIC Special Situation Diamond Limited, will raise an equivalent amount. 
In our initiation note, we stated that DoubleDown is a clear beneficiary as its 1Q20 showed an acceleration in top-line growth. However, prior to the 1Q20 corona pandemic boost, DoubleDown’s fundamentals were deteriorating. On balance, we think that DoubleDown’s ability to sustain the 1Q20 momentum is highly uncertain and we would be inclined to give the IPO a pass (subject to valuation).
While the fundamentals are far from robust, we acknowledge that the valuation at the low-end of the IPO price range is attractive, particularly for those investors who think that the current COVID-19 outbreak driven growth spurt will have a lasting positive impact.


DoubleDown Interactive IPO: Valuation Insights

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27805" target="_blank" data-smartkarma-citation="entities:27805:1">SNK Corp (951104 KS)</a> bookbuilding begins this Tuesday (Dec 4-5). Shares are preliminary priced at a ₩34,300-46,800 range, which values the company at ₩771bil-1.05tril.</li>
<li>There is no clear valuation peer in the Korean game space. They even used PBR to justify their target valuation. Using the same valuation peers, SNK should be given a 22.59x PER. Per share, it should be priced at ₩25,228. High end is at a 42.15% premium to this. Low end is a 17.72% premium.</li>
<li>Bandai, Square Enix and Konami are more sensible valuation peers. Their LTM PER average is 20.33x. This puts high end at a 47.08% premium. Valuation premium can be granted on higher profit margin. But even at a 30x PER, high end is at a 25.99% premium.</li>
<li>General consensus is that game IP business is capped at a 25x PER. This should be applied to SNK as well. Even at a 30x PER, highest bid should be limited to the low end of the indicative price band.</li>
</ul>



SNK Corp (951104 KS) bookbuilding begins this Tuesday (Dec 4-5). Shares are preliminary priced at a ₩34,300-46,800 range, which values the company at ₩771bil-1.05tril.
There is no clear valuation peer in the Korean game space. They even used PBR to justify their target valuation. Using the same valuation peers, SNK should be given a 22.59x PER. Per share, it should be priced at ₩25,228. High end is at a 42.15% premium to this. Low end is a 17.72% premium.
Bandai, Square Enix and Konami are more sensible valuation peers. Their LTM PER average is 20.33x. This puts high end at a 47.08% premium. Valuation premium can be granted on higher profit margin. But even at a 30x PER, high end is at a 25.99% premium.
General consensus is that game IP business is capped at a 25x PER. This should be applied to SNK as well. Even at a 30x PER, highest bid should be limited to the low end of the indicative price band.


SNK Corp IPO Pricing: No Higher than Low End

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27738" target="_blank" data-smartkarma-citation="entities:27738:1">Vespa Inc (299910 KS)</a>, one of Korea's rising star gaming company, offers a total 1.6M shares, of which 80% go to institutional investors. This IPO has no secondary distribution. Mirae Asset Daewoo is the banker.</li>
<li>Price band is set at ₩44,800~59,700, which puts the base deal size at ₩57.3~76.4bil. Implied market cap is ₩357.5~476.4bil. Book opens on Nov 15 and runs until Nov 16. Allotment will be announced on Nov 23 and payment will be Nov 26. Listing date is yet to be announced.</li>
<li>The banker used 7 valuation peers. But WeMade, Pearl Abyss and ME2ON should be outliers. At the Nov 7 closing prices of the 4 remaining valuation peers, average TTM PER is at 13.70x. At a 13.70x PER, Vespa's price comes down to ₩44,535 per share, which is even lower than the low end: 0.59% discount to the low end and 25.40% discount to the high end.</li>
</ul>



Vespa Inc (299910 KS), one of Korea's rising star gaming company, offers a total 1.6M shares, of which 80% go to institutional investors. This IPO has no secondary distribution. Mirae Asset Daewoo is the banker.
Price band is set at ₩44,800~59,700, which puts the base deal size at ₩57.3~76.4bil. Implied market cap is ₩357.5~476.4bil. Book opens on Nov 15 and runs until Nov 16. Allotment will be announced on Nov 23 and payment will be Nov 26. Listing date is yet to be announced.
The banker used 7 valuation peers. But WeMade, Pearl Abyss and ME2ON should be outliers. At the Nov 7 closing prices of the 4 remaining valuation peers, average TTM PER is at 13.70x. At a 13.70x PER, Vespa's price comes down to ₩44,535 per share, which is even lower than the low end: 0.59% discount to the low end and 25.40% discount to the high end.


Vespa IPO Pricing Approach: 25% Discount to High End

South Korea

Webzen Inc. develops and markets online game software and distributes it through Internet.  The Company also provides game web site so that users can register, access, and play.  Webzen's products include Mu, an online game software.

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Webzen Inc (069080 KS)

KRX BBIG K-NewDeal Index Rebalance: First Set of Changes Announced

The KRX has announced changes to the KRX New Deal indices that will be effective after the close of trading on 25 February. Pearl Abyss is...

Brian Freitas

Nexon (3659.T): Games from Embark Studios and Improving Chance of DNF Launch

Nexon still has investment value to be unlocked. A few positives may outweigh near term weakness; 1) new games from Embark Studios, and 2) DNF...

Julie Lee

DoubleDown Interactive IPO: Valuation Insights

Double Down Interactive (DDI US) is a leading game developer with a focus on social casino games where customers purchase virtual currency for use...

Arun George

SNK Corp IPO Pricing: No Higher than Low End

SNK Corp (951104 KS) bookbuilding begins this Tuesday (Dec 4-5). Shares are preliminary priced at a ₩34,300-46,800 range, which values the...

Sanghyun Park

Vespa IPO Pricing Approach: 25% Discount to High End

Vespa Inc (299910 KS), one of Korea's rising star gaming company, offers a total 1.6M shares, of which 80% go to institutional investors. This...

Sanghyun Park

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