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Brief Growth Ideas: Korea Small Cap Gem #3: New Tree Co and more

In this briefing:

  1. Korea Small Cap Gem #3: New Tree Co
  2. Unity Technologies Pre-IPO – Unlikely to Dethrone Unreal Engine in AAA But Watch the M&A Strategy

1. Korea Small Cap Gem #3: New Tree Co

Pandora

New Tree Co is the third company we introduce in our “Korea Small Cap Gem” series. New Tree is one of the best up-and-coming companies in the “inner beauty” product segment, especially for eatable collagen products. They also have some outstanding health and diet food supplement products that should continue to thrive in the next few years.

Millions of people in Korea often believe that eating foods that are rich in collagen such as 족발 (pigs’ feet) helps to beautify their skin. Other foods that help the body to produce collagen include bone broth, chicken, fish, egg whites, and citrus fruits. Because of the positive association with beautifying the skin and producing collagen, this is where the company’s Evercollagen has achieved a big success.

Valuation – We believe that the company’s P/E multiples to rise to the 14 to 16x range over the next 12 months which would be closer to the industry average and as investors attach higher valuation multiple to this company, given the company’s superior sales and net profit growth compared to its competitors. If we assume a 15x P/E based on the net profit of 22.6 billion won, this would suggest an implied market cap of 339 billion won (37,375 won per share), which would be a 32% upside from current levels (28,300 won per share).  

2. Unity Technologies Pre-IPO – Unlikely to Dethrone Unreal Engine in AAA But Watch the M&A Strategy

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Unity Technologies is in the process of prepping for an IPO this year. The company develops the Unity game engine which is widely used to develop video games, particularly mobile and indie games. The market for game engines is mostly split between Unity and Epic Games’ Unreal Engine though larger game developers can use their own in-house developed engines. With this attractive situation on offer to the two companies, we examine below whether the market is likely to be bifurcated or result in clash for market share. We also highlight the moves both companies have been making to strengthen their online gaming functionality.

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