Daily BriefsIPOs and Placements

Equity Capital Markets: KakaoBank, China Tourism Group Duty Free Corp Ltd, Del Monte Philippines, Zomato, Evolution Mining, Woori Financial Group , AJU Steel and more

In today’s briefing:

  • Kakao Bank Bookbuilding: What’s Really Happened Among Local Institutions?
  • China Tourism Group A/H Listing Early Look – Over US$5bn Raising for a Monopoly on Chinese Tourists
  • Del Monte Philippines IPO: Valuation First-Look
  • Zomato IPO Trading – Ample Demand for Unique Exposure
  • Kakao Bank: Trading Strategy Post Bookbuilding Results
  • Evolution Mining Placement – Past Deals Have Held up Well
  • Kakao Bank Bookbuilding Results: Disclosing Subscription/Lockup Orders in Detail
  • Woori Financials Placement – Tong Yang Cleans up but KDIC Could Sell More
  • Aju Steel IPO Valuation Analysis

Kakao Bank Bookbuilding: What’s Really Happened Among Local Institutions?

By Sanghyun Park

Kakao Bank’s official bookbuilding results will be released after the market closes this afternoon. However, most of the important information has already been leaked to the market.

First, more than ₩2,500T of subscription orders were poured into the bookbuilding. In addition, it was confirmed that the competition ratio of institutional investors for subscriptions was over 1,700 to 1. The competition ratio of 1,000 to 1 was already recorded on the first day, and a significant number of subscriptions were made on the second day as well.

The total value of subscription orders surpassed SKIET’s ₩2,417T, which was the largest amount in history for an IPO in Korea.

As a result, the offering price was also almost decided at ₩39,000, which is the upper end of the indicative price band.

 The market capitalization based on ₩39,000 is ₩18.6T. This is close to that of KB Financial Group (₩21.6T) and Shinhan Financial Group (₩19.9T). So, it is likely that Kakao Bank will become the largest market cap bank in Korea after its listing.

Market capKB Financial GroupShinhan Financial GroupKakao Bank
Ticker105560055550323410
Market cap₩21,580.4B₩19,940.7B₩18,633.1B
Source: KRX & DART

The general view of institutions on the public offering price of Kakao Bank, which has been proven in this bookbuilding, is that it is NOT ridiculously high.

They seem to have paid attention to the growth potential of Kakao Bank as a platform business and the rapid growth that supports it.

In fact, the price accepted as the ceiling by local street is PBR 4x, but since the upper end of the indicative price band stays at 3.5x, it is said that they generally did not feel any objection to the price.

Indicative price bandLower endUpper end
Price₩33,000₩39,000
Implied market cap₩15,766.5B₩18,633.1B
Equity, including capital inflow from IPO₩5,009.4B₩5,402.1B
PBR3.15x3.45x
Source: DART

To clarify Kakao Bank’s PBR calculations:

  1. Implied market cap by the indicative price band / Equity as of 1Q21 gives a 5.53~6.54x.
  2. (Implied market cap by the indicative price band – Capital inflow from IPO) / Equity as of 1Q21 gives a 4.78~5.64x.
  3. Implied market cap by the indicative price band / (Equity as of 1Q21 + Capital inflow from IPO) gives you a 3.15~3.45x.

The bankers used No. 2 to derive the indicative price band in the IPO prospectus. And many in the local street seem to be using No. 3 to get a sense of Kakao Bank’s actual PBR post IPO.

In particular, local institutional investors paid attention to the fact that Kakao Bank opened 6.2 million new accounts within one year. This is 40 times the total number of non-face-to-face accounts opened by 16 commercial banks in Korea over the past four years. Kakao Bank also achieved a market share of 7% in the personal credit loan market within four years of its establishment. 

In other words, although Kakao Bank still provides simple banking services, the market acknowledges the actual capabilities of Kakao Bank’s online platform in that it has achieved a huge customer base expansion in a short period of time.


China Tourism Group A/H Listing Early Look – Over US$5bn Raising for a Monopoly on Chinese Tourists

By Sumeet Singh

China Tourism Group Duty Free Corp Ltd (601888 CH) (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. 

CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost & Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.

As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.


Del Monte Philippines IPO: Valuation First-Look

By Arun George

Del Monte Philippines (1575316D PM)/DMPI is a leading producer, distributor and marketer of premium quality, healthy food and beverage products. It is a market leader in the packaged pineapple and mixed fruit, ready-to-drink juices (excluding stand-up-pouches), tomato sauce and spaghetti sauce categories in the Philippines. DMPI has the rights to the Del Monte trademark for the Philippines for processed products and also sells products under the brands of S&W, Contadina and Today’s.

The parent company is Del Monte Pacific (DELM PM) which holds 87.0% of outstanding shares. Del Monte Pacific had previously tried to list DMPI on the PSE in 2018 by selling a 20% stake to raise up to $324 million at the maximum offer price of PHP29.88 per share but deferred the IPO due to market volatility.

Currently, DMPI is pre-marketing for an IPO to raise up to PHP44 billion ($0.9 billion) at the maximum offer price of PHP54.80. The IPO price range, which is generally lower than the maximum IPO price, will be set during the book building process. The pricing date is 12 August and the offer period runs from 16 to 20 August. 

In Del Monte Philippines IPO Initiation: Tempting Fruit, we opined that DMPI is a play on the healthy packaged and convenient packaged food and beverage categories that benefit from long-term secular tailwinds in the Philippines. DMPI’s financial track record shows it has been able to leverage its market-leading position to combine solid top-line growth with improving margins and cash generation. We concluded that DMPI’s fundamentals are attractive. In this note, we present our forecasts and take the first look at DMPI’s potential valuation. 


Zomato IPO Trading – Ample Demand for Unique Exposure

By Sumeet Singh

Zomato (ZOM IN) raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.

We have covered various aspects of the deal in our earlier notes  

In this note, we will talk about the updates and the trading dynamics.


Kakao Bank: Trading Strategy Post Bookbuilding Results

By Douglas Kim

Kakao Bank announced its IPO book building results today. The IPO price has been determined at 39,000 won, which was at the high end of the IPO price range. The demand ratio among the institutional investors was 1,733 to 1. Kakao Bank will be raising 2.5 trillion won ($2.2 billion) in this IPO. 

There were 1,667 institutional investors that participated in the IPO survey of which 1,287 were domestic institutions and 380 were overseas investors. According to Kakao Bank, the ratio of investors with lock-up applications was 45% which was a healthy rate but lower than the lockup ratios of SK Bioscience (59.92%) and SK IE Technology (62.3%).

Institutional Investors Demand Breakdown of Kakao Bank IPO Bookbuilding Results
 
Domestic Investors    
 Asset mgmt companiesBrokeragesPension funds/insurance/banksOthers
No. of companies581258243205
Demand700.1322.2276.4234.6
     
 Overseas Investors   
 (A)*(B)**  
No. of companies194186  
Demand37.9161.7  
     
Total (No. of companies)1,667   
Total Demand1,732.8   
Note: (A)* refers to overseas investment mgmt companies that have records of trading with the brokers involved in this deal.
(B)** refers to overseas investment mgmt companies that do not have records of trading with the brokers involved in this deal.
Source: Company data   

We continue to have a POSITIVE view of the Kakao Bank IPO post book building results. Our base case valuation of Kakao Bank remains implied market cap of 26.8 trillion won or implied price of 56,144 won per share. This represents 44% higher than the high end of the IPO price range of 39,000 won but 25% lower than the current private market value of 75,000 won. 



Kakao Bank Bookbuilding Results: Disclosing Subscription/Lockup Orders in Detail

By Sanghyun Park

Kakao Bank’s bookbuilding results are out. As already leaked to the market earlier today, the offering price got finalized at ₩39,000, the upper end of the indicative price band, implying a market cap of ₩18.6T. There is no change in the offering volume.

Indicative price bandLowHigh (Final)
Price₩33,000₩39,000
Base deal size₩2,159.9B₩2,552.6B
– Institutional allotment₩1,187.9B₩1,403.9B
Implied market cap₩15,766.5B₩18,633.1B
– Discount31.33%18.85%
Equity, including capital inflow from IPO₩5,009.4B₩5,402.1B
Capital inflow from IPO₩2,159.9B₩2,552.6B
Source: DART

The institutional subscription competition rate is 1,733 to 1, only slightly below the record holder SKIET’s 1,883 to 1.

NameTickerIPO dateOffering sizeInstitutional subscription competition rate
Kakao Bank3234102021. 08. 05₩2,552.6B1,732.83 to 1
SD Biosensor3616102021. 07. 16₩776.4B1,143.76 to 1
SK IE Technology3616102021. 05. 11₩2,246.0B1,882.88 to 1
SK Bioscience Co Ltd3024402021. 03. 18₩1,491.8B1,274.50 to 1
HYBE Co Ltd3528202020. 10. 15₩962.6B1,117.00 to 1
Kakao Games Corp2934902020. 09. 10₩384.0B1,478.50 to 1
SK Biopharmaceuticals Co Ltd3260302020. 07. 02₩959.3B835.00 to 1
Source: DART

₩2.433 quadrillion (thousand trillion) worth of subscription orders were poured into the bookbuilding. How large is this? Well, Kakao Bank’s total value of subscription orders surpassed SKIET’s ₩2.417 quad, which was the largest amount in history for an IPO in Korea.

Compared to SD Biosensor, which was an IPO just before this listing, the participation of local institutional investors (local investment advisories and hedge funds) who are active in short-term trading was higher in this listing. It can be inferred that many investors believe that the short-term share price of Kakao Bank is more likely to rise immediately after listing.

By investor typeInstitution%Demand%
Local publicly raised funds58134.85%25,201,600,00040.40%
Local brokerages/investment advisories25815.48%11,597,306,00018.59%
Local pensions, funds managing proprietary assets, banks, and insurance companies24314.58%9,949,064,00015.95%
Local others (mostly discretionary investment companies – local hedge funds)20512.30%8,444,119,00013.54%
Foreign (foreign IPO funds & hedge funds)19411.64%1,364,938,0002.19%
Foreign others (mostly local hot money)18611.16%5,820,409,0009.33%
Total1,667100.00%62,377,436,000100.00%
Subscription rate1,732.83
Source: DART

The “Unspecified” category usually indicates that they want the shares above the high end. With that in mind, more than half must have priced Kakao Bank at the upper end or above. The remaining 46.01% went for a 75-100% of the upper end, so it isn’t that far either.

By priceInstitution%Demand%
Above high end64038.39%26,259,108,00042.10%
75-100% of high end76746.01%32,312,440,00051.80%
50-75% of high end00.00%00.00%
25-50% of high end00.00%00.00%
0-25% of high end00.00%00.00%
Median00.00%00.00%
75-100% of median00.00%00.00%
50-75% of median00.00%00.00%
25-50% of median00.00%00.00%
0-25% of median00.00%00.00%
Low end or below00.00%00.00%
Unspecified26015.60%3,805,888,0006.10%
Total1,667100.00%62,377,436,000100.00%
Source: DART


Aju Steel IPO Valuation Analysis

By Douglas Kim

Our base case valuation of Aju Steel is implied market cap of 377 billion won or target price of 14,240 won per share, which would represent just 2% above the mid-point of the IPO price range (13,900 won). Given the lack of upside versus the IPO price range, we would AVOID this IPO. 


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