Daily BriefsSouth Korea

South Korea: SK Telecom, Kakao Pay, Krafton Inc and more

In today’s briefing:

  • SK Telecom Post-Split Valuation Studies
  • Kakao Pay IPO – Bookbuilding Results Amid Insane Demand
  • End of Lock-Ups for Kakao Bank, Krafton, SK IET, & HHI in 4Q 2021 and Increasing Short Volumes

SK Telecom Post-Split Valuation Studies

By Sanghyun Park

Post-split valuation will be an essential factor in determining whether to invest after SK Telecom’s relisting. From a short-term point of view, event trading will have the most significant impact on the share price, but whether the spin-off will unlock valuation soon after relisting is bound to emerge as the most crucial factor.

So, let’s take a look at each valuation of SK Telecom and SK Square. As shown below, each post-split company takes the following subsidiaries.

SK TelecomSK Square
SK BroadbandSK Hynix
SK TelinkADT Caps
PS&Marketing11st Street
F&S Credit InfoT Map Mobility
Service TopOne Store
Service AceContents Wavve
SK O&SDream Us Company
SK Planet
FSK L&S
Incross
Nano N Tech
Spark Plus
SK Telecom CST1
SK Telecom TMT Investment
ID Quantique
Techmaker
Source: SK Telecom

Assuming the company’s equity-based split ratio (60.74% for SK Telecom and 39.26% for SK Square) reflects the fair value of both companies, post-split SK Telecom currently has a valuation of ₩13.61T and SK Square is valued at ₩8.80T.

ValuationSK TelecomSK Telecom, post-splitSK Square, post-split
Split ratio100.00%60.74%39.26%
Current market cap₩22.41T₩13.61T₩8.80T
Source: SK Telecom & KRX

Then, let’s examine whether these valuations properly reflect the intrinsic value of both companies. 

Yes, as you can imagine, SK Square is relatively much easier to value, given that it is essentially a holding company. Then, the key thing should be how we value the traditional telecom business (network operation + media) that will remain in SK Telecom.


Kakao Pay IPO – Bookbuilding Results Amid Insane Demand

By Brian Freitas

A few hours ago, Kakao Pay (377300 KS) disclosed the results of its institutional book building and confirmed that the offer price has been set at KRW 90,000/share, the high end of the IPO range.

Bids came in for 16.03bn shares resulting in an oversubscription of 1714 times the shares offered to institutions with domestics outbidding foreign investors in terms of number of shares. Bids at or above KRW 90,000 came from 96% of the shares that were bid for.

Over 70% of the shares that were bid for came with lock-up commitments ranging from 1 month to 6 months. If the final allocations come in line with the bookbuilding results, there is no chance for the stock to be included in the MSCI Korea and FTSE All-World indices. A large part of the shares locked up could also result in KRX using a free float of less than 10% and this would preclude the entry of the stock in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX).

ESOP subscriptions will be open only on 25 October, while the subscription period for retail and institutional investors will run from 25-26 October. Payment date is 28 October and the stock is expected to list on 3 November.


End of Lock-Ups for Kakao Bank, Krafton, SK IET, & HHI in 4Q 2021 and Increasing Short Volumes

By Douglas Kim

In this insight, we discuss the end of lock-up periods for Hyundai Heavy Industries (329180 KS)SK IE Technology (361610 KS), Krafton Inc (259960 KS), and KakaoBank (323410 KS) in 4Q 2021 and 1Q 2022. 

  • In particular, there are lock up periods ending for these four stocks in November and December.
  • There are also end of lock-up periods for Krafton and Kakao Bank in early February 2022.
  • Typically, investors tend to focus on the end of the lock-up periods in Korea about 1-2 months ahead of the actual end of these lock-up periods.

In addition to analyzing the end of these lock-up periods, we analyze the recent shorts balance of these stocks in recent weeks. 

  • Although Kakao Bank’s share price has performed well since the IPO (up 54% from IPO price), its share price is down 22% from the end of the one month lock-up period. The amount of shares that could be sold after the end of the three months and six months lock-up periods are much bigger (18.3 million shares combined) as compared to the 3.1 million shares that could be sold after the one month lock-up period. Therefore, there are continued concerns about additional selling of Kakao Bank shares in November (after the end of the three months lock-up period).
  • Krafton’s share price has not performed well after the IPO (down 2% from the IPO price of 498,000 won). With the upcoming end of the 3 month lock-up period, there could be continued negative pressure for additional selling from the existing shareholders.

Before it’s here, it’s on Smartkarma