Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 30 years of experience in the Korean/Asian equity research. Major sectors coverage include the following:
- Technology 
- Consumer 
- Special Situations/Deep Value Plays
- Tender Offers/M&As
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

CJ CGV Vietnam IPO (Part 2): Appeals of Vietnam's Cinema Industry

Equity Capital Markets

<ul>
<li>
<strong>We believe the timing and venue of the CJ CGV Vietnam IPO are poor.</strong> The company is planning to list <a href="https://www.smartkarma.com/entities/27461" target="_blank" data-smartkarma-citation="entities:27461:1">CJ CGV Vietnam (0400030Z VN)</a> on the Korean stock market partly because its parent company, <a href="https://www.smartkarma.com/entities/2885" target="_blank" data-smartkarma-citation="entities:2885:1">CJ CGV Co Ltd (079160 KS)</a> is also listed in Korea. However, CJ CGV shares have done very poorly this year as its stock price is down 42% YTD.</li>
<li>There is a healthy demand for Vietnam related investments among Korean companies and investors as South Korea is the largest direct investor in Vietnam. Nonetheless, we do not believe these are not enough positive factors of CJ CGV Vietnam being listed on the Korean stock market right now. The better strategy for CJ CGV Vietnam maybe to postpone the IPO altogether and relist at a later date, not on the Korean stock market, but on the Vietnamese stock market. </li>
<li>We believe that a 20-30% premium to CJ CGV on an EV/EBITDA basis would be more reasonable valuation for CJ CGV Vietnam. Our base case valuation multiple for CJ CGV Vietnam is 8.8x, which is 25% premium to 7x, which is the current EV/EBITDA valuation multiple of its parent CJ CGV. Using our EBITDA estimate of 28.3 billion won in 2018, this suggests an EV of 247.3 billion won and implied market cap of 273.1 billion won. Using shares outstanding of 14.3 million shares, this would represent an implied price of 19,097 won, which is close to the low end of the IPO price range 18,900 won and does not provide much upside. <strong>Thus, we would avoid this deal. </strong>
</li>
</ul>



We believe the timing and venue of the CJ CGV Vietnam IPO are poor. The company is planning to list CJ CGV Vietnam (0400030Z VN) on the Korean stock market partly because its parent company, CJ CGV Co Ltd (079160 KS) is also listed in Korea. However, CJ CGV shares have done very poorly this year as its stock price is down 42% YTD.
There is a healthy demand for Vietnam related investments among Korean companies and investors as South Korea is the largest direct investor in Vietnam. Nonetheless, we do not believe these are not enough positive factors of CJ CGV Vietnam being listed on the Korean stock market right now. The better strategy for CJ CGV Vietnam maybe to postpone the IPO altogether and relist at a later date, not on the Korean stock market, but on the Vietnamese stock market. 
We believe that a 20-30% premium to CJ CGV on an EV/EBITDA basis would be more reasonable valuation for CJ CGV Vietnam. Our base case valuation multiple for CJ CGV Vietnam is 8.8x, which is 25% premium to 7x, which is the current EV/EBITDA valuation multiple of its parent CJ CGV. Using our EBITDA estimate of 28.3 billion won in 2018, this suggests an EV of 247.3 billion won and implied market cap of 273.1 billion won. Using shares outstanding of 14.3 million shares, this would represent an implied price of 19,097 won, which is close to the low end of the IPO price range 18,900 won and does not provide much upside. Thus, we would avoid this deal. 



CJ CGV Vietnam IPO Preview (Part 3) - Valuation Analysis (Poor Timing & Venue for IPO)