Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 25 years of experience in analyzing hundreds of companies, especially in Asia. Deep expertise in the following sectors:
- Technology (E-commerce, SaaS, Internet)
- Consumer 
- Special Situations/Deep Value Plays
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

A Comprehensive Review of 27 IPOs in Korea in 2020 and 2021

SK REIT IPO - The Best Ever Book Building Results for a Korean REIT

End of the 1 Month Lockup Period for Krafton & An Excessive Pricing Gap Vs. NCsoft

Krafton: Only 20% of Employee Stock Ownership Association Apply for the IPO Shares

Krafton's IPO Trading (Worst 1st Day Performance Among Major IPOs in Korea in the Past 2 Years)

Equity Bottom-Up

<div class="content-highlight">
<p>We believe that the sales and profit estimates for Krafton in 2022 is based on the company near-perfectly executing its business plans and also the regulators in China not enforcing any major new rules that could result in reduced playing time of the company's games in China.</p>
<p>As a result, we think that the probability of Krafton being able to reach the consensus sales and profit estimates in 2022 is likely to be reduced further in the coming months causing its stock price to remain relatively weak. We maintain our Negative view of Krafton.</p>
</div><h2>Krafton 2Q 2021 Earnings Comparison</h2><p>Krafton reported its first quarterly earnings report after its IPO in the past week. Krafton reported sales of 459.3 billion won (up 7% YoY and down 0.4% QoQ) and operating profit of 174.2 billion won (down 0.3% YoY and down 23.3% QoQ) in 2Q 2021. Operating margins declined from 40.7% in 2Q 2020 to 37.9% in 2Q 2021. </p><table class="table table-striped">
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<td colspan="3" style="width: 207pt;"><strong>Krafton 2Q 2021 Earnings Comparison</strong></td>
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<td><strong>(Won bn)</strong></td>
<td style="text-align: right;"><strong>2Q 2020</strong></td>
<td style="text-align: right;"><strong>2Q 2021</strong></td>
<td style="text-align: right;"><strong>% Change YoY</strong></td>
<td style="text-align: right;"><strong>1Q 2021</strong></td>
<td style="text-align: right;"><strong>% Change QoQ</strong></td>
</tr>
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<td><strong>Sales</strong></td>
<td style="text-align: right;"><strong>429.4</strong></td>
<td style="text-align: right;"><strong>459.3</strong></td>
<td style="text-align: right;"><strong>7.0%</strong></td>
<td style="text-align: right;"><strong>461.0</strong></td>
<td style="text-align: right;"><strong>-0.4%</strong></td>
</tr>
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<td>Operating Profit</td>
<td style="text-align: right;">174.8</td>
<td style="text-align: right;">174.2</td>
<td style="text-align: right;">-0.3%</td>
<td style="text-align: right;">227.2</td>
<td style="text-align: right;">-23.3%</td>
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<td>Net Profit</td>
<td style="text-align: right;">121.2</td>
<td style="text-align: right;">141.3</td>
<td style="text-align: right;">16.6%</td>
<td style="text-align: right;">194.0</td>
<td style="text-align: right;">-27.2%</td>
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<td><strong>Profit Margins</strong></td>
<td style="text-align: right;"><strong>2Q 2020</strong></td>
<td style="text-align: right;"><strong>2Q 2021</strong></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"><strong>1Q 2021</strong></td>
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<td><strong>Operating Margin</strong></td>
<td style="text-align: right;"><strong>40.7%</strong></td>
<td style="text-align: right;"><strong>37.9%</strong></td>
<td style="text-align: right;"></td>
<td style="text-align: right;"><strong>49.3%</strong></td>
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<td>Net Margin</td>
<td style="text-align: right;">28.2%</td>
<td style="text-align: right;">30.8%</td>
<td style="text-align: right;"></td>
<td style="text-align: right;">42.1%</td>
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<td colspan="2">Source: Company data</td>
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</table><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/912/original/image_61680225921629098950166.png?1629098951" class="editor-image img-responsive" data-smartkarma-image-id="223912"></figure><div class="content-caption">Earnings CSource: Company data</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/913/original/image_45611897931629099016561.png?1629099016" class="editor-image img-responsive" data-smartkarma-image-id="223913"></figure><div class="content-caption">Sales Breakdown (Source: Company data)</div>


We believe that the sales and profit estimates for Krafton in 2022 is based on the company near-perfectly executing its business plans and also the regulators in China not enforcing any major new rules that could result in reduced playing time of the company's games in China.
As a result, we think that the probability of Krafton being able to reach the consensus sales and profit estimates in 2022 is likely to be reduced further in the coming months causing its stock price to remain relatively weak. We maintain our Negative view of Krafton.
Krafton 2Q 2021 Earnings ComparisonKrafton reported its first quarterly earnings report after its IPO in the past week. Krafton reported sales of 459.3 billion won (up 7% YoY and down 0.4% QoQ) and operating profit of 174.2 billion won (down 0.3% YoY and down 23.3% QoQ) in 2Q 2021. Operating margins declined from 40.7% in 2Q 2020 to 37.9% in 2Q 2021. 






Krafton 2Q 2021 Earnings Comparison





(Won bn)
2Q 2020
2Q 2021
% Change YoY
1Q 2021
% Change QoQ


Sales
429.4
459.3
7.0%
461.0
-0.4%


Operating Profit
174.8
174.2
-0.3%
227.2
-23.3%


Net Profit
121.2
141.3
16.6%
194.0
-27.2%










Profit Margins
2Q 2020
2Q 2021

1Q 2021



Operating Margin
40.7%
37.9%

49.3%



Net Margin
28.2%
30.8%

42.1%



Source: Company data






Earnings CSource: Company dataSales Breakdown (Source: Company data)

Krafton - Consensus Likely to Reduce Earnings Estimates in 2022