Korea / Special Situations, Clepsydra Capital

Sanghyun Park

I investigate special situations in Korea.

Korea / Special Situations

Equity Bottom-Up

<ul><li>What is the common point between newly licensed Internet bank and explosive growth of O2O business in Korea? These will be a factor to accelerate the growth of the nation's new channel advertising market, particularly mobile advertising market.</li><li>Now, it is important to note that the new channel advertising market is not as straightforward as the conventional advertising market. That is, any advertiser wanting to advertise a product or service via new channels needs to go through a complex planning process because new channel advertising offers much more options. This is exactly where Nasmedia (089600) comes in. It is a sort of adverting consultancy company specialized in new channels.</li><li>There is no doubt that its current price does not seem cheap. The current market consensus for the company’s 12M forward P/E multiple is 38.3x based on the current stock price (as of January 22, 2015). But what I really like to point out is that this market consensus does not fully reflect the true revenue growth potential from Internet bank business and many different O2O businesses.</li><li>Just think of how much additional revenue Nasmedia can generate from KT's Internet bank alone. Each of the nation's major money-leading companies spends an average of KRW 30b on advertising annually. From this, we can expect that KT's Internet bank will spend at least KRW 80b to 100b on advertising given its much bigger size than those money-lending companies regardless of whether KT has success with Internet bank business in early stage.</li><li>If KT's Internet bank spends half of its advertising money on new channels (which is quite reasonable), then a large portion (say about 70 percent because such well-publicized business like Internet bank does not need to spend much on Internet search advertising) of KRW 40b to 50b will go to Nasmedia. This is about KRW 30b. Nasmedia's commission rate is about 20%. So, Nasmedia will have additional revenue of KRW 6b only from KT's Internet bank alone. This is equivalent to about 15.0 percent of Nasmedia's current total revenue.</li><li>I like to stress that the company would be your safest bet if you want to invest on Korea's rapidly growing mobile Internet market. It is well positioned to benefit from the super mega market trends such as O2O, IoT and Internet bank while it has a very reliable business model and also super-reliable internal customer (KT Group) who will continue to expand media business. From a valuation wise, I firmly believe that the current market consensus does not properly reflect the company's true revenue growth potential in the next several years. Yes, I strongly believe that this stock still has lots of upside potential.</li></ul>

What is the common point between newly licensed Internet bank and explosive growth of O2O business in Korea? These will be a factor to accelerate the growth of the nation's new channel advertising market, particularly mobile advertising market.Now, it is important to note that the new channel advertising market is not as straightforward as the conventional advertising market. That is, any advertiser wanting to advertise a product or service via new channels needs to go through a complex planning process because new channel advertising offers much more options. This is exactly where Nasmedia (089600) comes in. It is a sort of adverting consultancy company specialized in new channels.There is no doubt that its current price does not seem cheap. The current market consensus for the company’s 12M forward P/E multiple is 38.3x based on the current stock price (as of January 22, 2015). But what I really like to point out is that this market consensus does not fully reflect the true revenue growth potential from Internet bank business and many different O2O businesses.Just think of how much additional revenue Nasmedia can generate from KT's Internet bank alone. Each of the nation's major money-leading companies spends an average of KRW 30b on advertising annually. From this, we can expect that KT's Internet bank will spend at least KRW 80b to 100b on advertising given its much bigger size than those money-lending companies regardless of whether KT has success with Internet bank business in early stage.If KT's Internet bank spends half of its advertising money on new channels (which is quite reasonable), then a large portion (say about 70 percent because such well-publicized business like Internet bank does not need to spend much on Internet search advertising) of KRW 40b to 50b will go to Nasmedia. This is about KRW 30b. Nasmedia's commission rate is about 20%. So, Nasmedia will have additional revenue of KRW 6b only from KT's Internet bank alone. This is equivalent to about 15.0 percent of Nasmedia's current total revenue.I like to stress that the company would be your safest bet if you want to invest on Korea's rapidly growing mobile Internet market. It is well positioned to benefit from the super mega market trends such as O2O, IoT and Internet bank while it has a very reliable business model and also super-reliable internal customer (KT Group) who will continue to expand media business. From a valuation wise, I firmly believe that the current market consensus does not properly reflect the company's true revenue growth potential in the next several years. Yes, I strongly believe that this stock still has lots of upside potential.

Nasmedia (089600): Too Expensive to Buy? Absolutely Not.

Nasmedia Co Ltd

Nasmedia (089600): Too Expensive to Buy? Absolutely Not.