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

Cafe 24 IPO Preview (Part 1): Korea's Shopify - Leading Contender For "Tesla" Requirements Based IPO

Update on the Put Back Option Clause for IPOs in the Korea Stock Market

Important Regulatory Changes for IPOs on the KOSDAQ Exchange

Equity Capital Markets

In this report, we provide more detailed analysis of the Cafe24. This IPO is important mainly because it is the first "Tesla" requirements based IPO in the Korean Stock Market this year. Unlike normal IPOs in Korea, the this IPO's prospectus provides a lot more details regarding the company's future earnings forecasts. So far, the three major issues with the company are as follows:<ul><li>Revenue growth assumptions - The company expects its sales to increase 25.6% CAGR from 118.1 billion won in 2016 to 233.9 billion won in 2019 (consolidated basis). Parent-based sales were 101.5 billion won in 2016, up from 60.9 billion won in 2013. The company had a sales increase of 18.6% CAGR from 2013 to 2016 (parent-based). The company expects its higher sales growth to come from internationally and new businesses but there are some concerns about the company's aggressive sales forecasts. </li><li>Labor cost assumptions - We believe the company's labor costs assumptions are too low. Labor costs as a percentage of sales are expected to decline from 50.8% in 2016 to 47.4% in 2017 to 37.7% in 2018. This is one of the biggest assumptions of the company's earnings forecast. The company expects its sales to increase 33% YoY to 182.4 billion won in 2018. However, it expects to achieve this with only a 6% YoY increase in labor costs to 68.8 billion won in 2018.</li><li>Valuation comparison to Shopify and Gabia -<a href="https://www.smartkarma.com/entities/25906" target="_blank" data-smartkarma-citation="entities:25906:1">Shopify Inc (SHOP US)</a> is trading at 17x P/S, using LTM sales, versus Cafe24 IPO, which uses 4.9x LTM sales as its base case IPO price (pre IPO discount). Gabia, a domestic comp, is also trading at 20x P/E using 2017 earnings. </li></ul>

In this report, we provide more detailed analysis of the Cafe24. This IPO is important mainly because it is the first "Tesla" requirements based IPO in the Korean Stock Market this year. Unlike normal IPOs in Korea, the this IPO's prospectus provides a lot more details regarding the company's future earnings forecasts. So far, the three major issues with the company are as follows:Revenue growth assumptions - The company expects its sales to increase 25.6% CAGR from 118.1 billion won in 2016 to 233.9 billion won in 2019 (consolidated basis). Parent-based sales were 101.5 billion won in 2016, up from 60.9 billion won in 2013. The company had a sales increase of 18.6% CAGR from 2013 to 2016 (parent-based). The company expects its higher sales growth to come from internationally and new businesses but there are some concerns about the company's aggressive sales forecasts. Labor cost assumptions - We believe the company's labor costs assumptions are too low. Labor costs as a percentage of sales are expected to decline from 50.8% in 2016 to 47.4% in 2017 to 37.7% in 2018. This is one of the biggest assumptions of the company's earnings forecast. The company expects its sales to increase 33% YoY to 182.4 billion won in 2018. However, it expects to achieve this with only a 6% YoY increase in labor costs to 68.8 billion won in 2018.Valuation comparison to Shopify and Gabia -Shopify Inc (SHOP US) is trading at 17x P/S, using LTM sales, versus Cafe24 IPO, which uses 4.9x LTM sales as its base case IPO price (pre IPO discount). Gabia, a domestic comp, is also trading at 20x P/E using 2017 earnings. 

카페24 IPO 미리보기(2부): 한국의 쇼피파이, 하지만 가격은 얼마일까?

Cafe24 Corp

카페24 IPO 미리보기(2부): 한국의 쇼피파이, 하지만 가격은 얼마일까?