Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

In this insight, we provide an updated valuation of <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>. We believe now is the time to go Underweight on Naver Corp, which is up 51% YTD versus KOSPI which is up 16% in the same period.There are three major reasons why we believe investors should Underweight Naver Corp now.<ul>
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First, our valuation analysis suggests that Naver Corp shares are overvalued.</li>
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Second, we believe there could be a major shift in capital allocations away from some of the biggest beneficiaries of COVID-19 this year.</li>
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Third, we believe the new partnership between Amazon &amp; 11st could pose a greater competitive threat to the entire e-commerce industry, negatively impacting Naver's e-commerce business.</li>
</ul>

In this insight, we provide an updated valuation of Naver Corp (035420 KS). We believe now is the time to go Underweight on Naver Corp, which is up 51% YTD versus KOSPI which is up 16% in the same period.There are three major reasons why we believe investors should Underweight Naver Corp now.

First, our valuation analysis suggests that Naver Corp shares are overvalued.

Second, we believe there could be a major shift in capital allocations away from some of the biggest beneficiaries of COVID-19 this year.

Third, we believe the new partnership between Amazon &amp; 11st could pose a greater competitive threat to the entire e-commerce industry, negatively impacting Naver's e-commerce business.


Naver - Time to Go Underweight (Covid Recovery + Amazon)

We believe now is the time to go Underweight on Kakao Corp, which has been one of the best-performing stocks in KOSPI this year.There are two major reasons why we believe investors should Underweight Kakao Corp now. First, our SoTP valuation analysis suggests Kakao Corp shares are overvalued. Second, the fact that there are now two credible vaccines against COVID-19 including those developed by Moderna and Pfizer which suggests that COVID-19 could become more manageable and less deadly around the world in 2021. One of the key reasons why Kakao Corp's shares soared this year has been due to the continued concerns about COVID-19 and the company's strengths in digital, "non-contact" business areas including online games, fintech, and other digital services. COVID-19 has actually accelerated the numerous businesses of Kakao Corp and its affiliates and pushed up its share price this year. Our base case valuation of Kakao Corp suggests an implied value of 296,066 won per share, representing an 18.2% downside risk from current levels. The SoTP valuation is broken down into the company's investments in a) public companies, b) private companies, c) Kakao Corp's core business, d) net cash and e) holdco discount.

We believe now is the time to go Underweight on Kakao Corp, which has been one of the best-performing stocks in KOSPI this year.There are two major reasons why we believe investors should Underweight Kakao Corp now. First, our SoTP valuation analysis suggests Kakao Corp shares are overvalued. Second, the fact that there are now two credible vaccines against COVID-19 including those developed by Moderna and Pfizer which suggests that COVID-19 could become more manageable and less deadly around the world in 2021. One of the key reasons why Kakao Corp's shares soared this year has been due to the continued concerns about COVID-19 and the company's strengths in digital, "non-contact" business areas including online games, fintech, and other digital services. COVID-19 has actually accelerated the numerous businesses of Kakao Corp and its affiliates and pushed up its share price this year. Our base case valuation of Kakao Corp suggests an implied value of 296,066 won per share, representing an 18.2% downside risk from current levels. The SoTP valuation is broken down into the company's investments in a) public companies, b) private companies, c) Kakao Corp's core business, d) net cash and e) holdco discount. 

Kakao Corp SoTP Valuation - Time To Go Underweight

Event-Driven

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Various local<a href="http://m.koreatimes.co.kr/pages/article.asp?newsIdx=297586" target="_blank" rel="noopener"> media</a> reported today that <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and three CJ Group related companies, including <a href="https://www.smartkarma.com/entities/cj-korea-express-corp" target="_blank" data-smartkarma-citation="entities:11557:1" rel="noopener">CJ Logistics (000120 KS)</a>, <a href="https://www.smartkarma.com/entities/cj-enm" target="_blank" data-smartkarma-citation="entities:8887:1" rel="noopener">CJ ENM (035760 KS)</a>, and <a href="https://www.smartkarma.com/entities/studio-dragon-corp" target="_blank" data-smartkarma-citation="entities:24255:1" rel="noopener">Studio Dragon (253450 KS)</a> are considering strategic stock swaps. In other words, Naver would receive a certain number of shares of CJ Logistics, CJ ENM, and Studio Dragon in exchange for a certain number of Naver shares. 
If the big stock swap deals between Naver and the three CJ Group related companies are completed, the total amount of stock deals is expected to be about 800 billion won to 1 trillion won. 
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Various local media reported today that Naver Corp (035420 KS) and three CJ Group related companies, including CJ Logistics (000120 KS), CJ ENM (035760 KS), and Studio Dragon (253450 KS) are considering strategic stock swaps. In other words, Naver would receive a certain number of shares of CJ Logistics, CJ ENM, and Studio Dragon in exchange for a certain number of Naver shares. 
If the big stock swap deals between Naver and the three CJ Group related companies are completed, the total amount of stock deals is expected to be about 800 billion won to 1 trillion won. 


Big Stock Swaps Between Naver & 3 CJ Group Companies - Why?

Private Capital Markets

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OneStore, the third-largest app market operator in Korea, is owned by SK Telecom. OneStore is expected to complete its IPO in <a href="https://en.yna.co.kr/view/AEN20200929009400320" target="_blank" rel="noopener">2021.</a> The local media have mentioned the value of OneStore to be between 1 trillion won to <a href="http://www.businesspost.co.kr/BP?command=article_view&amp;num=196943" target="_blank" rel="noopener">2 trillion won. </a>
OneStore's market share increased sharply from 12.9% in June to 14.1% in July and 18.4% in August. The key reason for this sharp increase in OneStore's market share is due to Google Playstore's recent decision to enforce a 30% fee for all in-app digital content purchases. The sharp increase in market share has been one of the main reasons why the market valuation estimates of OneStore have recently increased from about 1 trillion ton to nearly 2 trillion won. 
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OneStore, the third-largest app market operator in Korea, is owned by SK Telecom. OneStore is expected to complete its IPO in 2021. The local media have mentioned the value of OneStore to be between 1 trillion won to 2 trillion won. 
OneStore's market share increased sharply from 12.9% in June to 14.1% in July and 18.4% in August. The key reason for this sharp increase in OneStore's market share is due to Google Playstore's recent decision to enforce a 30% fee for all in-app digital content purchases. The sharp increase in market share has been one of the main reasons why the market valuation estimates of OneStore have recently increased from about 1 trillion ton to nearly 2 trillion won. 


Cross Asset Strategy

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It has been nearly five years that I have contributed on the Smartkarma research platform. In this insight, I share some of the details of the 12 major "bread &amp; butter" IPOs &amp; EVENT-DRIVEN trading strategies in Korea. The main purpose of this insight is to provide a broad overview of the key investment strategies of these IPOs &amp; event-driven strategies in Korea so that the readers become more aware of them and put them into action on a repeatable and consistent basis. 
Nonetheless, I would like to emphasize that although these IPOs &amp; EVENT-DRIVEN (also called Special Situations) strategies are put into 12 major categories, the art of investing is capitalizing on the optimal risk/reward opportunities of each investment, which is often a BEAST of its own.
</div>The following are the 12 major IPOs &amp; EVENT-DRIVEN trading strategies in Korea that I have detailed in this report:<ul>
<li>IPOs (Take Partial Profits at 100% of IPO Price) &amp; Let the Winners Run</li>
<li>IPOs (Track the Key Shareholding Companies Ahead of IPOs)</li>
<li>Big Share Transfer from Chairman/Chairwoman to Children</li>
<li>Holding Companies (Pre-Formations &amp; Pair Trades)</li>
<li>Indices Inclusions &amp; Exclusions (Index Arbitrage)</li>
<li>Share Buybacks, Owners Purchases, &amp; Stock Option Grants</li>
<li>Rights Offerings: Short the Stock (Pre Rights Offering) &amp; Buy the Rights or Subscribe to the Newly Issued Shares at Discount</li>
<li>Restructuring &amp; Change in CEO</li>
<li>Spin-Offs, Split-Offs, and Carve-Outs</li>
<li>Prefs vs. Common</li>
<li>Placements</li>
<li>Mergers &amp; Acquisitions/Tender Offers/Activism</li>
</ul>


It has been nearly five years that I have contributed on the Smartkarma research platform. In this insight, I share some of the details of the 12 major "bread &amp; butter" IPOs &amp; EVENT-DRIVEN trading strategies in Korea. The main purpose of this insight is to provide a broad overview of the key investment strategies of these IPOs &amp; event-driven strategies in Korea so that the readers become more aware of them and put them into action on a repeatable and consistent basis. 
Nonetheless, I would like to emphasize that although these IPOs &amp; EVENT-DRIVEN (also called Special Situations) strategies are put into 12 major categories, the art of investing is capitalizing on the optimal risk/reward opportunities of each investment, which is often a BEAST of its own.
The following are the 12 major IPOs &amp; EVENT-DRIVEN trading strategies in Korea that I have detailed in this report:
IPOs (Take Partial Profits at 100% of IPO Price) &amp; Let the Winners Run
IPOs (Track the Key Shareholding Companies Ahead of IPOs)
Big Share Transfer from Chairman/Chairwoman to Children
Holding Companies (Pre-Formations &amp; Pair Trades)
Indices Inclusions &amp; Exclusions (Index Arbitrage)
Share Buybacks, Owners Purchases, &amp; Stock Option Grants
Rights Offerings: Short the Stock (Pre Rights Offering) &amp; Buy the Rights or Subscribe to the Newly Issued Shares at Discount
Restructuring &amp; Change in CEO
Spin-Offs, Split-Offs, and Carve-Outs
Prefs vs. Common
Placements
Mergers &amp; Acquisitions/Tender Offers/Activism


12 Major IPOs & Event-Driven Trading Strategies in the Korean Stock Market

South Korea

Naver Corp. provides Internet site with web portal services, such as search engine, online game and content development.  The Company also offers marketing service through text and banner advertisement.

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Naver Corp (035420 KS)

Naver - Time to Go Underweight (Covid Recovery + Amazon)

In this insight, we provide an updated valuation of Naver Corp (035420 KS). We believe now is the time to go Underweight on Naver Corp, which is up...

Douglas Kim

Kakao Corp SoTP Valuation - Time To Go Underweight

We believe now is the time to go Underweight on Kakao Corp. Our base case valuation suggests an implied value of 296,066 won per share,...

Douglas Kim

Big Stock Swaps Between Naver & 3 CJ Group Companies - Why?

If the big stock swap deals between Naver and the three CJ Group related companies are completed, the total amount of stock deals is expected to be...

Douglas Kim

Initial Thoughts on the OneStore IPO

OneStore's market share increased sharply from 12.9% in June to 18.4% in August, mainly due to Google Playstore's recent decision to enforce a 30%...

Douglas Kim

12 Major IPOs & Event-Driven Trading Strategies in the Korean Stock Market

https://mergerarbitragelimited.com/event-driven-investment-strategies/

Douglas Kim

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