Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">In July 2021, the Krafton and SD Biosensor are expected to complete their IPOs. We expect both of these two IPOs to be duds. The more we think about this, it appears that if indeed Krafton and SD Biosensor IPOs end up doing really poorly, this could upset the entire IPO market and change the investment sentiment for Korean IPOs which has been sizzling hot in the past 15 months.</div>In this insight, we also discuss some of the major new game launches by Krafton and its major competitors in the rest of 2021. <ul>
<li>
Krafton - <a href="https://www.livemint.com/companies/news/kraftons-battlegrounds-mobile-india-receives-over-5-mn-downloads-in-two-days-11624182233199.html" target="_blank" rel="noopener">Battlegrounds Mobile India</a> (BGMI), Battleground: New State, The Callisto Protocol</li>
<li>
Netmarble - Second Country</li>
<li>
Kakao Games - ODIN: Valhalla Rising</li>
<li>
NCsoft - Blade &amp; Soul 2, Project TL (The Lineage), Aion 2</li>
</ul>

In July 2021, the Krafton and SD Biosensor are expected to complete their IPOs. We expect both of these two IPOs to be duds. The more we think about this, it appears that if indeed Krafton and SD Biosensor IPOs end up doing really poorly, this could upset the entire IPO market and change the investment sentiment for Korean IPOs which has been sizzling hot in the past 15 months.In this insight, we also discuss some of the major new game launches by Krafton and its major competitors in the rest of 2021. 

Krafton - Battlegrounds Mobile India (BGMI), Battleground: New State, The Callisto Protocol

Netmarble - Second Country

Kakao Games - ODIN: Valhalla Rising

NCsoft - Blade &amp; Soul 2, Project TL (The Lineage), Aion 2
 

New Games Launches by Krafton & Its Major Competitors in 2021

In this insight, we discuss our initial thoughts on the Krafton IPO. According to the bankers' valuation, the expected market cap of the company is expected to be from 23.7 trillion won to 28.8 trillion won (IPO price range of 458,000 won to 557,000 won).<div class="content-highlight">Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Our valuation sensitivity suggests a valuation range from 18.3 trillion won to 30.6 trillion won. Our base case valuation of 465,055 won is close to the low end of the IPO price range of 458,000 won to 557,000 won. Given the lack of upside, we would PASS on this IPO deal. </div>

In this insight, we discuss our initial thoughts on the Krafton IPO. According to the bankers' valuation, the expected market cap of the company is expected to be from 23.7 trillion won to 28.8 trillion won (IPO price range of 458,000 won to 557,000 won).Our base case valuation of Krafton is an implied market cap of 24.1 trillion won or 465,055 won per share. Our valuation sensitivity suggests a valuation range from 18.3 trillion won to 30.6 trillion won. Our base case valuation of 465,055 won is close to the low end of the IPO price range of 458,000 won to 557,000 won. Given the lack of upside, we would PASS on this IPO deal. 

Initial Thoughts on the Krafton IPO Valuation

<div class="content-highlight">In this insight, we discuss the 9 major risks (excluding valuation issues) for Krafton. Overall, we believe these significant risk factors could result in much lower than expected demand for the Krafton IPO shares, especially among the institutional investors unless the IPO price range is lowered significantly. </div>1) Too much dependent on one game PUBG2) Krafton's big political risk with China (Game for Peace)3) Political risks of operating PUBG in overseas countries such as India  4) Company's sales growth in 2020 helped by COVID-195) Declining sales and profit growth in 1Q 20216) Comparable companies' worsening sales and profit trend in 1Q 20217) Potential acquisitions may not add value8) Expansion into other entertainment related business may involve execution risks9) Insiders are selling too much in this IPO

In this insight, we discuss the 9 major risks (excluding valuation issues) for Krafton. Overall, we believe these significant risk factors could result in much lower than expected demand for the Krafton IPO shares, especially among the institutional investors unless the IPO price range is lowered significantly. 1) Too much dependent on one game PUBG2) Krafton's big political risk with China (Game for Peace)3) Political risks of operating PUBG in overseas countries such as India  4) Company's sales growth in 2020 helped by COVID-195) Declining sales and profit growth in 1Q 20216) Comparable companies' worsening sales and profit trend in 1Q 20217) Potential acquisitions may not add value8) Expansion into other entertainment related business may involve execution risks9) Insiders are selling too much in this IPO 

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

As soon as Krafton submitted its IPO book, it sparked a valuation controversy. Krafton's revenue is still unusually dependent on a single game, PUBG (PlayerUnknown's Battlegrounds). However, even PUBG, which accounts for a significant portion of sales, has markedly slowed its sales growth. Nevertheless, Krafton unreasonably set a high IPO price. The atmosphere of the local street is clear. This level of public offering price is difficult to accept in the market.So, the below DETAIL section details several talking points causing the current valuation controversy.

As soon as Krafton submitted its IPO book, it sparked a valuation controversy. Krafton's revenue is still unusually dependent on a single game, PUBG (PlayerUnknown's Battlegrounds). However, even PUBG, which accounts for a significant portion of sales, has markedly slowed its sales growth. Nevertheless, Krafton unreasonably set a high IPO price. The atmosphere of the local street is clear. This level of public offering price is difficult to accept in the market.So, the below DETAIL section details several talking points causing the current valuation controversy.

Several Controversial Issues About Krafton IPO Valuation

<h2>Offering size</h2>Krafton, one of the hottest IPOs of the year, has released its IPO book. Krafton is a Korean game developer established in March 2007. It offers 10.06M shares, representing 23.25% of the total shares, of which 55~75% will be institutional allocation.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Offering size"}'>Offering size</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TBA"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=Terms!R[1]C[0]">TBA</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Bourse"}'>Bourse</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"KOSPI"}'>KOSPI</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Pre-IPO SO"}'>Pre-IPO SO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43274070}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[1]C[0]">43,274,070</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering"}'>Offering</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10060230}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=Terms!R[3]C[0]">10,060,230</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"- % of SO"}'>- % of SO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.23247709309524156}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[5]C[0]">23.25%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"- Institutional allotment"}'>- Institutional allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"55.00~75.00%"}' data-sheets-formula="=Terms!R[5]C[0]">55.00~75.00%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>Split</h2>This is a split offering at a ratio of 69.88% (primary) and 30.12% (secondary). As a result, this offering will see a capital increase rate of 16.25%. This IPO is free of any additional option: cornerstone, clawback, or greenshoe.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Split"}'>Split</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Primary %"}'>Primary %</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6987911807185323}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[3]C[0]">69.88%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Secondary %"}'>Secondary %</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3012088192814677}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]">30.12%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Post-IPO shares outstanding"}'>Post-IPO shares outstanding</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":53334300}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-9]C[0]+R[-8]C[0]"><span data-sheets-value='{"1":3,"3":50304070}' data-sheets-userformat='{"2":15041,"3":{"1":0},"9":2,"10":1,"12":0,"14":{"1":2,"2":3815996},"15":"Courier New","16":9}' data-sheets-formula="=R[-9]C[0]+Terms!R[2]C[0]">50,304,070</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Capital increase rate"}'>Capital increase rate</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.16245294237403599}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]">16.25%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dilution"}'>Dilution</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.139750123598349}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]">13.98%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>Schedule</h2>The book opens on June 28 for both local and overseas and runs until July 9. The allotment will be on July 12 with a final offering price. The subscription follows on June July 14.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Schedule"}'>Schedule</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book open"}'>Book open</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44375}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 6. 28</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book close"}'>Book close</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44386}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 9</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Allotment"}'>Allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44389}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 12</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription"}'>Subscription</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44391}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 14</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Payment"}'>Payment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44396}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 19</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TBA"}'>TBA</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>Pricing</h2>The IPO book features 7 valuation peers: Walt Disney, NetEase, Activision Blizzard, Take-Two, INC Common Stock, Warner Music, NCSoft, and Netmarble. The earnings used in this valuation are the 1Q21 based annualized earnings. The average P/E multiple came at 45.20x.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PER valuation"}'>PER valuation</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Walt Disney Co"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Walt Disney</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NetEase Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>NetEase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Activision Blizzard, Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Activision Blizzard</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TAKE-TWO INTERACTIVE SOFTWARE, INC Common Stock"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Take-Two Interactive Software</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Warner Music Group Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Warner Music Group</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NCSoft Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>NCSoft</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Netmarble Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Netmarble</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"DIS"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="DIS"'>DIS</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"9999"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="9999"'>9999</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"ATVI"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="ATVI"'>ATVI</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TTWO"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="TTWO"'>TTWO</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"WMG"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="WMG"'>WMG</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"036570"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="036570"'>036570</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"251270"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="251270"'>251270</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":357657.17}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩357,657.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":84181.24}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩84,181.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":82893.153}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩82,893.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23133.711}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩23,133.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":19927.275}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩19,927.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18507.241}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩18,507.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11627.165}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩11,627.2B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4028.263}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩4,028.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3100.659}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩3,100.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2767.475}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩2,767.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":978.282}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩978.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":523.093}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩523.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":323.509}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩323.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":225.698}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩225.7B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"P/E"}'>P/E</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":88.7869461353442}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">88.79x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":27.149467258411843}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">27.15x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":29.952629382379246}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">29.95x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23.64728268536066}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">23.65x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":38.09509016561109}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">38.10x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":57.20780874720642}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">57.21x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":51.51647334048153}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]">51.52x</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Average"}'>Average</td>
<td colspan="7" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":45.2}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}'>45.20x</td>
</tr>
<tr><td colspan="8" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>A 45.20x multiple to a 1Q21-based annualized earnings of ₩776.1B implies a market cap of ₩35.07T for Krafton. <table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PER valuation"}'>PER valuation</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Krafton"}'>Krafton</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1Q21 earnings"}'>1Q21 earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":194.018}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩194.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Annualized earnings"}'>Annualized earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":776.072}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*4">₩776.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"P/E"}'>P/E</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":45.2}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-6]C[0]">45.20x</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":35073.588}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩35,073.6B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Post IPO SO, incl. stock options"}'>Post-IPO SO, incl. stock options</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":51766185}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>51,766,185</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price per share"}'>Price per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":677538.590104718}' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩677,539</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>A 17.79~32.40% discount sets up an indicative price band of ₩458,000~557,000, implying a market cap of ₩23.04~28.02T.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Pricing"}'>Pricing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Low"}'>Low</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"High"}'>High</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":458000}'>₩458,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":557000}'>₩557,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Base deal size"}'>Base deal size</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4607.58534}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩4,607.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5603.54811}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩5,603.5B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Institutional allotment"}'>- Institutional allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2534.171937}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C4">₩2,534.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3081.9514605}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C4">₩3,082.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Implied market cap"}'>Implied market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23039.26406}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-3]C[0]*(Terms!R5C2+Terms!R15C2)/1000000000">₩23,039.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":28019.36699}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-3]C[0]*(Terms!R5C2+Terms!R15C2)/1000000000">₩28,019.4B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Discount"}'>- Discount</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3240237431653699}' data-sheets-formula="=(R23C2-R[-4]C[0])/R23C2">32.40%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.17790660467928177}' data-sheets-formula="=(R23C2-R[-4]C[0])/R23C2">17.79%</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Offering sizeKrafton, one of the hottest IPOs of the year, has released its IPO book. Krafton is a Korean game developer established in March 2007. It offers 10.06M shares, representing 23.25% of the total shares, of which 55~75% will be institutional allocation.





Offering size

Ticker
TBA


Bourse
KOSPI


Pre-IPO SO
43,274,070


Offering
10,060,230


- % of SO
23.25%


- Institutional allotment
55.00~75.00%

Source: DART

SplitThis is a split offering at a ratio of 69.88% (primary) and 30.12% (secondary). As a result, this offering will see a capital increase rate of 16.25%. This IPO is free of any additional option: cornerstone, clawback, or greenshoe.





Split

Primary %
69.88%


Secondary %
30.12%


Post-IPO shares outstanding
50,304,070


Capital increase rate
16.25%


Dilution
13.98%

Source: DART

ScheduleThe book opens on June 28 for both local and overseas and runs until July 9. The allotment will be on July 12 with a final offering price. The subscription follows on June July 14.





Schedule

Book open
2021. 6. 28


Book close
2021. 7. 9


Allotment
2021. 7. 12


Subscription
2021. 7. 14


Payment
2021. 7. 19


Listing
TBA

Source: DART

PricingThe IPO book features 7 valuation peers: Walt Disney, NetEase, Activision Blizzard, Take-Two, INC Common Stock, Warner Music, NCSoft, and Netmarble. The earnings used in this valuation are the 1Q21 based annualized earnings. The average P/E multiple came at 45.20x.












PER valuation
Walt Disney
NetEase
Activision Blizzard
Take-Two Interactive Software
Warner Music Group
NCSoft
Netmarble


Ticker
DIS
9999
ATVI
TTWO
WMG
036570
251270


Market cap
₩357,657.2B
₩84,181.2B
₩82,893.2B
₩23,133.7B
₩19,927.3B
₩18,507.2B
₩11,627.2B


Earnings
₩4,028.3B
₩3,100.7B
₩2,767.5B
₩978.3B
₩523.1B
₩323.5B
₩225.7B


P/E
88.79x
27.15x
29.95x
23.65x
38.10x
57.21x
51.52x


Average
45.20x

Source: DART

A 45.20x multiple to a 1Q21-based annualized earnings of ₩776.1B implies a market cap of ₩35.07T for Krafton. 






PER valuation
Krafton


1Q21 earnings
₩194.0B


Annualized earnings
₩776.1B


P/E
45.20x


Market cap
₩35,073.6B


Post-IPO SO, incl. stock options
51,766,185


Price per share
₩677,539

Source: DART

A 17.79~32.40% discount sets up an indicative price band of ₩458,000~557,000, implying a market cap of ₩23.04~28.02T.







Pricing
Low
High


Price
₩458,000
₩557,000


Base deal size
₩4,607.6B
₩5,603.5B


- Institutional allotment
₩2,534.2B
₩3,082.0B


Implied market cap
₩23,039.3B
₩28,019.4B


- Discount
32.40%
17.79%

Source: DART



Krafton IPO: Offering Detail, Valuation Issue, & Index Fast Entry

South Korea

NCSOFT Corporation develops and markets on-line games that enable users to play over the Internet and computer software, such as web editing software.  The Company also designs and constructs databases, Intranet, and commercial Internet access systems.

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NCSOFT Corp (036570 KS)

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