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.

Event-Driven

<ul>
<li>There are <strong>a total of four ETFs containing Korea's local metaverse stocks</strong>, all listed together on October 13 this year.</li>
<li>Although <strong>many constituent stocks overlap, there is a significant difference in index weight</strong>. It is because there is a difference in the keyword relevance scoring methodology of each index.</li>
<li>So, rather than predicting the exclusion of existing constituents, <strong>having a trading setup on recent IPO stocks with metaverse keywords exposed in media and securities filings</strong> increases the winning percentage.</li>
</ul>


There are a total of four ETFs containing Korea's local metaverse stocks, all listed together on October 13 this year.
Although many constituent stocks overlap, there is a significant difference in index weight. It is because there is a difference in the keyword relevance scoring methodology of each index.
So, rather than predicting the exclusion of existing constituents, having a trading setup on recent IPO stocks with metaverse keywords exposed in media and securities filings increases the winning percentage.


Four Local Metaverse ETFs in Korea: Operation Details & Inclusion Candidates

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/dearu-co-ltd" target="_blank" data-smartkarma-citation="entities:34381:1" rel="noopener">DearU (376300 KS)</a> reported outstanding IPO book building results and the IPO price has been finalized at 26,000 won, which was 8.3% higher than the high end of the IPO price range of 24,000 won. The IPO of DearU will start trading on 10 November. DearU's <a href="http://www.ipo38.co.kr/ipo/index.htm?o=v&amp;key=6&amp;no=1717&amp;l=&amp;page=1" target="_blank" rel="noopener">gray market price</a> is trading at around 33,000 won, which is 27% higher than the IPO price of 26,000 won. </p><p>There were 1,763 institutions that participated in this IPO survey and the demand ratio for the IPO shares were 2,001 to 1. At the price of 26,000 won, it will have a market cap of 572 billion won.  The company will raise 86 billion won in this IPO. </p><p><strong>Valuation of DearU - </strong>Our base case valuation of DearU is implied market cap of 746 billion won or 33,907 won per share, which is 30% higher than the high end of the IPO price of 26,000 won. Given the solid upside, we have a POSITIVE view of the DearU IPO. Our base case valuation is based on a P/E of 33.9x our estimated profit of 22 billion won in 2022. The valuation multiple of 33.9x is based on a 10% premium to the average P/E valuation multiple of the peers in 2022.</p>

DearU (376300 KS) reported outstanding IPO book building results and the IPO price has been finalized at 26,000 won, which was 8.3% higher than the high end of the IPO price range of 24,000 won. The IPO of DearU will start trading on 10 November. DearU's gray market price is trading at around 33,000 won, which is 27% higher than the IPO price of 26,000 won. There were 1,763 institutions that participated in this IPO survey and the demand ratio for the IPO shares were 2,001 to 1. At the price of 26,000 won, it will have a market cap of 572 billion won.  The company will raise 86 billion won in this IPO. Valuation of DearU - Our base case valuation of DearU is implied market cap of 746 billion won or 33,907 won per share, which is 30% higher than the high end of the IPO price of 26,000 won. Given the solid upside, we have a POSITIVE view of the DearU IPO. Our base case valuation is based on a P/E of 33.9x our estimated profit of 22 billion won in 2022. The valuation multiple of 33.9x is based on a 10% premium to the average P/E valuation multiple of the peers in 2022.

<p>KRX officially announced today that it would not apply the volatility interruption on the first day of listing for newly listed stocks from <strong>October 18th</strong>.</p><p><strong>Both dynamic VI and static VI do not apply on the listing date.</strong> However, in the case of a transfer listing from the KOSDAQ to the KOSPI or a transfer listing from the KOSPI to the KOSDAQ, the current VI continues to apply. However, it won't apply for a transfer from KONEX to KOSDAQ.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/793/original/1.png?1632975345" class="editor-image img-responsive" data-smartkarma-image-id="232793"></figure></section><div class="content-caption">(Source: KRX)</div><div class="content-highlight"><p>Attached below is the full version of the press release by the KRX.</p></div><p>KRX cited as the reason for this rule change that, although it is a natural phenomenon that price fluctuations accompany the process of finding a fair price on the listing date, the VI was excessively triggered in the recent listings, which undermines transaction continuity.</p><p>In particular, there has been frequent VI activation immediately after the opening, where many investors participated, caused many problems by stopping trading and delaying the discovery of a fair price. Therefore, through this measure, KRX expects to improve the process of finding a fair price for newly listed stocks by increasing transaction continuity on the listing date.</p>

KRX officially announced today that it would not apply the volatility interruption on the first day of listing for newly listed stocks from October 18th.Both dynamic VI and static VI do not apply on the listing date. However, in the case of a transfer listing from the KOSDAQ to the KOSPI or a transfer listing from the KOSPI to the KOSDAQ, the current VI continues to apply. However, it won't apply for a transfer from KONEX to KOSDAQ.(Source: KRX)Attached below is the full version of the press release by the KRX.KRX cited as the reason for this rule change that, although it is a natural phenomenon that price fluctuations accompany the process of finding a fair price on the listing date, the VI was excessively triggered in the recent listings, which undermines transaction continuity.In particular, there has been frequent VI activation immediately after the opening, where many investors participated, caused many problems by stopping trading and delaying the discovery of a fair price. Therefore, through this measure, KRX expects to improve the process of finding a fair price for newly listed stocks by increasing transaction continuity on the listing date.

No VI (Volatility Interruption) Applies to Korean IPO Stocks on the Listing Date After October 18

<h2>Offering terms</h2><p>Dear U, a fan messenger company invested by SM Entertainment and JPY Entertainment, will be listed on the KOSDAQ market in November. The total offering is 3.3 million, representing 17.92% of the current number of shares. The institutional allotment is 60% of the offering.</p><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":"DEAR U Co.,Ltd."}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[0]C[-3]">DEAR U Co., Ltd.</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":18412769}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[1]C[-3]">18,412,769</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering"}'><strong>Offering</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3300000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[3]C[-3]"><strong>3,300,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"- % of SO"}'><strong>- % of SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1792234508563052}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[5]C[-3]"><strong>17.92%</strong></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":0.6}' data-sheets-numberformat='{"1":3,"2":"0%","3":1}' data-sheets-formula="=Terms!R[5]C[-3]">60%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>It is a 100% primary offering, so the capital increase rate is 17.92%, and the share dilution is 15.20%.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Split"}'>Split</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Primary %"}'><strong>Primary %</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[3]C[-3]"><strong>100.00%</strong></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":21712769}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-9]C[0]+Terms!R[2]C[-3]">21,712,769</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Capital increase rate"}'><strong>Capital increase rate</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1792234508563052}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[-3]"><strong>17.92%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dilution"}'>Dilution</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.15198430011390993}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[-3]">15.20%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>The indicative price band is ₩18,000~₩24,000. So, based on this band, the IPO valuation is between ₩390B and ₩520B. The company plans to raise ₩79.2B based on the upper end of the price band.</p><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"}'><strong>Price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18000}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩18,000</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":24000}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩24,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Base deal size"}'><strong>Base deal size</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":59.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000"><strong>₩59.4B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":79.2}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000"><strong>₩79.2B</strong></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":35.64}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R7C5">₩35.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":47.52}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*Terms!R7C5">₩47.5B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Implied market cap"}'><strong>Implied market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":390.829842}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-3]C[0]*Terms!R13C5/1000000000"><strong>₩390.8B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":521.106456}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-3]C[0]*Terms!R13C5/1000000000"><strong>₩521.1B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Discount"}'>- Discount</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3414312893311869}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(27332-R[-4]C[0])/27332">34.14%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.12190838577491585}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(27332-R[-4]C[0])/27332">12.19%</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>The company selected four valuation peers: JYP Entertainment, Cube Entertainment, Kakao, and YG Plus.</p><p>They came up with an IPO valuation of ₩600B by multiplying a 1H21-based annualized net profit of ₩11.24B by the average PER of the four valuation peers (53.46x). The price per share arrived at ₩27,332, and they applied a discount rate of 12.19~34.14% to derive the price band.</p><table class="table table-striped">
<colgroup>
<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":"JYP Entertainment Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Cube Entertainment Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Cube Entertainment Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Kakao Corp"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Kakao Corp</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"YG Plus Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>YG Plus Inc</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"035900"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="035900"'>035900</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"182360"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="182360"'>182360</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"035720"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="035720"'>035720</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"037270"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="037270"'>037270</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Annualized net profit based on 1H21"}'>Annualized net profit based on 1H21</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33.736403}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B","3":1}'>₩33.74B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.145899}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B","3":1}'>₩3.15B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1072.392165}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B","3":1}'>₩1,072.39B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.080872}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B","3":1}'>₩7.08B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shares outstanding"}'>Shares outstanding</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":35497492}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>35,497,492</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":13804687}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>13,804,687</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":444992180}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>444,992,180</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":63429410}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>63,429,410</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EPS"}'>EPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":950.388354196967}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩950</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":227.88629687873402}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩228</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2409.9123831794077}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩2,410</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":111.63389348884058}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩112</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Reference share price"}'>Reference share price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":40050}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩40,050</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":13116}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩13,116</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":122500}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩122,500</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7070}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩7,070</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PER"}'><strong>PER</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":42.140667889223394}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x"}' data-sheets-formula="=R[-1]C[0]/R[-2]C[0]"><strong>42.14x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":57.55501835627908}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x"}' data-sheets-formula="=R[-1]C[0]/R[-2]C[0]"><strong>57.56x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":50.831723532780565}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x"}' data-sheets-formula="=R[-1]C[0]/R[-2]C[0]"><strong>50.83x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":63.332020222933}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x"}' data-sheets-formula="=R[-1]C[0]/R[-2]C[0]"><strong>63.33x</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Average PER"}'><strong>Average PER</strong></td>
<td colspan="4" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":53.46485750030401}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x"}' data-sheets-formula="=average(R[-1]C[0]:R[-1]C[3])"><strong>53.46x</strong></td>
</tr>
<tr><td colspan="5" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><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":"PER valuation"}'>PER valuation</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Annualized net profit based on 1H21"}'><strong>Annualized net profit based on 1H21</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11.244}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B","3":1}'><strong>₩11.24B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shares outstanding"}'>Shares outstanding</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21994260}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>21,994,260</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EPS"}'>EPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":511}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩511</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PER"}'>PER</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":53.46485750030401}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x"}' data-sheets-formula="=R[-7]C[0]">53.46x</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price per share"}'><strong>Price per share</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":27332}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'><strong>₩27,332</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>The book opens on October 25, and the allotment will be unveiled on October 28. The subscription follows on November 1, followed by the payment on November 4. The listing date will be announced later.</p><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"}'><strong>Book open</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44494}' data-sheets-numberformat='{"1":5,"2":"yyyy\". \"mm\". \"dd","3":1}'><strong>2021. 10. 25</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book close"}'><strong>Book close</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44495}' data-sheets-numberformat='{"1":5,"2":"yyyy\". \"mm\". \"dd","3":1}'><strong>2021. 10. 26</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Allotment"}'>Allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44497}' data-sheets-numberformat='{"1":5,"2":"yyyy\". \"mm\". \"dd","3":1}'>2021. 10. 28</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription"}'>Subscription</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44501}' data-sheets-numberformat='{"1":5,"2":"yyyy\". \"mm\". \"dd","3":1}'>2021. 11. 01</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Payment"}'><strong>Payment</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44504}' data-sheets-numberformat='{"1":5,"2":"yyyy\". \"mm\". \"dd","3":1}'><strong>2021. 11. 04</strong></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>

Offering termsDear U, a fan messenger company invested by SM Entertainment and JPY Entertainment, will be listed on the KOSDAQ market in November. The total offering is 3.3 million, representing 17.92% of the current number of shares. The institutional allotment is 60% of the offering.





Offering size

Ticker
DEAR U Co., Ltd.


Bourse
KOSPI


Pre-IPO SO
18,412,769


Offering
3,300,000


- % of SO
17.92%


- Institutional allotment
60%

Source: DART

It is a 100% primary offering, so the capital increase rate is 17.92%, and the share dilution is 15.20%.





Split

Primary %
100.00%


Post-IPO shares outstanding
21,712,769


Capital increase rate
17.92%


Dilution
15.20%

Source: DART

The indicative price band is ₩18,000~₩24,000. So, based on this band, the IPO valuation is between ₩390B and ₩520B. The company plans to raise ₩79.2B based on the upper end of the price band.







Pricing
Low
High


Price
₩18,000
₩24,000


Base deal size
₩59.4B
₩79.2B


- Institutional allotment
₩35.6B
₩47.5B


Implied market cap
₩390.8B
₩521.1B


- Discount
34.14%
12.19%

Source: DART

The company selected four valuation peers: JYP Entertainment, Cube Entertainment, Kakao, and YG Plus.They came up with an IPO valuation of ₩600B by multiplying a 1H21-based annualized net profit of ₩11.24B by the average PER of the four valuation peers (53.46x). The price per share arrived at ₩27,332, and they applied a discount rate of 12.19~34.14% to derive the price band.









PER valuation
JYP Entertainment Corp
Cube Entertainment Inc
Kakao Corp
YG Plus Inc


Ticker
035900
182360
035720
037270


Annualized net profit based on 1H21
₩33.74B
₩3.15B
₩1,072.39B
₩7.08B


Shares outstanding
35,497,492
13,804,687
444,992,180
63,429,410


EPS
₩950
₩228
₩2,410
₩112


Reference share price
₩40,050
₩13,116
₩122,500
₩7,070


PER
42.14x
57.56x
50.83x
63.33x


Average PER
53.46x

Source: DART







PER valuation

Annualized net profit based on 1H21
₩11.24B


Shares outstanding
21,994,260


EPS
₩511


PER
53.46x


Price per share
₩27,332

Source: DART

The book opens on October 25, and the allotment will be unveiled on October 28. The subscription follows on November 1, followed by the payment on November 4. The listing date will be announced later.





Schedule

Book open
2021. 10. 25


Book close
2021. 10. 26


Allotment
2021. 10. 28


Subscription
2021. 11. 01


Payment
2021. 11. 04


Listing
TBA

Source: DART



Dear U Offering Terms, Feat. Put-Back Options at 90% of the Offering Price

<div class="content-highlight"><p>Our base case valuation of DearU is implied market cap of 746 billion won or 33,907 won per share, which is 41% higher than the high end of the IPO price range of 24,000 won. Given the solid upside, we have a POSITIVE view of the DearU IPO and we would subscribe to the deal.</p></div><p>Our base case valuation is based on a P/E of 33.9x our estimated profit of 22 billion won in 2022. The valuation multiple of 33.9x is based on a 10% premium to the average P/E valuation multiple of the peers in 2022. We have used a 10% premium mainly due to the much higher sales growth rate of the company as well as higher operating margin of DearU as compared to its peers, despite its lower sales and earnings base. </p><p>We estimate DearU to generate sales of 40.5 billion won in 2021, up 210.7% YoY and 67.7 billion won in sales in 2022, up 67% YoY. We also estimate the company to generate an operating profit of 13.4 billion won in 2021 and 22 billion won in 2022. This represents an operating margin of 33.1% in 2021 and 32.5% in 2022.</p>

Our base case valuation of DearU is implied market cap of 746 billion won or 33,907 won per share, which is 41% higher than the high end of the IPO price range of 24,000 won. Given the solid upside, we have a POSITIVE view of the DearU IPO and we would subscribe to the deal.Our base case valuation is based on a P/E of 33.9x our estimated profit of 22 billion won in 2022. The valuation multiple of 33.9x is based on a 10% premium to the average P/E valuation multiple of the peers in 2022. We have used a 10% premium mainly due to the much higher sales growth rate of the company as well as higher operating margin of DearU as compared to its peers, despite its lower sales and earnings base. We estimate DearU to generate sales of 40.5 billion won in 2021, up 210.7% YoY and 67.7 billion won in sales in 2022, up 67% YoY. We also estimate the company to generate an operating profit of 13.4 billion won in 2021 and 22 billion won in 2022. This represents an operating margin of 33.1% in 2021 and 32.5% in 2022.

South Korea

Dear U Co Ltd develops and produces application software. The Company provides mobile karaoke services, artist-only fan community platform and other services. Dear U offers services worldwide.

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