Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a> reported excellent 2Q 2020 earnings results after the market close today. Due to the much better than expected results, Netmarble Corp's share price is likely to rise sharply tomorrow morning.The company reported sales of 685.7 billion won (up 30.3% YoY and 15.3% higher than the consensus estimates and operating profit of 81.7 billion won (146% YoY and 27.9% higher than the consensus estimates) in 2Q 2020. After today's strong earnings announcement in 2Q 2020, it is likely that the sell-side is likely to raise earnings estimates of the company by at least 10-15% for 2020.Netmarble's stake in four key companies including Coway, NCsoft, Bit Hit Entertainment, and Kakao Games is estimated to be 4.8 trillion won. We have assumed the value of the company's core game business to be 7.8 trillion won, using a 20x EV/EBITDA multiple, and an estimated EBITDA of 390 billion won in 2020. The NAV of the company is 14.4 trillion won or 167,691 won per share, which is 12% higher than the current price.

Netmarble Corporation (251270 KS) reported excellent 2Q 2020 earnings results after the market close today. Due to the much better than expected results, Netmarble Corp's share price is likely to rise sharply tomorrow morning.The company reported sales of 685.7 billion won (up 30.3% YoY and 15.3% higher than the consensus estimates and operating profit of 81.7 billion won (146% YoY and 27.9% higher than the consensus estimates) in 2Q 2020. After today's strong earnings announcement in 2Q 2020, it is likely that the sell-side is likely to raise earnings estimates of the company by at least 10-15% for 2020.Netmarble's stake in four key companies including Coway, NCsoft, Bit Hit Entertainment, and Kakao Games is estimated to be 4.8 trillion won. We have assumed the value of the company's core game business to be 7.8 trillion won, using a 20x EV/EBITDA multiple, and an estimated EBITDA of 390 billion won in 2020. The NAV of the company is 14.4 trillion won or 167,691 won per share, which is 12% higher than the current price. 

Netmarble Corp: Firing on All Cylinders + Earnings Beat Consensus by Big Amount in 2Q 2020

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/big-hit-entertainment" target="_blank" data-smartkarma-citation="entities:28959:1" rel="noopener">Big Hit Entertainment (1255064D KS)</a> is one of the major IPOs that is expected to be completed in Korea in 2H 2020.  The local media have mentioned that Big Hit Entertainment's<a href="https://news.mt.co.kr/mtview.php?no=2020050714000141214" target="_blank" rel="noopener"> valuation</a> could be in the range of 4.0 trillion won to 6.0 trillion won. Big Hit Entertainment is best well known for managing the world-famous BTS Group (Bangtan Boys), which is perhaps the most famous pop band in the world. On 11 May 2020, <a href="https://www.forbes.com/sites/tamarherman/2020/05/10/btss-label-big-hit-entertainment-announces-executive-restructuring/#2a958fb37856" target="_blank" rel="noopener">Big Hit Entertainment</a> announced a major restructuring of its senior management team, adding a third CEO Jiwon Park, who is classified as an "HQ CEO" in charge of the company's headquarters and management. Jiwon Park is the former CEO of Nexon Korea and the global COO of Nexon Japan.The peers are trading at P/S of 2.1x and EV/EBIT of 11.7x in 2019. Among the peers, JYP Entertainment has the highest EV/EBIT of 14.5x in 2019. If we apply a fat EV/EBIT multiple of 40x for Big Hit Entertainment (using the company's estimated EBIT of 98.7 billion won), this would result in an EV of 3.9 trillion won and implied market cap of 4.1 trillion won for Big Hit Entertainment. For many investors, the EV/EBIT multiple of 40x would seem too excessive.

Big Hit Entertainment (1255064D KS) is one of the major IPOs that is expected to be completed in Korea in 2H 2020.  The local media have mentioned that Big Hit Entertainment's valuation could be in the range of 4.0 trillion won to 6.0 trillion won. Big Hit Entertainment is best well known for managing the world-famous BTS Group (Bangtan Boys), which is perhaps the most famous pop band in the world. On 11 May 2020, Big Hit Entertainment announced a major restructuring of its senior management team, adding a third CEO Jiwon Park, who is classified as an "HQ CEO" in charge of the company's headquarters and management. Jiwon Park is the former CEO of Nexon Korea and the global COO of Nexon Japan.The peers are trading at P/S of 2.1x and EV/EBIT of 11.7x in 2019. Among the peers, JYP Entertainment has the highest EV/EBIT of 14.5x in 2019. If we apply a fat EV/EBIT multiple of 40x for Big Hit Entertainment (using the company's estimated EBIT of 98.7 billion won), this would result in an EV of 3.9 trillion won and implied market cap of 4.1 trillion won for Big Hit Entertainment. For many investors, the EV/EBIT multiple of 40x would seem too excessive. 

Initial Thoughts on the Big Hit Entertainment IPO

South Korea

HYBE Co., Ltd. operates as an entertainment company. The Company provides music production, album distribution, entertainers management, publicity, planning, training, and other services. HYBE also makes television shows.

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HYBE (352820 KS)

Netmarble Corp: Firing on All Cylinders + Earnings Beat Consensus by Big Amount in 2Q 2020

Netmarble Corporation (251270 KS) reported excellent 2Q 2020 earnings results after the market close today. Due to the much better than expected...

Douglas Kim

Initial Thoughts on the Big Hit Entertainment IPO

Big Hit Entertainment (1255064D KS) is one of the major IPOs that is expected to be completed in Korea in 2H 2020. The local media have mentioned...

Douglas Kim

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