Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>After a terrible IPO book building results, K Car's shares have rallied nicely in the past several days. </li>
<li>The company generated sales of 1,400.6 billion won (up 42% YoY) and operating profit of 56.9 billion won (up 88.8% YoY) in 1Q-3Q 2021.</li>
<li>Our base to high case valuation of K Car is 38,809 won and 46,959 won, respectively, which represent 12% and 35% higher upside versus current price.</li>
</ul>


After a terrible IPO book building results, K Car's shares have rallied nicely in the past several days. 
The company generated sales of 1,400.6 billion won (up 42% YoY) and operating profit of 56.9 billion won (up 88.8% YoY) in 1Q-3Q 2021.
Our base to high case valuation of K Car is 38,809 won and 46,959 won, respectively, which represent 12% and 35% higher upside versus current price.


K Car's Share Price Roars Higher Driven by a Greater Demand for Online Purchase of Used Vehicles

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.

Equity Capital Markets

SubscriptionThe offering price got finalized at ₩25,000, even much lower than the lower end of the indicative price band. As a result, it gets to raise ₩337B through this IPO, with an implied market cap of ₩1.22T.





Final pricing

Price
₩25,000


: Total offering
13,464,231


: Primary
1,202,164


: Secondary
12,262,067


Base deal size
₩336.6B


: Institutional allotment
₩231.4B


Implied market cap
₩1,222.5B


: Discount
56.00%

Source: DART

The bookbuilding result fell far short of meeting the initial expectations. The competition rate for institutional subscriptions remained at 40 to 1. So, yes, it was virtually the lowest among this year's +₩1T big IPOs, even compared to Krafton (274 to 1). K Car also performed poorly in the retail subscription, which ended at 8.7 to 1, the third-lowest among this year's IPOs.The subscription participation rate is so low that the proportion of each institutional investor type does not mean much. Nevertheless, let's take a closer look. It appears that the proportion of institutional investors with long-term holding tendencies is relatively large, which is at least a good thing for an IPO that has performed so poorly in the bookbuilding.









By investor type
Number of participating institutions
%
Orders applied
%


1. Local publicly raised funds
186
50.13%
100,058,000
33.78%


2. Local brokerages/investment advisories
9
2.43%
52,000
0.02%


3. Local pensions, funds managing proprietary assets, banks, and insurance companies
56
15.09%
63,108,000
21.31%


4. Local - Other (discretionary investment companies, primarily local hedge funds)
69
18.60%
64,045,000
21.62%


5. Foreign (foreign IPO funds &amp; hedge funds)
51
13.75%
68,929,968
23.27%


6. Foreign - Other (mostly local hot money)
0
0.00%
0
0.00%


Total
371
100.00%
296,192,968
100.00%


Subscription rate
40.00

Source: DART

Looking at the order quantity by price range, more than ₩43,200 (the upper end) is close to half. In other words, few institutions have approached this IPO quite positively and aggressively. So, the outcome of this IPO's institutional subscription wasn't the worst. However, because too few institutional investors participated, and about 70% priced it below ₩34,300 (the lower end), the issuer has decided to go super conservative on the pricing.









By price
Number of participating institutions
%
Orders applied
%


&gt; ₩43,200
63
17.00%
142,541,278
48.10%


₩34,300 ~ ₩43,200
54
14.60%
36,579,369
12.30%


&lt; ₩34,300
245
66.00%
114,946,320
38.80%


Unspecified
9
2.40%
2,126,000
0.70%


Total
371
100.00%
296,192,968
100.00%

Source: DART


Allocation
We had a huge amount of forfeited shares from the ESOP, which all went to the institutions, bringing up the institutional allocation weight close to 75%. The remaining 25% went to local retail. Most institutional allocation went to local institutions, and those with relatively long-term holding tendencies have taken two-thirds of it.
On the other hand, the foreign institutional proportion isn't high, accounting for 10% of the total offering and 14% of the institutional allocation. But for an IPO of this size and this much low participation overall, this 10% of the total offering allocated to foreign institutions should be somewhat surprising (in a positive way).









Allocation by type
Holding tendencies
Final, % of the offering
Final, % of post-IPO SO


Institutional total
-
72.70%
20.37%

 

Local publicly raised funds
Long-term
36.45%
10.21%


Local brokerages/investment advisories
Short-term
1.76%
0.49%


Local pensions, funds managing proprietary assets, banks, and insurance companies 
Long-term (pensions) &amp; short-term (proprietary asset managers)
10.97%
3.07%


Local - Other (mostly discretionary investment companies - local hedge funds)
Mainly, short-term
13.52%
3.79%


Foreign (foreign IPO funds &amp; hedge funds) 
Depends
9.99%
2.80%


Foreign - Other (mostly local hot money)
Short-term
0.00%
0.00%



Retail
-
25.00%
7.00%


ESOP
1-year lockup
2.30%
0.63%


Total
-
100.00%
28.00%

Source: DART




K Car Listing: Final Allocation, Lockup Schedule, & Immediate Float

Event-Driven

<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

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<p><a href="https://www.smartkarma.com/entities/k-car" target="_blank" data-smartkarma-citation="entities:34118:1" rel="noopener">K Car (381970 KS)</a> priced its IPO at KRW25,000 per share, 27% below the bottom-end of its initial IPO price range. The total number of shares sold down was also reduced to 13.5m from 16.8m shares. The company raised about US$291m.</p><p>K Car is a used car marketplace and dealership operating in South Korea. The company operates 41 offline dealership branches across South Korea, as of July, 2021. The company also operates online platforms like <a href="https://www.smartkarma.com/compose/insight/58275/www.kcar.com" target="_blank" rel="noopener">www.kcar.com</a> and K Car App that allows customers to purchase used cars.</p><p>In this note, we will look at the breakdown of institutional demand and valuation at the new price.</p><p>Our previous coverage of the IPO:</p><ul>
<li>
<a href="https://www.smartkarma.com/insights/k-car-ipo-peer-comparison-and-valuation" target="_blank" data-smartkarma-citation="insights:57281" rel="noopener">K Car IPO - Peer Comparison and Valuation</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/k-car-pre-ipo-dominant-leadership-in-the-online-space" target="_blank" data-smartkarma-citation="insights:57212" rel="noopener">K Car Pre-IPO - Dominant Leadership in the Online Space</a> </li>
</ul>

K Car (381970 KS) priced its IPO at KRW25,000 per share, 27% below the bottom-end of its initial IPO price range. The total number of shares sold down was also reduced to 13.5m from 16.8m shares. The company raised about US$291m.K Car is a used car marketplace and dealership operating in South Korea. The company operates 41 offline dealership branches across South Korea, as of July, 2021. The company also operates online platforms like www.kcar.com and K Car App that allows customers to purchase used cars.In this note, we will look at the breakdown of institutional demand and valuation at the new price.Our previous coverage of the IPO:

K Car IPO - Peer Comparison and Valuation 

K Car Pre-IPO - Dominant Leadership in the Online Space 


K Car IPO - Insti Demand Breakdown and Pricing

<h2>Bookbuilding Results of K Car IPO</h2><p><a href="https://www.smartkarma.com/entities/k-car" target="_blank" data-smartkarma-citation="entities:34118:1" rel="noopener">K Car (381970 KS)</a> announced today that the <a href="https://www.newsis.com/view/?id=NISX20210929_0001597864&amp;cID=15001&amp;pID=15000" target="_blank" rel="noopener">IPO price</a> has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. </p><p>On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> and <a href="https://www.smartkarma.com/entities/lotte-rental-co-ltd" target="_blank" data-smartkarma-citation="entities:33445:1" rel="noopener">Lotte Rental (089860 KS)</a>. Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  </p><div class="content-highlight">
<p>We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.</p>
<p>We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). </p>
</div>

Bookbuilding Results of K Car IPOK Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including  Krafton Inc (259960 KS) and Lotte Rental (089860 KS). Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  
We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.
We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). 


South Korea

K Car Co., Ltd. retails used automobiles. The Company distributes sedans, commercial vehicles, light trucks, utility vehicles, used vehicles, and other related automobiles. K Car markets its products throughout South Korea.

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K Car (381970 KS)

K Car Listing: Final Allocation, Lockup Schedule, & Immediate Float

K Car's final allocation results are out. This post summarizes the allocation, lockup schedule, and immediate float of the K Car listing.

Sanghyun Park

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

The KRX made it official that no VI (volatility interruption) applies to IPO stocks on the listing date after October 18. This post details the...

Sanghyun Park

K Car IPO - Insti Demand Breakdown and Pricing

K Car (381970 KS) priced its IPO at KRW25,000 per share, 27% below the bottom-end of its initial IPO price range. The total number of shares sold...

Sumeet Singh

K-Car IPO Bookbuilding Results Analysis

K Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and...

Douglas Kim

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K Car's Share Price Roars Higher Driven by a Greater Demand for Online Purchase of Used Vehicles

K Car's share price has roared back in the past couple of days after trading in a range post the IPO. A bullish Goldman Sachs report has been a key...

Douglas Kim

K Car Listing: Final Allocation, Lockup Schedule, & Immediate Float

K Car's final allocation results are out. This post summarizes the allocation, lockup schedule, and immediate float of the K Car listing.

Sanghyun Park

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

The KRX made it official that no VI (volatility interruption) applies to IPO stocks on the listing date after October 18. This post details the...

Sanghyun Park

K Car IPO - Insti Demand Breakdown and Pricing

K Car (381970 KS) priced its IPO at KRW25,000 per share, 27% below the bottom-end of its initial IPO price range. The total number of shares sold...

Sumeet Singh

K-Car IPO Bookbuilding Results Analysis

K Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and...

Douglas Kim