Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p>In this insight, we provide our initial thoughts on the Kakao Japan IPO. In May 2021, Kakao Japan received an investment worth 600 billion won, led by the private equity group Anchor Equity Partners and other overseas sovereign wealth funds. According to the company, Kakao Japan is valued at about <a href="https://www.donga.com/en/article/all/20210521/2662930/1/Kakao-Japan-draws-investment-worth-600-billion-won" target="_blank" rel="noopener">8.8 trillion won</a> ($8 billion), based on the recent funding. After the IPO, it is estimated that the value of Kakao Japan could be more than 10 trillion won ($9 billion). </p><div class="content-highlight"><p>If we assume a value of 10 trillion won for Kakao Japan, this would represent 12.8% of Kakao Corp's market cap. If Kakao Japan is valued at 15 trillion won, this would represent 19.2% of Kakao Corp's market cap.</p></div>

In this insight, we provide our initial thoughts on the Kakao Japan IPO. In May 2021, Kakao Japan received an investment worth 600 billion won, led by the private equity group Anchor Equity Partners and other overseas sovereign wealth funds. According to the company, Kakao Japan is valued at about 8.8 trillion won ($8 billion), based on the recent funding. After the IPO, it is estimated that the value of Kakao Japan could be more than 10 trillion won ($9 billion). If we assume a value of 10 trillion won for Kakao Japan, this would represent 12.8% of Kakao Corp's market cap. If Kakao Japan is valued at 15 trillion won, this would represent 19.2% of Kakao Corp's market cap.

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.

<p>Kakao Japan, a subsidiary of <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, appears to be accelerating its IPO process.</p><p>The local news outlet, Seoul Economic Daily, exclusively reports that Kakao Japan has sent a request for a proposal (RFP) to the local brokerages in Japan to recruit additional bankers for an IPO. So far, it has chosen Nomura as a lead underwriter.</p><p>An unnamed Kakao official said that Kakao Japan is seeking additional underwriters as it now anticipates a larger offering size amid the rapid growth of Piccoma (ピッコマ).</p><div class="content-highlight"><p><em>Piccoma (ピッコマ) is a Japanese manga subscription service that is available on smartphones, tablets, and personal computers developed and released by Kakao Japan.</em></p></div><p>But as for the timing of an IPO, this Kakao official didn't give any specific detail.</p><div class="content-highlight"><p><a href="https://signalm.sedaily.com/NewsView/22NHS3OKO9/GX1102" target="_blank" rel="noopener">Here is the link to the news report by Seoul Economic Daily</a></p></div>

Kakao Japan, a subsidiary of Kakao Corp (035720 KS), appears to be accelerating its IPO process.The local news outlet, Seoul Economic Daily, exclusively reports that Kakao Japan has sent a request for a proposal (RFP) to the local brokerages in Japan to recruit additional bankers for an IPO. So far, it has chosen Nomura as a lead underwriter.An unnamed Kakao official said that Kakao Japan is seeking additional underwriters as it now anticipates a larger offering size amid the rapid growth of Piccoma (ピッコマ).Piccoma (ピッコマ) is a Japanese manga subscription service that is available on smartphones, tablets, and personal computers developed and released by Kakao Japan.But as for the timing of an IPO, this Kakao official didn't give any specific detail.Here is the link to the news report by Seoul Economic Daily

Kakao Japan ¥1T IPO: Latest Update on Progress

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Equity Bottom-Up

<p>Recently local articles mentioned 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 <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a> are competing to buy the major shareholder's stake in Korea entertainment company $sm entertainment but if the worry about buying an entertainment company that never really makes consistent money bottom line was a worry to ROE or ROIC then why hasn't <span data-markjs="true" data-ogac="" data-ogab="" data-ogsc="" data-ogsb="">Kakao</span> gone down as well?   </p>

Recently local articles mentioned that Naver Corp (035420 KS) and Kakao Corp (035720 KS) are competing to buy the major shareholder's stake in Korea entertainment company $sm entertainment but if the worry about buying an entertainment company that never really makes consistent money bottom line was a worry to ROE or ROIC then why hasn't Kakao gone down as well?   

Kakao V. Naver - The New Unregulated Kings of Fintech

Event-Driven

<p>On 11 May, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a> announced that its affiliate Kakao Entertainment Corp was acquiring US based Tapas and Radish for $510 million and $440 million, respectively. Kakao Entertainment is one of the largest providers of webtoons in Korea and Japan. Tapas provides an online comic app. Radish is a storytelling fiction app. Radish previously received Series A funding from investors including SoftBank Group's venture arm and <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>.</p><p>The acquisition of Tapas and Radish is likely to accelerate the IPO of Kakao Entertainment which could occur in 2022. <a href="https://www.reuters.com/technology/skoreas-kakao-entertainment-acquire-serial-fiction-app-radish-440-mln-2021-05-11/" target="_blank" rel="noopener">Kakao Entertainment</a> plans to capitalize on these acquisitions to further expand in the North American market. These purchases of US content companies follow recent acquisitions of US based Ithaca Holdings by HYBE (Big Hit Entertainment) for $1.05 billion and <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>'s acquisition of Canada based Wattpad for $600 million. </p><p>Despite these acquisitions, there are some concerns about Kakao Entertainment potentially overpaying for them. While we believe that these acquisitions are likely to have long-term positive impact on Kakao Entertainment and <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, we are concerned about the valuations of Kakao Corp which is currently trading at 66x P/E (2021), close to the high end of the historical valuation multiples in the past five years.  </p>

On 11 May, Kakao Corp (035720 KS) announced that its affiliate Kakao Entertainment Corp was acquiring US based Tapas and Radish for $510 million and $440 million, respectively. Kakao Entertainment is one of the largest providers of webtoons in Korea and Japan. Tapas provides an online comic app. Radish is a storytelling fiction app. Radish previously received Series A funding from investors including SoftBank Group's venture arm and Kakao Corp (035720 KS).The acquisition of Tapas and Radish is likely to accelerate the IPO of Kakao Entertainment which could occur in 2022. Kakao Entertainment plans to capitalize on these acquisitions to further expand in the North American market. These purchases of US content companies follow recent acquisitions of US based Ithaca Holdings by HYBE (Big Hit Entertainment) for $1.05 billion and Naver Corp (035420 KS)'s acquisition of Canada based Wattpad for $600 million. Despite these acquisitions, there are some concerns about Kakao Entertainment potentially overpaying for them. While we believe that these acquisitions are likely to have long-term positive impact on Kakao Entertainment and Kakao Corp (035720 KS), we are concerned about the valuations of Kakao Corp which is currently trading at 66x P/E (2021), close to the high end of the historical valuation multiples in the past five years.  

Kakao Entertainment - Buys US Based Tapas & Radish to Get Ready for an IPO in 2022

Last week's biggest story would be Kakao, whose loan balance gained 2.25%p, the biggest among the KOSPI stocks.













Top 20 loan balance gainers
Ticker
K200
Short
1W Δ
1W Δ %p
Loan
1W Δ
1W Δ %p


Kakao Corp
035720
9
0.02%
-4.87%
0.00%p
2.89%
351.07%
2.25%p


Daesang Corp
001680
164
0.06%
-23.43%
-0.02%p
3.17%
123.13%
1.75%p


Digital Power Communications Co., Ltd.
026890
#N/A
0.44%
-34.44%
-0.23%p
2.68%
116.50%
1.44%p


Ilyang Pharmaceutical Co., Ltd
007570
134
0.19%
-3.52%
-0.01%p
2.77%
102.55%
1.40%p


LG HAUSYS, LTD.
108670
168
0.14%
-13.50%
-0.02%p
3.29%
58.38%
1.21%p


Hyundai Heavy Industries Holdings Co Ltd
267250
66
0.17%
411.79%
0.14%p
1.38%
444.91%
1.13%p


TS Corp Preference Shares
001795
#N/A
0.00%
#DIV/0!
0.00%p
1.09%
3959.91%
1.06%p


Binggrae Co Ltd
005180
182
0.11%
0.00%
0.00%p
2.55%
66.92%
1.02%p


AK Holdings Inc
006840
#N/A
0.03%
0.00%
0.00%p
1.21%
505.78%
1.01%p


SC Engineering Co., Ltd.
023960
#N/A
0.00%
#DIV/0!
0.00%p
1.06%
1569.56%
0.99%p


Samil Pharmaceutical Co., Ltd.
000520
#N/A
0.64%
100.00%
0.32%p
1.89%
103.53%
0.96%p


LG Display Co Ltd
034220
41
1.41%
0.40%
0.01%p
6.17%
17.69%
0.93%p


SK Networks Co Ltd
001740
154
0.01%
-61.97%
-0.02%p
1.58%
120.18%
0.86%p


Samsung Publishing Co Ltd
068290
#N/A
0.06%
-62.71%
-0.10%p
1.45%
146.53%
0.86%p


KISCO Corp.
104700
#N/A
0.13%
0.00%
0.00%p
1.15%
225.41%
0.80%p


HMM Co Ltd
011200
42
0.09%
-2.66%
0.00%p
4.24%
21.95%
0.76%p


Hyundai Marine &amp; Fire Insurance Co., Ltd
001450
92
0.11%
95.47%
0.05%p
2.42%
41.46%
0.71%p


Posco Chemical Co Ltd
003670
57
0.28%
-11.41%
-0.04%p
2.78%
31.68%
0.67%p


KCTech Co Ltd
281820
#N/A
0.00%
#DIV/0!
0.00%p
1.89%
52.41%
0.65%p


POONGSAN CORPORATION
103140
158
0.05%
-13.97%
-0.01%p
2.19%
40.96%
0.64%p

Source: KRX &amp; KOFIA

Potential shorting seems to be lurking on Kakao's stock split-driven recent bounce. Local retail has fueled the bounce, making it an ideal target of short-selling.Kakao was the second most-bought stock by local retail last week by trading value. 1.03% of the SO and 1.02% of the MC had found new owners among local retail.










Local retail weekly top 10
Ticker
Trading vol
% of SO
Trading value (₩)
% of MC


Samsung Electronics Co Ltd
005930
10,414,800
0.17%
871,760,979,700
0.16%


Kakao Corp
035720
4,573,289
1.03%
547,825,413,400
1.02%


SK Hynix Inc
000660
2,449,023
0.34%
338,060,885,500
0.34%


HYUNDAI MOBIS CO., LTD.
012330
503,443
0.53%
153,238,878,000
0.53%


Lotte Chemical Corp
011170
494,836
1.44%
142,573,014,000
1.44%


Samsung Electronics Co Ltd Preference Shares Non Voting
005935
1,193,020
0.14%
89,537,648,000
0.02%


Samsung Electro-Mechanics Co., Ltd.
009150
330,262
0.44%
62,774,585,500
0.42%


Hybe Co Ltd
352820
246,973
0.69%
60,408,601,500
0.65%


Hotel Shilla Co Ltd
008770
603,222
1.54%
50,732,284,100
1.52%


Celltrion, Inc.
068270
161,278
0.13%
49,662,542,500
0.12%

Source: KRX

The shares continue to outperform the market. 20D Δ sits at 21.49%, pushing up 120D Δ to 71.15%.On the other hand, the street consensus on this year's earnings has been on the decline.It is now down 6.25% from T-3M, resulting in a 32.86% increase in 12M PER, which currently sits at 79.60x, easily a historic high.










Kakao Corp
2021. 4. 19
T-1M
T-3M
T-6M
T-1Y


Sales
5,579.1
5,533.0
5,364.2
4,923.7
4,392.2


OP
779.8
776.4
763.2
681.4
535.5


NP to controlling stake
577.3
584.3
615.8
546.3
399.4


EPS (₩)
1,301
6,587
6,958
6,190
4,593


PER (x)
91.50
75.60
61.40
57.80
37.50


12M PER (x)
79.60
68.24
59.91
60.34
45.84


TP (₩)
122,157
112,575
99,008
86,917
43,267

Source: FnGuide







Kakao Corp

Ticker
035720


MC (₩B)
53,700.9


DTV (₩B)
357.9


Close
₩121,000


52WH
-8.68%


- Date
4/15/21


52WL
259.05%


- Date
4/21/20


20D SMA
16.09%


20D EMA
13.48%


120D SMA
40.22%


20D Δ
21.49%


120D Δ
71.15%


180D Δ
90.25%


RSI (14)
80.59


%K
67.61


%D
65.66

Source: KRX

We are now two weeks away from the short-selling resumption.Loan balance can be a leading indicator. Kakao's loan balance, 2.89% of the SO, may not seem at an alarming level.But given the valuation resistance and local retail-heavy buying pattern, Kakao will likely draw a lot of attention as one of the first short-selling targets in early May if last week's upward trend repeats. 

Kakao, Biggest Gain in Loan Balance Among KOSPI on Valuation Concern Ahead of May 3

South Korea

Kakao Corp. provides Internet portal services such as news, free e-mail, and leisure information.  The Company also offers cross-platform mobile messaging application that allows users to exchange messages.

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Kakao Corp (035720 KS)

Initial Thoughts on the Kakao Japan IPO

In this insight, we provide our initial thoughts on the Kakao Japan IPO. If we assume a value of 10 trillion won for Kakao Japan, this would...

Douglas Kim

Kakao Japan ¥1T IPO: Latest Update on Progress

This post provides an update on Kakao Japan's IPO progress, which reportedly aims at a target IPO valuation of 1 trillion yen.

Sanghyun Park

Kakao V. Naver - The New Unregulated Kings of Fintech

If fintech is the flavor of 2H21, Naver should be strongly considered as another winner of this space where they will be unregulated for next 3 years.

Ken S. Kim

Kakao Entertainment - Buys US Based Tapas & Radish to Get Ready for an IPO in 2022

On 11 May, Kakao Corp (035720 KS) announced that its affiliate Kakao Entertainment Corp was acquiring US based Tapas and Radish for $510 million...

Douglas Kim

Kakao, Biggest Gain in Loan Balance Among KOSPI on Valuation Concern Ahead of May 3

Kakao's loan balance gained 2.25%p, the biggest among the KOSPI stocks. Kakao will likely draw a lot of attention as one of the first short-selling...

Sanghyun Park

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