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

Offering price &amp; size
Krafton submitted a correction report to the Financial Supervisory Service on the afternoon yesterday. It lowered the indicative price band from ₩458,000~557,000 to ₩400,000~498,000 by about 10%. The newly adjusted price band now implies a market cap range at ₩19.56~24.35T.










Pricing
Low, previous
High, previous
Low, adjusted
High, adjusted


Price
₩458,000
₩557,000
₩400,000
₩498,000


Base deal size
₩4,607.6B
₩5,603.5B
₩3,461.7B
₩4,309.8B


- Institutional allotment
₩2,534.2B
₩3,082.0B
₩1,903.9B
₩2,370.4B


Implied market cap
₩23,039.3B
₩28,019.4B
₩19,559.2B
₩24,351.2B


- Discount
32.40%
17.79%
30.93%
14.01%

Source: DART


In addition, the issuance of new shares was also reduced from 7.03 million shares to 5.62 million shares. Therefore, based on the lower end of the public offering band, the offering size decreased by ₩1.2T from ₩4.6T to ₩3.5T.  However, the secondary offering volume remains the same at 3.03 million shares. So, the split ratio is now 0.65 (primary) to 0.35 (secondary).








Offering size
Previous
Adjusted


Pre-IPO SO
43,274,070
43,274,070


Offering
10,060,230
8,654,230


- % of SO
23.25%
20.00%


- Institutional allotment
55.00~75.00%
55.00~75.00%


Primary %
69.88%
64.99%


Secondary %
30.12%
35.01%


Post-IPO shares outstanding
50,304,070
48,898,070


Capital increase rate
16.25%
13.00%


Dilution
13.98%
11.50%

Source: DART


Schedule

Krafton will open the book on July 14 and keep it open until July 27. After finalizing the offering price on July 29, we will see subscriptions on August 2. After that, August 5 is the payment date, and listing on the stock market will be completed in mid-August.
There was a time difference of about a week with Kakao Bank, whose subscription will fall on July 26.








Schedule
Previous
Adjusted


Book open
2021. 6. 28
2021. 7. 14


Book close
2021. 7. 9
2021. 7. 27


Allotment
2021. 7. 12
2021. 7. 29


Subscription
2021. 7. 14
2021. 8. 2


Payment
2021. 7. 19
2021. 8. 5


Listing
TBA
TBA

Source: DART


Valuation

The core of this revised report is the recalculation of the offering price. First, the group of comparative companies was completely changed. Krafton deleted all overseas companies, including Walt Disney and Warner Music, and reduced the comparative group to four domestic game companies: NCsoft, Netmarble, Kakao Games, and Pearl Abyss.
The average price-to-earnings ratio (PER) to last year's net income for the comparative group was 40.4 times. The average PER for the first quarter of this year on an annualized basis was calculated to be 47.2 times. An average of 43.8x was presented as the applied PER. This is slightly lower than the previous PER of 45.2x, which was initially controversial.











FY2020 net earnings based P/E
Note
NCSoft Corp
Netmarble Corp
Kakao Games Corp
PearlAbyss Corp


Reference full market cap: MIN[1M Avg, 1W Avg, 1D Close]
(A)
₩18,068.2B
₩11,216.9B
₩4,111.6B
₩4,086.8B


FY2020 annual net earnings to controlling stake
(B)
₩587.4B
₩312.9B
₩86.0B
₩86.6B


P/E
(C)=(A)/(B)
30.76x
35.85x
47.82x
47.19x


Average P/E
-
40.41x

Source: DART













FY2021 1Q based annualized net earnings based P/E
Note
NCSoft Corp
Netmarble Corp
Kakao Games Corp
PearlAbyss Corp


Reference full market cap: MIN[1M Avg, 1W Avg, 1D Close]
(A)
₩18,068.2B
₩11,216.9B
₩4,111.6B
₩4,086.8B


FY2021 1Q based annualized net earnings to controlling stake
(B)
₩323.5B
₩225.7B
₩83.0B
₩121.8B


P/E
(C)=(A)/(B)
55.85x
49.70x
49.52x
33.56x


Average P/E
-
47.16x

Source: DART


Krafton also slightly lowered the net profit applied to the IPO price.
They derived a simple average value by adding the annualized net profit based on the net profit in the first quarter of this year and last year's net profit. Through this, the applied net profitdecreased from ₩776B to ₩666B. By lowering the applied NP and the applied PER multiple together, the company's pre-discount enterprise value, which was initially calculated at ₩35T, dropped by 17% to ₩29T.
Here, a discount rate of 14.0 to 30.9% was applied to calculate the new indicative price band.








P/E valuation
Note
Krafton


FY2020 annual net earnings to controlling stake
(A)
₩556.3B


FY2021 1Q net earnings to controlling stake
(B)
₩194.0B


FY2021 1Q based annualized net earnings to controlling stake
(C) = (B) * 4
₩776.1B


Net earnings to controlling stake used in the valuation
(D) = [(A) + (C)]/2
₩666.2B


Average P/E based on FY2020 annual net earnings to controlling stake
(E)
40.40x


Average P/E based on FY2021 1Q based annualized net earnings to controlling stake
(F)
47.20x


Reference P/E
(G) = [(E) + (F)]/2
43.80x


Full market cap
(H) = (D) * (G)
₩29,166.2B


Price per share
(I) = (H)/post-IPO SO
₩579,153


Source: DART










Krafton IPO Offering Price/​Size Adjustment & Valuation Re-Review

<p>The issue of the Financial Supervisory Service's request for correction of Krafton's securities declaration has not subsided.</p><p><strong>In this regard, local media reports are coming out one after another about the real reason the FSS requested.</strong></p><h2>Simple omission in the transfer of title?</h2><p>First, a domestic newspaper published an article two days ago that the reason for the correction request by the Financial Supervisory Service was not the public offering price.</p><p><strong>According to this newspaper, the Financial Supervisory Service's request to Krafton to revise the securities declaration was found to be due to a simple omission in the transfer of title (the act of entering the name and address in the shareholder register).</strong></p><p><a href="https://www.asiae.co.kr/article/2021062910261787865" target="_blank" rel="noopener">Here is the link to the news article By Asia Business Daily</a></p><p>The source revealed in the article was not from the Financial Supervisory Service but from the local IB industry. In fact, the Financial Supervisory Service has not yet revealed the reason for the request to revise the Krafton IPO prospectus.</p><p><strong>Then, there is a possibility that this local IB industry official cited in this article may be from the underwriter side. They may be intending to prevent the FSS's request for amendment from leading to issues of legitimacy of the offering price.</strong></p>

The issue of the Financial Supervisory Service's request for correction of Krafton's securities declaration has not subsided.In this regard, local media reports are coming out one after another about the real reason the FSS requested.Simple omission in the transfer of title?First, a domestic newspaper published an article two days ago that the reason for the correction request by the Financial Supervisory Service was not the public offering price.According to this newspaper, the Financial Supervisory Service's request to Krafton to revise the securities declaration was found to be due to a simple omission in the transfer of title (the act of entering the name and address in the shareholder register).Here is the link to the news article By Asia Business DailyThe source revealed in the article was not from the Financial Supervisory Service but from the local IB industry. In fact, the Financial Supervisory Service has not yet revealed the reason for the request to revise the Krafton IPO prospectus.Then, there is a possibility that this local IB industry official cited in this article may be from the underwriter side. They may be intending to prevent the FSS's request for amendment from leading to issues of legitimacy of the offering price.

FSS's Position on Krafton IPO & The Mood of Foreign Investors Revealed by Mirae Asset

<p>In calculating the corporate value for this listing, Kakao Bank selected PBR, the traditional method of calculating the value of financial companies.</p><p><strong>Apparently, the local street has no big disagreement about the use of PBR itself.</strong></p><p>Then, what matters is the level of the PBR multiple premium.</p><p><strong>Based on the indicative price band, Kakao Bank's PBR is 3.2-3.5x. On the other hand, the PBRs of Korea's four major financial holding companies are currently hovering between 0.4 and 0.5x.</strong></p><p><strong>That is, based on the current corporate value to net assets, Kakao Bank wants to receive a 7 to 8 times higher premium than Korea's major commercial banks.</strong></p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price band"}'>Indicative price band</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":33000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩33,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":39000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩39,000</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":15766.510221}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*R14C2/1000000000">₩15,766.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18633.148443}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*R14C2/1000000000">₩18,633.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Equity, including capital inflow from IPO"}'>Equity, including capital inflow from IPO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5009.4}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-13]C[0]+R[-12]C[0]">₩5,009.4B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5402.05}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-13]C[-1]+(Terms!R[-15]C[-1]*R[-5]C[0])/1000000000">₩5,402.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PBR"}'><strong>PBR</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.1473849604743087}' data-sheets-numberformat='{"1":2,"2":"0.00x"}' data-sheets-formula="=R[-3]C[0]/R[-1]C[0]"><strong>3.15x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.449273598541294}' data-sheets-numberformat='{"1":2,"2":"0.00x"}' data-sheets-formula="=R[-3]C[0]/R[-1]C[0]"><strong>3.45x</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>The valuation that converts the future value into present value at a time when growth is expected to stagnate still holds a significant premium.</p><p><strong>Kakao Bank's total deposits estimated as of 2025, when high growth will likely come to an end, are around ₩100T. Applying KB Financial's current multiple of 0.06 times the total deposits puts Kakao Bank's value in 2025 at ₩6T. Converted to the present value, the present value becomes ₩4.3T, suggesting a 3.7 to 4.3x premium to KB Financial.</strong></p>

In calculating the corporate value for this listing, Kakao Bank selected PBR, the traditional method of calculating the value of financial companies.Apparently, the local street has no big disagreement about the use of PBR itself.Then, what matters is the level of the PBR multiple premium.Based on the indicative price band, Kakao Bank's PBR is 3.2-3.5x. On the other hand, the PBRs of Korea's four major financial holding companies are currently hovering between 0.4 and 0.5x.That is, based on the current corporate value to net assets, Kakao Bank wants to receive a 7 to 8 times higher premium than Korea's major commercial banks.







Indicative price band
Low
High


Price
₩33,000
₩39,000


Implied market cap
₩15,766.5B
₩18,633.1B


Equity, including capital inflow from IPO
₩5,009.4B
₩5,402.1B


PBR
3.15x
3.45x

Source: DART

The valuation that converts the future value into present value at a time when growth is expected to stagnate still holds a significant premium.Kakao Bank's total deposits estimated as of 2025, when high growth will likely come to an end, are around ₩100T. Applying KB Financial's current multiple of 0.06 times the total deposits puts Kakao Bank's value in 2025 at ₩6T. Converted to the present value, the present value becomes ₩4.3T, suggesting a 3.7 to 4.3x premium to KB Financial.

Kakao Bank IPO: Valuation Peer Group Issues & Local Street's General View on Valuation Level

<div><h2>Offering size</h2></div><div>
<p>Kakao Bank released an IPO prospectus. Kakao Bank is the second Internet-only bank in Korea. It was officially launched on July 27, 2017. Unlike K-Bank, the first Internet-only bank, Kakao Bank is 100% mobile-only. Kakao Bank offers 65.45M shares, which account for 15.98% of the total shares, of which 55-75% are allocated to institutions.</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":3,"3":323410}'>323410</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":"Offering"}'><strong>Offering</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":65450000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>65,450,000</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"- % of pre-IPO SO"}'><strong>- % of pre-IPO SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1598}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>15.98%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Institutional allotment"}'><strong>Institutional allotment</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"55.00~75.00%"}'><strong>55.00~75.00%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<div><h2>Split</h2></div>
<div><p>This is a 100% primary offering. As a result, this offering will see a capital increase rate of 15.98%. In addition, this IPO is free of any additional options: cornerstone, clawback, or greenshoe.</p></div>
<div>
<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":0.6987911807185323}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[3]C[0]"><strong>100.00%</strong></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]">0.00%</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":0.16245294237403599}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Terms!R[4]C[0]"><strong>15.98%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dilution"}'><strong>Dilution</strong></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]"><strong>13.78%</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<div><h2>Schedule</h2></div>
<div><p>The book opens on July 9 (for overseas investors) and runs until July 21. The allotment will be on July 22 with a final offering price. The subscription follows on July 26.</p></div>
<div>
<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":44375}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 9</strong></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. 21</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. 22</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription"}'><strong>Subscription</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44391}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 26</strong></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":44396}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 29</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"}'>2021. 8. 5</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<div><h2>Pricing</h2></div>
<div>
<p>This IPO selected the following 4 valuation peers: Rocket Companies, PagSeguro Digital, TCS Group, and Nordnet AB. They calculated an average PBR of 7.3x by applying net assets as of 1Q11 to the market cap as of June 21.</p>
<table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Valuation peers"}'>PBR valuation</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Rocket Companies Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Rocket Companies Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PagSeguro Digital Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>PagSeguro Digital Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TCS Group Holding PLC"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>TCS Group Holding PLC</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Nordnet AB (publ)"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Nordnet AB (publ)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"RKT"}' data-sheets-formula='="RKT"'>NYSE: RKT</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PAGS"}' data-sheets-formula='="PAGS"'>NYSE: PAGS</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MCX:TCSG"}' data-sheets-formula='="MCX:TCSG"'>MCX: TCSG</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"STO:SAVE"}' data-sheets-formula='="STO:SAVE"'>STO: SAVE</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Reference market cap: MIN[1M Avg, 1W Avg, 1D Close] as of June 21"}'>Reference market cap: MIN[1M Avg, 1W Avg, 1D Close] as of June 21</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43184.655}'>₩43,184.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18918.666}'>₩18,918.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":16522.978}'>₩16,523.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4923.031}'>₩4,923.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Equity, as of 1Q21"}'>Equity, as of 1Q21</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9404.053}'>₩9,404.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2152.996}'>₩2,153.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2057.841}'>₩2,057.8B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":644.004}'>₩644.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PBR"}'><strong>PBR</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.592132243406114}' data-sheets-numberformat='{"1":2,"2":"0.0x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>4.6x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.787134764765007}' data-sheets-numberformat='{"1":2,"2":"0.0x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>8.8x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.029278258135589}' data-sheets-numberformat='{"1":2,"2":"0.0x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>8.0x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.64441059372302}' data-sheets-numberformat='{"1":2,"2":"0.0x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>7.6x</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Average PBR"}'><strong>Average PBR</strong></td>
<td colspan="4" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":7.2632389650074325}' data-sheets-numberformat='{"1":2,"2":"0.0x","3":1}' data-sheets-formula="=average(R[-1]C[0]:R[-1]C[3])"><strong>7.3x</strong></td>
</tr>
<tr><td colspan="5" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
</div>
<div><div><p>After applying the 7.3x multiple to Kakao Bank's equity in Q1 of this year, they added funds from the public offering to derive a market cap of ₩22.97T. This was then divided by the post-IPO total shares to arrive at ₩48,058 per share.</p></div></div>
<div><table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Kakao PBR"}'>Kakao PBR</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PBR"}'>PBR</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7.3}' data-sheets-numberformat='{"1":2,"2":"0.0x","3":1}'>7.3x</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Equity, as of 1Q21"}'>Equity, as of 1Q21</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2849.5}' data-sheets-formula="=2849.5">₩2,849.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Capital inflow from IPO (based on the lower end of the indicative price band)"}'>Capital inflow from IPO (based on the lower end of the indicative price band)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2159.9}'>₩2,159.9B</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'><strong>Market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":22961.25}' data-sheets-formula="=R[-2]C[0]*R[-3]C[0]+R[-1]C[0]"><strong>₩22,961.3B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A × B + C"}'><strong>A × B + C</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Post-IPO SO"}'>Post-IPO SO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":477773037}'>477,773,037</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</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":48058}'><strong>₩48,058</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'><strong>-</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></div>
<div><div>An 18.85~31.33% discount sets up an indicative price band of ₩33,000~39,000, implying a market cap of ₩15.77~18.63T.</div></div>
<div><table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price band"}'>Indicative price band</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":33000}'><strong>₩33,000</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":39000}'><strong>₩39,000</strong></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":2159.85}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩2,159.9B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2552.55}' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩2,552.6B</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":1187.9175}' data-sheets-formula="=R[-1]C[0]*Terms!R12C2">₩1,187.9B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1403.9025000000001}' data-sheets-formula="=R[-1]C[0]*Terms!R12C2">₩1,403.9B</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":15766.510221}' data-sheets-formula="=R[-3]C[0]*R14C2/1000000000"><strong>₩15,766.5B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18633.148443}' data-sheets-formula="=R[-3]C[0]*R14C2/1000000000"><strong>₩18,633.1B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Discount"}'><strong>- Discount</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3133426873101421}' data-sheets-formula="=(R13C2-R[-1]C[0])/R13C2"><strong>31.33%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.18849590318471346}' data-sheets-formula="=(R13C2-R[-1]C[0])/R13C2"><strong>18.85%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></div>
</div>
</div>
</div>

Offering size
Kakao Bank released an IPO prospectus. Kakao Bank is the second Internet-only bank in Korea. It was officially launched on July 27, 2017. Unlike K-Bank, the first Internet-only bank, Kakao Bank is 100% mobile-only. Kakao Bank offers 65.45M shares, which account for 15.98% of the total shares, of which 55-75% are allocated to institutions.






Offering size

Ticker
323410


Bourse
KOSPI


Offering
65,450,000


- % of pre-IPO SO
15.98%


Institutional allotment
55.00~75.00%

Source: DART


Split
This is a 100% primary offering. As a result, this offering will see a capital increase rate of 15.98%. In addition, this IPO is free of any additional options: cornerstone, clawback, or greenshoe.







Split

Primary %
100.00%


Secondary %
0.00%


Capital increase rate
15.98%


Dilution
13.78%

Source: DART


Schedule
The book opens on July 9 (for overseas investors) and runs until July 21. The allotment will be on July 22 with a final offering price. The subscription follows on July 26.







Schedule

Book open
2021. 7. 9


Book close
2021. 7. 21


Allotment
2021. 7. 22


Subscription
2021. 7. 26


Payment
2021. 7. 29


Listing
2021. 8. 5

Source: DART


Pricing

This IPO selected the following 4 valuation peers: Rocket Companies, PagSeguro Digital, TCS Group, and Nordnet AB. They calculated an average PBR of 7.3x by applying net assets as of 1Q11 to the market cap as of June 21.










PBR valuation
Rocket Companies Inc
PagSeguro Digital Ltd
TCS Group Holding PLC
Nordnet AB (publ)


Ticker
NYSE: RKT
NYSE: PAGS
MCX: TCSG
STO: SAVE


Reference market cap: MIN[1M Avg, 1W Avg, 1D Close] as of June 21
₩43,184.7B
₩18,918.7B
₩16,523.0B
₩4,923.0B


Equity, as of 1Q21
₩9,404.1B
₩2,153.0B
₩2,057.8B
₩644.0B


PBR
4.6x
8.8x
8.0x
7.6x


Average PBR
7.3x

Source: DART



After applying the 7.3x multiple to Kakao Bank's equity in Q1 of this year, they added funds from the public offering to derive a market cap of ₩22.97T. This was then divided by the post-IPO total shares to arrive at ₩48,058 per share.







Kakao PBR

PBR
7.3x
A


Equity, as of 1Q21
₩2,849.5B
B


Capital inflow from IPO (based on the lower end of the indicative price band)
₩2,159.9B
C


Market cap
₩22,961.3B
A × B + C


Post-IPO SO
477,773,037
-


Price per share
₩48,058
-

Source: DART


An 18.85~31.33% discount sets up an indicative price band of ₩33,000~39,000, implying a market cap of ₩15.77~18.63T.








Indicative price band
Low
High


Price
₩33,000
₩39,000


Base deal size
₩2,159.9B
₩2,552.6B


- Institutional allotment
₩1,187.9B
₩1,403.9B


Implied market cap
₩15,766.5B
₩18,633.1B


- Discount
31.33%
18.85%

Source: DART






Kakao Bank IPO: Offering Detail, Valuation Issue, & Index Fast Entry

Event-Driven

<p>Kakao has seen around 9% correction in the last two trading days.</p><p>In the case of last Thursday, Kakao was attacked by a short sale of ₩121.5B, which is the largest amount of short selling among KOSPI stocks that day.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/412/original/Kakao.png?1624677796" class="editor-image img-responsive" data-smartkarma-image-id="215412"></figure></section><p>Nevertheless, Kakao is still recording a share price increase of close to 100% on a YTD basis. Therefore, it is necessary to examine Kakao's valuation at this point carefully.</p><p>This is to determine whether to continue to hold the short position or to use the stock price correction of the last two trading days as the time to close the position.</p>

Kakao has seen around 9% correction in the last two trading days.In the case of last Thursday, Kakao was attacked by a short sale of ₩121.5B, which is the largest amount of short selling among KOSPI stocks that day.Nevertheless, Kakao is still recording a share price increase of close to 100% on a YTD basis. Therefore, it is necessary to examine Kakao's valuation at this point carefully.This is to determine whether to continue to hold the short position or to use the stock price correction of the last two trading days as the time to close the position.

Kakao Valuation Studies: 12M Forward PER, Enterprise Multiples, & Discount to NAV

South Korea

Kakao Games Corp. operates as a multiply platform gaming company. The Company provides mobile games, computer games, virtual reality games, and other related products. Kakao Games markets its products worldwide.

Price Gauge
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Kakao Games (293490 KS)

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