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.

Equity Capital Markets

<p>Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.</p><p>As of 1H21, KP had a total of 36m users and around 20m monthly active users (MAU). It processed a total GMV of KRW66.9tn in 2020 and it had already generated KRW47.9tn GMV in 1H21 itself. As of the end of 1H21, it had dealings with more than 610,000 affiliated stores and 100 financial institutions.</p><p>KP began operation in Sep 2014 as a fintech division of Kakao to facilitate online payments. Ant Financial invested US$200m in the company in Feb 2017 and the division was spun out of Kakao in Apr 2017. Since spinning out, the number of MAUs have grown 14x from 2Q17 to 2Q21, while the quarterly transaction amount grew 61x from KRW0.4tn in 2Q17 to KRW24.5tn in 2Q21. </p><p>Over the past few years the company has been expanding its offering beyond payment processing to include other financial products. On the back of this, its revenue has been growing faster than its GMV.</p>

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.As of 1H21, KP had a total of 36m users and around 20m monthly active users (MAU). It processed a total GMV of KRW66.9tn in 2020 and it had already generated KRW47.9tn GMV in 1H21 itself. As of the end of 1H21, it had dealings with more than 610,000 affiliated stores and 100 financial institutions.KP began operation in Sep 2014 as a fintech division of Kakao to facilitate online payments. Ant Financial invested US$200m in the company in Feb 2017 and the division was spun out of Kakao in Apr 2017. Since spinning out, the number of MAUs have grown 14x from 2Q17 to 2Q21, while the quarterly transaction amount grew 61x from KRW0.4tn in 2Q17 to KRW24.5tn in 2Q21. Over the past few years the company has been expanding its offering beyond payment processing to include other financial products. On the back of this, its revenue has been growing faster than its GMV.

Kakao Pay IPO - Guided by Ant Financial to Be a Mini Ant

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>What was the real reason for the Financial Supervisory Service's request to Kakao Pay to revise the securities report? At first, we all thought it was a price adequacy problem due to excessive valuation. However, Kakao Pay revised down the price band by only 4-6%.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price band revision"}'>Indicative price band revision</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Previous"}'>Previous</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Revised"}'>Revised</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Change in %"}'>Change in %</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Lower end"}'>Lower end</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":63000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩63,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩60,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.047619047619047616}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-2]"><strong>4.76%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Upper end"}'>Upper end</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":96000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩96,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩90,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0625}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-2]"><strong>6.25%</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>If the FSS really requested a price revision, this level (4-6%) of price revision doesn't really make sense. In fact, in terms of valuation, Kakao Bank caused more serious controversy. Nonetheless, the Financial Supervisory Service requested only Kakao Pay to revise the securities report, which, of course, is quite questionable. All this implies that the real reason shouldn't be valuation.</p><p>Surely, including Paypal and Square in the valuation peer group is absurd. Therefore, Kakao Pay excluded them and selected two new companies as valuation peers. However, that still leaves the question of whether these new valuation peers are suitable as valuation peers. This is because they are not free from the controversy over whether the business and financial similarities are sufficient.</p><p>If there were a meaningful level of price adjustment, the FSS's request for correction would have been more understandable, but it was not the case. So we should come to one conclusion. The valuation issue was secondary, and the key reason was something else. And this is also the general view of the local street at this point.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/830/original/Screen+Shot+2021-09-04+at+2.08.04+AM.png?1630739968" class="editor-image img-responsive" data-smartkarma-image-id="227830"></figure></section>

What was the real reason for the Financial Supervisory Service's request to Kakao Pay to revise the securities report? At first, we all thought it was a price adequacy problem due to excessive valuation. However, Kakao Pay revised down the price band by only 4-6%.








Indicative price band revision
Previous
Revised
Change in %


Lower end
₩63,000
₩60,000
4.76%


Upper end
₩96,000
₩90,000
6.25%

Source: DART

If the FSS really requested a price revision, this level (4-6%) of price revision doesn't really make sense. In fact, in terms of valuation, Kakao Bank caused more serious controversy. Nonetheless, the Financial Supervisory Service requested only Kakao Pay to revise the securities report, which, of course, is quite questionable. All this implies that the real reason shouldn't be valuation.Surely, including Paypal and Square in the valuation peer group is absurd. Therefore, Kakao Pay excluded them and selected two new companies as valuation peers. However, that still leaves the question of whether these new valuation peers are suitable as valuation peers. This is because they are not free from the controversy over whether the business and financial similarities are sufficient.If there were a meaningful level of price adjustment, the FSS's request for correction would have been more understandable, but it was not the case. So we should come to one conclusion. The valuation issue was secondary, and the key reason was something else. And this is also the general view of the local street at this point.

Ant Group's Regulatory Risks in China Must Be Reflected in Kakao Pay's IPO Valuation

<p>Korea Post plans to raise around US$947m via selling all of its 2.5% stake in <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a>. </p><div><p>We have covered various aspects of the deal in our previous notes:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/kakao-bank-ipo-riding-on-parent-s-network-but-boundaries-with-kakao-pay-remain-unclear" target="_blank" rel="noopener">Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear</a>, </li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-pricey-as-it-should-be" target="_blank" rel="noopener">Kakao Bank IPO - Pricey as It Should Be</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-lack-of-lock-up-and-msci-ftse-index-implications" target="_blank" rel="noopener">Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications, and</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-ipo-trading-one-for-instis-closer-look-at-ftse-and-msci-inclusion-remain-buyers" target="_blank" rel="noopener">Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers</a></li>
<li><a href="https://www.smartkarma.com/insights/kakao-bank-msci-done-missed-ftse-by-a-whisker" target="_blank" rel="noopener">Kakao Bank - MSCI Done, Missed FTSE by a Whisker</a></li>
</ul></div><p> In this note we will talk about the deal dynamics and provide updates since our previous note.</p>

Korea Post plans to raise around US$947m via selling all of its 2.5% stake in KakaoBank (323410 KS). We have covered various aspects of the deal in our previous notes:

Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear, 
Kakao Bank IPO - Pricey as It Should Be
Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications, and
Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers
Kakao Bank - MSCI Done, Missed FTSE by a Whisker
 In this note we will talk about the deal dynamics and provide updates since our previous note.

Kakao Bank Placement - Its Expensive but the Discount Is Enticing

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>Last evening post market close, KRX announced the Fast Entry of <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a> and <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> to the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> at the close of trading on 9 September.</p><p>As expected, <a href="https://www.smartkarma.com/entities/lock-lock-co-ltd" target="_blank" data-smartkarma-citation="entities:4739:1" rel="noopener">Lock&amp;Lock (115390 KS)</a> and <a href="https://www.smartkarma.com/entities/jw-pharmaceutical-corp" target="_blank" data-smartkarma-citation="entities:18784:1" rel="noopener">Jw Pharmaceutical (001060 KS)</a> will be deleted from the index.</p><p>Given the rapidly shrinking volumes in <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a> and <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a>, the impact of passive buying will be larger than what the headline numbers indicate.</p><p>The deletions were expected, the stocks have sold off from their highs, some shorts have been built, and they will no longer be short sell eligible from 10 September. Expect the stocks to move lower and then for short covering to begin as borrow is recalled.</p><p>Local institutions have been big buyers on both inclusions since listing. If part of this buying is for their passive tracking baskets, there could be less buying from now to implementation and the stocks may trade weak closer to rebalance day.</p><p>With the <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a> IPO back on the table, investors could look to switch out of <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a> while the changing gaming rules and regulations in China could be a dampener for <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a>.</p>

Last evening post market close, KRX announced the Fast Entry of KakaoBank (323410 KS) and  Krafton Inc (259960 KS) to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the close of trading on 9 September.As expected, Lock&amp;Lock (115390 KS) and Jw Pharmaceutical (001060 KS) will be deleted from the index.Given the rapidly shrinking volumes in KakaoBank (323410 KS) and  Krafton Inc (259960 KS), the impact of passive buying will be larger than what the headline numbers indicate.The deletions were expected, the stocks have sold off from their highs, some shorts have been built, and they will no longer be short sell eligible from 10 September. Expect the stocks to move lower and then for short covering to begin as borrow is recalled.Local institutions have been big buyers on both inclusions since listing. If part of this buying is for their passive tracking baskets, there could be less buying from now to implementation and the stocks may trade weak closer to rebalance day.With the Kakao Pay (377300 KS) IPO back on the table, investors could look to switch out of KakaoBank (323410 KS) while the changing gaming rules and regulations in China could be a dampener for  Krafton Inc (259960 KS).

KOSPI200 September Index Rebalance: Krafton, Kakao Bank Fast Entry Confirmed

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>Kakao Pay announced its new IPO price range today. The company lowered the IPO price range to 60,000 won to 90,000 won per share (down from 63,000 won to 96,000 won per share previously). The IPO offering range has also been revised down slightly to US$879 million to US$1,319 million. The book building for the institutional investors starts on 29 September. </p><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 205pt;"><div>Deal Specifics of the Kakao Pay IPO (Revised)</div></td>
<td style="width: 302pt;"> </td>
</tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 302pt;">Samsung Securities, Goldman Sachs, JP Morgan, Daishin Securities</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 302pt;">60,000 won (low)/90,000 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 302pt;">17m shares (new shares)</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 302pt;">US$879 mn (low);  US$1,319 mn (high)</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 302pt;">135.9m shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 302pt;">8,154 billion won (low)/12,231 billion won (high)</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 302pt;">29-Sep-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 302pt;">30-Sep-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 302pt;">14-Oct-21</td>
</tr>
<tr>
<td>Source: Company data</td>
<td style="width: 302pt;"> </td>
</tr>
</tbody>
</table><div class="content-highlight">
<p>Our base case valuation of Kakao Pay is an implied market cap of 12.2 trillion won or 89,739 won per share (0.5% higher than previous valuation).</p>
<ul>
<li>Our base case valuation is based on 10.6x EV/Sales multiple and applying this to our estimated sales of 954 billion won in 2022. </li>
<li>The EV/S multiple of 10.6x is based on the median valuation multiple of the comps in 2022. Among the comps, the valuation multiple of Upstart Holdings has increased materially in the past two months, which was offset by lower valuation multiples of 360 Digitech and Lemonade.</li>
</ul>
<p>The IPO price range is from 60,000 won to 90,000 won. If the IPO is priced near the high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low to mid end of the IPO price range, we would be more comfortable with taking the deal.</p>
</div>

Kakao Pay announced its new IPO price range today. The company lowered the IPO price range to 60,000 won to 90,000 won per share (down from 63,000 won to 96,000 won per share previously). The IPO offering range has also been revised down slightly to US$879 million to US$1,319 million. The book building for the institutional investors starts on 29 September. 






Deal Specifics of the Kakao Pay IPO (Revised)
 


Lead underwriters of the IPO: 
Samsung Securities, Goldman Sachs, JP Morgan, Daishin Securities


Expected IPO price per share: 
60,000 won (low)/90,000 won (high)


Number of Shares for IPO:
17m shares (new shares)


IPO base deal size: 
US$879 mn (low);  US$1,319 mn (high)


Expected common shares outstanding, fully diluted (post-IPO):  
135.9m shares


Expected market cap after IPO:
8,154 billion won (low)/12,231 billion won (high)


Book open: 
29-Sep-21


Book closed:
30-Sep-21


Listing date: 
14-Oct-21


Source: Company data
 



Our base case valuation of Kakao Pay is an implied market cap of 12.2 trillion won or 89,739 won per share (0.5% higher than previous valuation).

Our base case valuation is based on 10.6x EV/Sales multiple and applying this to our estimated sales of 954 billion won in 2022. 
The EV/S multiple of 10.6x is based on the median valuation multiple of the comps in 2022. Among the comps, the valuation multiple of Upstart Holdings has increased materially in the past two months, which was offset by lower valuation multiples of 360 Digitech and Lemonade.

The IPO price range is from 60,000 won to 90,000 won. If the IPO is priced near the high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low to mid end of the IPO price range, we would be more comfortable with taking the deal.


Kakao Pay - Updated Valuation With Revised IPO Price Range

South Korea

Kakao Pay Corp. operates financial businesses. The Company provides online payment, currency encryption, and other services. Kakao Pay conducts businesses in South Korea.

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Kakaopay (377300 KS)

Kakao Pay IPO - Guided by Ant Financial to Be a Mini Ant

Kakao Pay, one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao holds a...

Sumeet Singh

Ant Group's Regulatory Risks in China Must Be Reflected in Kakao Pay's IPO Valuation

This post explains why Ant Group's regulatory risks by the Chinese authorities must be reflected in Kakao Pay's IPO valuation.

Sanghyun Park

Kakao Bank Placement - Its Expensive but the Discount Is Enticing

Korea Post plans to raise around US$947m via selling all of its 2.5% stake in KakaoBank (323410 KS). This is a clean-up trade.

Sumeet Singh

KOSPI200 September Index Rebalance: Krafton, Kakao Bank Fast Entry Confirmed

Krafton & KakaoBank will be added to the KOSPI200 index at the close on 9 Sep, replacing Lock&Lock and JW Pharma. The inclusions will be short sell...

Brian Freitas

Kakao Pay - Updated Valuation With Revised IPO Price Range

Kakao Pay announced its new IPO price range today. The company lowered the IPO price range to 60,000 won to 90,000 won per share (down from 63,000...

Douglas Kim

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