Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p><strong><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> provided a new timeline of its IPO after the market close today.</strong> The book building for the institutional investors will now start on <strong>20 October.</strong> Previously, this was supposed to start on 29 September. Despite another delay in the IPO schedule, the company has maintained the IPO price range of 60,000 won to 90,000 won. The IPO base deal size ranges from $871 million to $1.3 billion.</p><p>According to the bankers' valuation, the expected market cap of Kakao Pay is expected to range from 8.2 trillion won to 12.2 trillion won. Kakao Pay IPO is expected to start trading on <strong>3 November. </strong></p><div class="content-highlight">
<div>We maintain our base case valuation of EV of 10.1 trillion won, implied market cap of 12.2 trillion won, and target price per share of 89,739 won per share. This is based on an EV/S multiple of 10.6x using our estimated sales of 954 billion won for the company in 2022.</div>
<div></div>
<div>At the high end of the IPO price range (90,000 won), we see limited upside as compared to our base case valuation. On the other hand, at the low or mid end of the IPO price range (60,000 won to 75,000 won per share), we see a solid upside as compared to our target price. </div>
</div>

Kakao Pay (377300 KS) provided a new timeline of its IPO after the market close today. The book building for the institutional investors will now start on 20 October. Previously, this was supposed to start on 29 September. Despite another delay in the IPO schedule, the company has maintained the IPO price range of 60,000 won to 90,000 won. The IPO base deal size ranges from $871 million to $1.3 billion.According to the bankers' valuation, the expected market cap of Kakao Pay is expected to range from 8.2 trillion won to 12.2 trillion won. Kakao Pay IPO is expected to start trading on 3 November. 
We maintain our base case valuation of EV of 10.1 trillion won, implied market cap of 12.2 trillion won, and target price per share of 89,739 won per share. This is based on an EV/S multiple of 10.6x using our estimated sales of 954 billion won for the company in 2022.

At the high end of the IPO price range (90,000 won), we see limited upside as compared to our base case valuation. On the other hand, at the low or mid end of the IPO price range (60,000 won to 75,000 won per share), we see a solid upside as compared to our target price. 


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.

<h2>Listing schedule</h2><p>First, it was confirmed that the Financial Supervisory Service discussed the scope of correction and listing schedule with Kakao Pay during the Chuseok holiday.</p><p>The results of this discussion have not yet been leaked to the market. However, the local street's general view is that the listing schedule will not be substantially delayed. Kakao Pay's listing schedule has already been postponed once, and delaying it until next year could be a significant burden for the Financial Supervisory Service as well.</p><div class="content-highlight"><p><strong>The majority view in the local market is that Kakao Pay will submit a revised securities declaration at the end of September (likely sometime next week). </strong><strong>And the bookbuilding will begin around mid-October after the 15 business day grace period. </strong><strong>In this case, the listing date is likely to be around mid-November.</strong></p></div><h2>What changes are to be added?</h2><p>Kakao Pay has so far provided a service that recommends insurance or financial investment products that meet individual needs through the app. The FSC concluded that this was a product brokerage service, not an advertisement.</p><p>Of course, a business license is required to broker financial products in the Korean market. An insurance broker license is required to broker insurance, and a brokerage license is needed to broker financial investment products under the Capital Market Act.</p><p>Currently, Kakao Pay does not have these licenses. Instead, Kakao Pay's subsidiaries, KP Insurance Service, and Kakao Pay Securities, hold these financial product brokerage licenses. However, the FSC raised the issue, saying that this is a license owned by a subsidiary, not a license of Kakao Pay.</p><p>Therefore, the FSC requested Kakao Pay to immediately stop these services from September 25, when the guidance period of the Financial Consumer Protection Act ends. In this regard, Kakao Pay has already temporarily suspended insurance product brokerage services such as car insurance, companion animal insurance, and overseas travel insurance.</p><p>Kakao Pay has no choice but to include the newly changed regulatory environment and the resulting temporary suspension of services in the revised securities report. Then, the question is whether a lowering of the offering price is inevitable.</p><div class="content-highlight">
<p><strong>The general view of the local market is that a downward revision of the offering price is inevitable. As 32% of sales in the first half of this year were from the brokerage of financial products, future growth and sales estimates will have to be revised down.</strong></p>
<p><strong>Of course, Kakao Pay can resume these financial product brokerage services under the name of its subsidiaries or by directly obtaining a license. However, the problem is that the cost structure will be significantly different if it becomes a financial product brokerage service rather than an advertisement. That is, it is inevitable </strong><strong>to make a major revision to whether Kakao Pay can achieve the previously estimated sales/profit growth rate with this cost structure.</strong></p>
</div>

Listing scheduleFirst, it was confirmed that the Financial Supervisory Service discussed the scope of correction and listing schedule with Kakao Pay during the Chuseok holiday.The results of this discussion have not yet been leaked to the market. However, the local street's general view is that the listing schedule will not be substantially delayed. Kakao Pay's listing schedule has already been postponed once, and delaying it until next year could be a significant burden for the Financial Supervisory Service as well.The majority view in the local market is that Kakao Pay will submit a revised securities declaration at the end of September (likely sometime next week). And the bookbuilding will begin around mid-October after the 15 business day grace period. In this case, the listing date is likely to be around mid-November.What changes are to be added?Kakao Pay has so far provided a service that recommends insurance or financial investment products that meet individual needs through the app. The FSC concluded that this was a product brokerage service, not an advertisement.Of course, a business license is required to broker financial products in the Korean market. An insurance broker license is required to broker insurance, and a brokerage license is needed to broker financial investment products under the Capital Market Act.Currently, Kakao Pay does not have these licenses. Instead, Kakao Pay's subsidiaries, KP Insurance Service, and Kakao Pay Securities, hold these financial product brokerage licenses. However, the FSC raised the issue, saying that this is a license owned by a subsidiary, not a license of Kakao Pay.Therefore, the FSC requested Kakao Pay to immediately stop these services from September 25, when the guidance period of the Financial Consumer Protection Act ends. In this regard, Kakao Pay has already temporarily suspended insurance product brokerage services such as car insurance, companion animal insurance, and overseas travel insurance.Kakao Pay has no choice but to include the newly changed regulatory environment and the resulting temporary suspension of services in the revised securities report. Then, the question is whether a lowering of the offering price is inevitable.
The general view of the local market is that a downward revision of the offering price is inevitable. As 32% of sales in the first half of this year were from the brokerage of financial products, future growth and sales estimates will have to be revised down.
Of course, Kakao Pay can resume these financial product brokerage services under the name of its subsidiaries or by directly obtaining a license. However, the problem is that the cost structure will be significantly different if it becomes a financial product brokerage service rather than an advertisement. That is, it is inevitable to make a major revision to whether Kakao Pay can achieve the previously estimated sales/profit growth rate with this cost structure.


Kakao Pay IPO Schedule Update & Short Trading Idea on Kakao Bank

Equity Bottom-Up

<p><strong><a href="https://www.smartkarma.com/entities/douzone-bizon-co-ltd" target="_blank" data-smartkarma-citation="entities:20161:1" rel="noopener">Douzone Bizon (012510 KS)</a> has two major catalysts (Internet only bank for SMEs and accounts receivable factoring business) right now that is driving its share price higher.</strong></p><p>The huge success of the <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a> IPO has given higher spotlight on companies that could become competitive threats in the Internet banking industry in Korea. Douzone Bizon in partnership with Shinhan Bank has the capability to become one of the major players in the Internet bank industry dedicated to the SME sector. Douzon Bizon's emphasis is not on the retail Internet banking but rather on the SMEs corporate related Internet banking services. </p><p>After Bain Capital became the second largest shareholder of the company in March 2021, the share price of the company fell nearly 25% (reaching low of 75,800 won on 20 August). However, its share price has rebounded strongly in the past month, driven by these two catalysts. </p><div class="content-highlight">
<p>Given the positive impact from the two key catalysts (Internet only bank for SMEs and accounts receivable factoring business), we believe that the market is likely to attach higher valuation multiples on the company in the coming weeks. As such, we believe that Douzone Bizon could continue to strongly outperform the market in the rest of 2021.</p>
<p>The company's shares have traded as high as 57.6x P/E in the past four years. If we apply this multiple on the consensus net profit of 75.6 billion won in 2022, this would imply a market cap of 4.4 trillion won (143,500 won per share), which is 32% higher than current share price. </p>
</div>

Douzone Bizon (012510 KS) has two major catalysts (Internet only bank for SMEs and accounts receivable factoring business) right now that is driving its share price higher.The huge success of the KakaoBank (323410 KS) IPO has given higher spotlight on companies that could become competitive threats in the Internet banking industry in Korea. Douzone Bizon in partnership with Shinhan Bank has the capability to become one of the major players in the Internet bank industry dedicated to the SME sector. Douzon Bizon's emphasis is not on the retail Internet banking but rather on the SMEs corporate related Internet banking services. After Bain Capital became the second largest shareholder of the company in March 2021, the share price of the company fell nearly 25% (reaching low of 75,800 won on 20 August). However, its share price has rebounded strongly in the past month, driven by these two catalysts. 
Given the positive impact from the two key catalysts (Internet only bank for SMEs and accounts receivable factoring business), we believe that the market is likely to attach higher valuation multiples on the company in the coming weeks. As such, we believe that Douzone Bizon could continue to strongly outperform the market in the rest of 2021.
The company's shares have traded as high as 57.6x P/E in the past four years. If we apply this multiple on the consensus net profit of 75.6 billion won in 2022, this would imply a market cap of 4.4 trillion won (143,500 won per share), which is 32% higher than current share price. 


Douzone Bizon: Internet Bank for SMEs and Accounts Receivables Factoring Driving Share Price Higher

<p>Toss Bank is the third Internet bank in Korea which is expected to be launched on October 4th. Prior to this launch, Toss Bank has started to take applicants for its bank account that provides 2% annual interest rate 'without any conditions.' This is a frequent deposit and withdrawal passbook that pays 2% annual interest rate without any restrictions on the deposit amount and the subscription period. Toss Bank plans to pay interest on the deposit calculated on a pro-rata basis once a month. </p><div class="content-highlight">
<p>In the past five days, Toss Bank has started to take initial applicants for its 2% annual interest rate bank account and debt card with attractive cash back program (46,500 won per month - maximum). <a href="http://news.kmib.co.kr/article/view.asp?arcid=0016269388&amp;code=61141311&amp;cp=nv" target="_blank" rel="noopener">Toss Bank</a> started to take applicants for this bank account product on September 10th and it has gained 0.59mn applicants in just five days.</p>
<p>This is just the start and it is likely that the competition in the Internet banking sector in Korea will heat up even more in the months ahead. We continue to remain negative on <a href="https://www.smartkarma.com/entities/kakaobank-corp" target="_blank" data-smartkarma-citation="entities:33501:1" rel="noopener">KakaoBank (323410 KS)</a> shares at current levels. </p>
</div>

Toss Bank is the third Internet bank in Korea which is expected to be launched on October 4th. Prior to this launch, Toss Bank has started to take applicants for its bank account that provides 2% annual interest rate 'without any conditions.' This is a frequent deposit and withdrawal passbook that pays 2% annual interest rate without any restrictions on the deposit amount and the subscription period. Toss Bank plans to pay interest on the deposit calculated on a pro-rata basis once a month. 
In the past five days, Toss Bank has started to take initial applicants for its 2% annual interest rate bank account and debt card with attractive cash back program (46,500 won per month - maximum). Toss Bank started to take applicants for this bank account product on September 10th and it has gained 0.59mn applicants in just five days.
This is just the start and it is likely that the competition in the Internet banking sector in Korea will heat up even more in the months ahead. We continue to remain negative on KakaoBank (323410 KS) shares at current levels. 


Toss Bank: A Sharp Growth in New Applicants to Take Away Market Share from Kakao Bank & K-Bank

Event-Driven

<p>There is a lot of confusion about exactly in which areas Kakao is under investigation by the Fair Trade Commission.</p><div class="content-highlight"><p><strong>The Fair Trade Commission is investigating K Cube Holdings from two angles.</strong></p></div><hr><h2>First: Non-disclosure of data on affiliates</h2><p>The FTC requires every business group whose total assets exceed ₩10T to submit data on all affiliates to designate a cross-ownership restricted business group every year. In particular, the FTC requires detailed shareholder status data for companies (wholly or partially) owned by the family members of the head of a business group.</p><p>This purpose is clear. This is intended to regulate the exploitation of private interests by an owner family. That is, the FTC intends to prevent an unfair transfer of wealth.</p><div class="content-highlight">
<p><strong>However, the Fair Trade Commission argues that detailed data on K Cube Holdings, the de facto holding company of Kakao, have not been submitted for a long time.</strong></p>
<p><strong>The FTC is planning to intensively investigate whether K Cube Holdings has received profits from Kakao in an unfair way.</strong></p>
</div><p>K Cube Holdings was established in January 2007 for the purpose of software development, and Kim Beom-soo (Kakao founder and chairman) owns 100% of the shares. K Cube Holdings currently owns a 10.59% stake in Kakao.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Kakao shareholding"}'>Kakao shareholding</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Kim Beom-su"}'>Kim Beom-soo</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1329}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>13.29%</td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"K Cube Holdings"}'><strong>K Cube Holdings</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1057}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>10.57%</strong></td>
</tr>
<tr><td colspan="2"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS"}'>NPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.084}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>8.40%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"MAXIMO PTE (Tencent)"}'>MAXIMO PTE (Tencent)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0629}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>6.29%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BlackRock"}'>BlackRock</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.051652177348374975}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.17%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table><p>Most of K Cube Holdings' seven employees (as of April of this year) are the family members of Chairman Kim. Chairman Kim's younger brother, Kim Hwa-young, served as the CEO until the end of last year. Chairman Kim and his wife (Hyoung Mi-sun) are part-time directors. Chairman Kim's son Kim Sang-bin and his daughter Kim Ye-bin also serve at the company.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/229/621/original/1.jpeg?1631585050" class="editor-image img-responsive" data-smartkarma-image-id="229621"></figure><h2>Second: Violation of the Separation of Industrial &amp; Financial Capital</h2>
<p>The second is actually more fatal. The FTC is also investigating allegations that Kakao violated the 'Regulation on Separation of Industrial and Financial Capital'.</p>
<div class="content-highlight"><p><strong>K Cube Holdings changed its business registration type this year from management consulting to financial investment. As a result, K Cube Holdings, a financial company, came to govern the non-financial company, Kakao.</strong></p></div>
<p>The Fair Trade Act stipulates that financial companies belonging to a cross-ownership restricted business group cannot exercise their voting rights over non-financial companies in accordance with the principle of Separation of Industrial and Financial Capital.</p>
<p><strong>Violation of the Separation of Industrial and Financial Capital is way more serious than an unfair transfer of wealth and is subject to severe penalties.</strong></p></section>

There is a lot of confusion about exactly in which areas Kakao is under investigation by the Fair Trade Commission.The Fair Trade Commission is investigating K Cube Holdings from two angles.First: Non-disclosure of data on affiliatesThe FTC requires every business group whose total assets exceed ₩10T to submit data on all affiliates to designate a cross-ownership restricted business group every year. In particular, the FTC requires detailed shareholder status data for companies (wholly or partially) owned by the family members of the head of a business group.This purpose is clear. This is intended to regulate the exploitation of private interests by an owner family. That is, the FTC intends to prevent an unfair transfer of wealth.
However, the Fair Trade Commission argues that detailed data on K Cube Holdings, the de facto holding company of Kakao, have not been submitted for a long time.
The FTC is planning to intensively investigate whether K Cube Holdings has received profits from Kakao in an unfair way.
K Cube Holdings was established in January 2007 for the purpose of software development, and Kim Beom-soo (Kakao founder and chairman) owns 100% of the shares. K Cube Holdings currently owns a 10.59% stake in Kakao.





Kakao shareholding

Kim Beom-soo
13.29%



K Cube Holdings
10.57%

 

NPS
8.40%


MAXIMO PTE (Tencent)
6.29%


BlackRock
5.17%

Source: KRX FIND

Most of K Cube Holdings' seven employees (as of April of this year) are the family members of Chairman Kim. Chairman Kim's younger brother, Kim Hwa-young, served as the CEO until the end of last year. Chairman Kim and his wife (Hyoung Mi-sun) are part-time directors. Chairman Kim's son Kim Sang-bin and his daughter Kim Ye-bin also serve at the company.Second: Violation of the Separation of Industrial &amp; Financial Capital
The second is actually more fatal. The FTC is also investigating allegations that Kakao violated the 'Regulation on Separation of Industrial and Financial Capital'.
K Cube Holdings changed its business registration type this year from management consulting to financial investment. As a result, K Cube Holdings, a financial company, came to govern the non-financial company, Kakao.
The Fair Trade Act stipulates that financial companies belonging to a cross-ownership restricted business group cannot exercise their voting rights over non-financial companies in accordance with the principle of Separation of Industrial and Financial Capital.
Violation of the Separation of Industrial and Financial Capital is way more serious than an unfair transfer of wealth and is subject to severe penalties.

Kakao's De Facto Holding Company K Cube Holdings: Exactly What Are They Accused Of?

South Korea

KakaoBank Corp. operates bank businesses. The Company provides deposit money, withdraw money, credit cards, stock accounts, linked loans, and other services. KakaoBank conducts businesses in South Korea.

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KakaoBank (323410 KS)

Kakao Pay - A New Timeline for Its IPO

Kakao Pay provided a new timeline of its IPO after the market close today. The book building for the institutional investors will now start on 20...

Douglas Kim

Kakao Pay IPO Schedule Update & Short Trading Idea on Kakao Bank

This post gives an update on Kakao Pay's listing situation, including the likely schedule. Then, it discusses short trading ideas involving Kakao...

Sanghyun Park

Kakao's De Facto Holding Company K Cube Holdings: Exactly What Are They Accused Of?

This post discusses exactly what K Cube Holdings and chairman Kim are accused of by the FTC and why this issue is so critical that Kakao's share...

Sanghyun Park

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Kakao Pay - A New Timeline for Its IPO

Kakao Pay provided a new timeline of its IPO after the market close today. The book building for the institutional investors will now start on 20...

Douglas Kim

Kakao Pay IPO Schedule Update & Short Trading Idea on Kakao Bank

This post gives an update on Kakao Pay's listing situation, including the likely schedule. Then, it discusses short trading ideas involving Kakao...

Sanghyun Park

Douzone Bizon: Internet Bank for SMEs and Accounts Receivables Factoring Driving Share Price Higher

Douzone Bizon (012510 KS) has two major catalysts (Internet only bank for SMEs and accounts receivable factoring business) right now that is...

Douglas Kim

Toss Bank: A Sharp Growth in New Applicants to Take Away Market Share from Kakao Bank & K-Bank

In the past five days, Toss Bank has started to take initial applicants for its 2% annual interest rate bank account and it has already gained...

Douglas Kim

Kakao's De Facto Holding Company K Cube Holdings: Exactly What Are They Accused Of?

This post discusses exactly what K Cube Holdings and chairman Kim are accused of by the FTC and why this issue is so critical that Kakao's share...

Sanghyun Park