Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Lionheart Studio  / Equity Capital Markets

<ul>
<li>Our base case valuation of Lionheart Studio is a target price of 19,362 won per share, which is 46% lower than the low end of the IPO price range.</li>
<li>Our IPO valuation assumes a 7.2x EV/EBITDA (comps' average) using 2023 estimated EBITDA of 145 billion won for the company.</li>
<li>All in all, we believe there is a strong probability of Lionheart Studio being forced to lower its IPO price range in order to attract more investors. </li>
</ul>


Our base case valuation of Lionheart Studio is a target price of 19,362 won per share, which is 46% lower than the low end of the IPO price range.
Our IPO valuation assumes a 7.2x EV/EBITDA (comps' average) using 2023 estimated EBITDA of 145 billion won for the company.
All in all, we believe there is a strong probability of Lionheart Studio being forced to lower its IPO price range in order to attract more investors. 


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.

<ul>
<li>SOCAR's institutional subscription rate was 56.97 to 1. It is highly unusual for an institutional competition rate to be this low among IPOs worth more than ₩1T.</li>
<li>SOCAR eventually set the price at ₩28,000 and reduced the offering volume from 4.55M to 3.64M, resulting in deal size of ₩100B at an implied market cap of ₩970B.</li>
<li>Since Lotte Rental's buying flow may be triggered earlier than expected, we may need to consider a swing trade if the price enters an oversold territory after listing.</li>
</ul>


SOCAR's institutional subscription rate was 56.97 to 1. It is highly unusual for an institutional competition rate to be this low among IPOs worth more than ₩1T.
SOCAR eventually set the price at ₩28,000 and reduced the offering volume from 4.55M to 3.64M, resulting in deal size of ₩100B at an implied market cap of ₩970B.
Since Lotte Rental's buying flow may be triggered earlier than expected, we may need to consider a swing trade if the price enters an oversold territory after listing.


SOCAR IPO: Order Table, Revised Terms, & Thinking Points

Equity Bottom-Up

<ul>
<li>In the past several days, there have been numerous news accounts about the Indian government cracking down on Krafton's Battlegrounds Mobile India (BGMI) game.</li>
<li>We believe there are several reasons why Indian government is cracking down on BGMI including concerns about this game potentially leading to greater violence among children and ties to Tencent.</li>
<li>At current valuation levels, we like a pair trade between Krafton (go short) and NCSOFT Corp (036570 KS) (go long).</li>
</ul>


In the past several days, there have been numerous news accounts about the Indian government cracking down on Krafton's Battlegrounds Mobile India (BGMI) game.
We believe there are several reasons why Indian government is cracking down on BGMI including concerns about this game potentially leading to greater violence among children and ties to Tencent.
At current valuation levels, we like a pair trade between Krafton (go short) and NCSOFT Corp (036570 KS) (go long).


A Pair Trade Between Krafton & NCsoft (India's Crackdown on Krafton's BGMI)

<ul>
<li>WCP announced today that it will delay its IPO. The book building for the institutional investors will start on 14 September (from 1 August previously).</li>
<li>Our guess for the delay is because the company may have tapped some major institutions and they may not have been so bullish on the IPO at current IPO valuation.</li>
<li>Our base case valuation of WCP is price of 87,805 won. Given the lack of upside relative to the IPO price range, we would PASS on this IPO deal.</li>
</ul>


WCP announced today that it will delay its IPO. The book building for the institutional investors will start on 14 September (from 1 August previously).
Our guess for the delay is because the company may have tapped some major institutions and they may not have been so bullish on the IPO at current IPO valuation.
Our base case valuation of WCP is price of 87,805 won. Given the lack of upside relative to the IPO price range, we would PASS on this IPO deal.


Event-Driven

<ul>
<li>Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.</li>
<li>At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.</li>
<li>It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.</li>
</ul>


Many employees of both companies must have participated in the ESOP subscription with stock-backed loans.
At the last close, the Kakao Bank ESOP must pay 14.34% of the initial total investment as additional withholdings. Krafton is much worse at 30.25%.
It seems highly likely that this situation will lead to a short-term flow distortion, substantial enough for us to consider setting up a position aimed at this.


Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

South Korea

Krafton, Inc. operates as a game development company. The Company develops console games, mobile games, computer games, and other related products. Krafton markets its products throughout South Korea.

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Krafton (259960 KS)

Lionheart Studio IPO Valuation Analysis

Our base case valuation of Lionheart Studio is a target price of 19,362 won per share, which is 46% lower than the low end of the IPO price range.

Douglas Kim

SOCAR IPO: Order Table, Revised Terms, & Thinking Points

This post investigates SOCAR's order table in the bookbuilding and discusses the thinking points for post-listing trade.

Sanghyun Park

A Pair Trade Between Krafton & NCsoft (India's Crackdown on Krafton's BGMI)

We believe there are several reasons why Indian government is cracking down on Krafton's BGMI including concerns about this game leading to greater...

Douglas Kim

WCP Delays IPO

WCP announced today that it will delay its IPO. The book building for the institutional investors will start on 14 September (from 1 August...

Douglas Kim

Explaining ESOP Margin Call Situation for Kakao Bank & Krafton

This post investigates the ESOP margin call situation for Kakao Bank and Krafton, which are about to face the ESOP lockup releases on August 6 and...

Sanghyun Park

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