Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p>Krafton's stock price has remained stubbornly strong despite numerous risks related to Chinese gaming restrictions and overdependence on a single revenue stream particularly vulnerable to those restrictions. It appears now that the risks we previously highlighted are starting to come through.</p>

Krafton's stock price has remained stubbornly strong despite numerous risks related to Chinese gaming restrictions and overdependence on a single revenue stream particularly vulnerable to those restrictions. It appears now that the risks we previously highlighted are starting to come through.

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<h2>Bookbuilding Results of K Car IPO</h2><p><a href="https://www.smartkarma.com/entities/k-car" target="_blank" data-smartkarma-citation="entities:34118:1" rel="noopener">K Car (381970 KS)</a> announced today that the <a href="https://www.newsis.com/view/?id=NISX20210929_0001597864&amp;cID=15001&amp;pID=15000" target="_blank" rel="noopener">IPO price</a> has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. </p><p>On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> and <a href="https://www.smartkarma.com/entities/lotte-rental-co-ltd" target="_blank" data-smartkarma-citation="entities:33445:1" rel="noopener">Lotte Rental (089860 KS)</a>. Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  </p><div class="content-highlight">
<p>We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.</p>
<p>We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). </p>
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Bookbuilding Results of K Car IPOK Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and 43,200 won. There were mixed responses from the overseas and domestic institutional investors. Most of the global institutional investors, that have recorded high returns from IPOs of global used car trading online platform companies such as Carvana and Vroom in the US, applied at the upper end of the IPO offering price and showed solid demand. On the other hand, the domestic institutional investors were more conservative in their view of this IPO, especially after the recent sluggish performance of major IPOs in Korea including  Krafton Inc (259960 KS) and Lotte Rental (089860 KS). Plus, given the recent series of large scale IPOs in Korea, many local institutions have limited amount of funds for further investments in IPOs.  
We continue to have a positive view of the K Car IPO following the bookbuilding results. However, it appears that the market (especially local investors) have taken a much more pessimistic view of this IPO especially due to the recent poor IPO of Lotte Rental combined with the threat of Hyundai Motor Group becoming a major competitor.
We have lowered our fair value assessment to 38,809 per share, which still represents an upside of 55% versus the IPO price of 25,000 won. Our fair value assessment is based on 0.9x P/S using our estimated sales of 2.3 trillion won for the company in 2022. While we maintained our earnings estimates, we lowered to target multiple by 30% in 2022. The 0.9x P/S multiple now reflects a 30% discount to the comps' multiples (which are mainly US based companies). 


<p>While the battle for payment systems between Epic and Apple will continue with Epic filing an appeal, the rather mild ruling against Apple has some interesting implications, as do the responses of both companies to the ruling. In the context of regulatory upheaval in the key gaming space in China and a slew of regulatory moves in other Asian countries such as Japan and South Korea, there is plenty worth mulling as new winners and losers could emerge.</p>

While the battle for payment systems between Epic and Apple will continue with Epic filing an appeal, the rather mild ruling against Apple has some interesting implications, as do the responses of both companies to the ruling. In the context of regulatory upheaval in the key gaming space in China and a slew of regulatory moves in other Asian countries such as Japan and South Korea, there is plenty worth mulling as new winners and losers could emerge.

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.

Event-Driven

<p>From today, September 10, it will be possible to short sell Kakao Bank and Krafton.</p><div class="content-highlight"><p><strong>Both Kakao Bank and Krafton have rapidly increased their loan balances over the past few days. This should be due to the increase in loan transactions in line with the start date of the short sale.</strong></p></div><p>As of yesterday, Kakao Bank's loan balance was 4,336,765 shares. This represents <strong>0.91%</strong> of the total number of outstanding shares. Although the ratio of the loan balance to SO is not yet high, it is worth paying attention to the recent rate of increase. In particular, since local ETFs/index funds that have completed KOSPI 200 rebalancing trading will enter the loan transaction market from now on, the current growth rate is highly likely to be maintained for the time being.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/980/original/image_94683396021631210485211.png?1631210485" class="editor-image img-responsive" data-smartkarma-image-id="228980"></figure><p>Krafton's situation is no different. There has been a sharp increase in recent days. As of yesterday, the loan balance is 528,702, which is <strong>1.08%</strong> of the outstanding shares. Similarly, stocks owned by local ETFs/index funds, which have completed KOSPI 200 rebalancing trading, will also flow in for Krafton. Hence, an increase in loan balance is unavoidable for the time being.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/981/original/image_74455773731631210911666.png?1631210912" class="editor-image img-responsive" data-smartkarma-image-id="228981"></figure>

From today, September 10, it will be possible to short sell Kakao Bank and Krafton.Both Kakao Bank and Krafton have rapidly increased their loan balances over the past few days. This should be due to the increase in loan transactions in line with the start date of the short sale.As of yesterday, Kakao Bank's loan balance was 4,336,765 shares. This represents 0.91% of the total number of outstanding shares. Although the ratio of the loan balance to SO is not yet high, it is worth paying attention to the recent rate of increase. In particular, since local ETFs/index funds that have completed KOSPI 200 rebalancing trading will enter the loan transaction market from now on, the current growth rate is highly likely to be maintained for the time being.Krafton's situation is no different. There has been a sharp increase in recent days. As of yesterday, the loan balance is 528,702, which is 1.08% of the outstanding shares. Similarly, stocks owned by local ETFs/index funds, which have completed KOSPI 200 rebalancing trading, will also flow in for Krafton. Hence, an increase in loan balance is unavoidable for the time being.

Short-Selling Kakao Bank & Krafton Begins Today: Here Are Some Data Worth Checking

<p>We said a couple of weeks ago that the restrictions on the gaming sector imposed by China were far more severe than the market reaction indicated. However, our view was mostly a call on the long-term impact of the gaming time restrictions on minors. The latest updates suggest that even the short-term outlook could get dire fast.</p>

We said a couple of weeks ago that the restrictions on the gaming sector imposed by China were far more severe than the market reaction indicated. However, our view was mostly a call on the long-term impact of the gaming time restrictions on minors. The latest updates suggest that even the short-term outlook could get dire fast.

China Gaming Restrictions Redux – Market Seems to Be in Denial

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)

Krafton - And So It Begins...

The first signs that China's regulatory risks will indeed hurt Krafton are appearing and the market does not seem to have noticed yet.

Mio Kato

K-Car IPO Bookbuilding Results Analysis

K Car (381970 KS) announced today that the IPO price has been determined at 25,000 won, which was below the IPO price range of 34,300 won and...

Douglas Kim

Not an Epic Ruling Against Apple

We examine developments in Epic's legal battle with Apple to identify potential long-term implications and winners and losers.

Mio Kato

Short-Selling Kakao Bank & Krafton Begins Today: Here Are Some Data Worth Checking

We can short sell Kakao Bank and Krafton from today (September 10), as they are officially KOSPI 200 members. This post contains some data worth...

Sanghyun Park

China Gaming Restrictions Redux – Market Seems to Be in Denial

While we felt the market overlooked the long-term implications of previous gaming restrictions the latest updates on China's crackdown suggest that...

Mio Kato

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