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

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">Krafton announced after the market close today that it will reduce the IPO price range to 400,000 won to 498,000 won. Previously, the IPO price range was from 458,000 won to 557,000 won. This reduction represents 13% and 11% lower prices than previously (low - high). The reduction in the IPO price range was likely to have caused by a backlash among numerous institutional investors that the IPO price range was too high. </div>The start of the book building for the institutional investors has been delayed to 14 July. The book building process will end on 27 July. The expected listing date of the IPO is scheduled to be on 10 August.

Krafton announced after the market close today that it will reduce the IPO price range to 400,000 won to 498,000 won. Previously, the IPO price range was from 458,000 won to 557,000 won. This reduction represents 13% and 11% lower prices than previously (low - high). The reduction in the IPO price range was likely to have caused by a backlash among numerous institutional investors that the IPO price range was too high. The start of the book building for the institutional investors has been delayed to 14 July. The book building process will end on 27 July. The expected listing date of the IPO is scheduled to be on 10 August. 

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.<h2>Simple omission in the transfer of title?</h2>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).<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>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.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.

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

On June 25, Krafton received a request from the Financial Supervisory Service to revise its securities declaration (IPO prospectus).However, it is known that Mirae Asset Securities, the lead underwriter, visited the Financial Supervisory Service on the afternoon of the 24th and discussed the correction of the securities declaration.In other words, it can be seen that Mirae Asset Securities is actively lobbying the Financial Supervisory Service. And it's definitely unusual.Why is Mirae Asset Securities doing this?Mirae Asset Securities is still adhering to the position that it does not plan to change the IPO price of Krafton externally. And I think we can get a hint here.

On June 25, Krafton received a request from the Financial Supervisory Service to revise its securities declaration (IPO prospectus).However, it is known that Mirae Asset Securities, the lead underwriter, visited the Financial Supervisory Service on the afternoon of the 24th and discussed the correction of the securities declaration.In other words, it can be seen that Mirae Asset Securities is actively lobbying the Financial Supervisory Service. And it's definitely unusual.Why is Mirae Asset Securities doing this?Mirae Asset Securities is still adhering to the position that it does not plan to change the IPO price of Krafton externally. And I think we can get a hint here.

Krafton and Mirae Asset Are Playing a Fairly Risky Game

In the end, the Financial Supervisory Service requested Krafton to submit a correction report.The Financial Supervisory Service concluded that Krafton's securities declaration (IPO prospectus) submitted on June 16 through public disclosure could hinder investors' rational investment judgment or cause serious misunderstandings due to unclear material content.As a result, Krafton's current securities declaration is suspended.In addition, Krafton must submit a correction report within three months from the receipt of the request for correction.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/365/original/Screen+Shot+2021-06-25+at+12.22.18+PM.png?1624638338" class="editor-image img-responsive" data-smartkarma-image-id="215365"></figure>Krafton also confirmed through a regulatory filing that it had received a request for correction from the Financial Supervisory Service and said that the reason was the insufficient description of important matters.
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/366/original/Screen+Shot+2021-06-25+at+12.27.56+PM.png?1624638510" class="editor-image img-responsive" data-smartkarma-image-id="215366"></figure></section></section>

In the end, the Financial Supervisory Service requested Krafton to submit a correction report.The Financial Supervisory Service concluded that Krafton's securities declaration (IPO prospectus) submitted on June 16 through public disclosure could hinder investors' rational investment judgment or cause serious misunderstandings due to unclear material content.As a result, Krafton's current securities declaration is suspended.In addition, Krafton must submit a correction report within three months from the receipt of the request for correction.Krafton also confirmed through a regulatory filing that it had received a request for correction from the Financial Supervisory Service and said that the reason was the insufficient description of important matters.


FSS Requested Krafton to Revise the Offering Price: Background & Impact

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 IPO Offering Price/Size Adjustment & Valuation Re-Review

Still, the revised valuation does not seem appropriate in that it still uses distorted net profit and the discount rate doesn't reflect high...

Sanghyun Park

Krafton Lowers IPO Price Range

Krafton announced after the market close today that it will reduce the IPO price range to 400,000 won to 498,000 won. Previously, the IPO price...

Douglas Kim

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

The FSS indeed pays attention to the offering price, but it doesn't have the authority to request a revision. Meanwhile, Mirae Asset argues that...

Sanghyun Park

Krafton and Mirae Asset Are Playing a Fairly Risky Game

This post identifies what is going on between the Financial Supervisory Service and Mirae Asset regarding the listing of Krafton and what their...

Sanghyun Park

FSS Requested Krafton to Revise the Offering Price: Background & Impact

The Financial Supervisory Service did not clearly state the specific reason. However, many in the market believe that the controversy over the...

Sanghyun Park

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Market Cap (USDm)

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

Still, the revised valuation does not seem appropriate in that it still uses distorted net profit and the discount rate doesn't reflect high...

Sanghyun Park

Krafton Lowers IPO Price Range

Krafton announced after the market close today that it will reduce the IPO price range to 400,000 won to 498,000 won. Previously, the IPO price...

Douglas Kim

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

The FSS indeed pays attention to the offering price, but it doesn't have the authority to request a revision. Meanwhile, Mirae Asset argues that...

Sanghyun Park

Krafton and Mirae Asset Are Playing a Fairly Risky Game

This post identifies what is going on between the Financial Supervisory Service and Mirae Asset regarding the listing of Krafton and what their...

Sanghyun Park

FSS Requested Krafton to Revise the Offering Price: Background & Impact

The Financial Supervisory Service did not clearly state the specific reason. However, many in the market believe that the controversy over the...

Sanghyun Park

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