Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

<div class="content-highlight">
<p><strong>It has been nearly five years that I have contributed on the Smartkarma research platform. In this insight, I share some of the details of the 12 major "bread &amp; butter" IPOs &amp; EVENT-DRIVEN trading strategies in Korea. The main purpose of this insight is to provide a broad overview of the key investment strategies of these IPOs &amp; event-driven strategies in Korea so that the readers become more aware of them and put them into action on a repeatable and consistent basis. </strong></p>
<p><strong>Nonetheless, I would like to emphasize that although these IPOs &amp; EVENT-DRIVEN (also called Special Situations) </strong><strong>strategies are put into 12 major categories, the art of investing is capitalizing on the optimal risk/reward opportunities of each investment, which is often a BEAST of its own.</strong></p>
</div><p><strong>The following are the 12 major IPOs &amp; EVENT-DRIVEN trading strategies in Korea that I have detailed in this report:</strong></p><ul>
<li><strong>IPOs (Take Partial Profits at 100% of IPO Price) &amp; Let the Winners Run</strong></li>
<li><strong>IPOs (Track the Key Shareholding Companies Ahead of IPOs)</strong></li>
<li><strong>Big Share Transfer from Chairman/Chairwoman to Children</strong></li>
<li><strong>Holding Companies (Pre-Formations &amp; Pair Trades)</strong></li>
<li><strong>Indices Inclusions &amp; Exclusions (Index Arbitrage)</strong></li>
<li><strong>Share Buybacks, Owners Purchases, &amp; Stock Option Grants</strong></li>
<li><strong>Rights Offerings: Short the Stock (Pre Rights Offering) &amp; Buy the Rights or Subscribe to the Newly Issued Shares at Discount</strong></li>
<li><strong>Restructuring &amp; Change in CEO</strong></li>
<li><strong>Spin-Offs, Split-Offs, and Carve-Outs</strong></li>
<li><strong>Prefs vs. Common</strong></li>
<li><strong>Placements</strong></li>
<li><strong>Mergers &amp; Acquisitions/Tender Offers/Activism</strong></li>
</ul>


It has been nearly five years that I have contributed on the Smartkarma research platform. In this insight, I share some of the details of the 12 major "bread &amp; butter" IPOs &amp; EVENT-DRIVEN trading strategies in Korea. The main purpose of this insight is to provide a broad overview of the key investment strategies of these IPOs &amp; event-driven strategies in Korea so that the readers become more aware of them and put them into action on a repeatable and consistent basis. 
Nonetheless, I would like to emphasize that although these IPOs &amp; EVENT-DRIVEN (also called Special Situations) strategies are put into 12 major categories, the art of investing is capitalizing on the optimal risk/reward opportunities of each investment, which is often a BEAST of its own.
The following are the 12 major IPOs &amp; EVENT-DRIVEN trading strategies in Korea that I have detailed in this report:
IPOs (Take Partial Profits at 100% of IPO Price) &amp; Let the Winners Run
IPOs (Track the Key Shareholding Companies Ahead of IPOs)
Big Share Transfer from Chairman/Chairwoman to Children
Holding Companies (Pre-Formations &amp; Pair Trades)
Indices Inclusions &amp; Exclusions (Index Arbitrage)
Share Buybacks, Owners Purchases, &amp; Stock Option Grants
Rights Offerings: Short the Stock (Pre Rights Offering) &amp; Buy the Rights or Subscribe to the Newly Issued Shares at Discount
Restructuring &amp; Change in CEO
Spin-Offs, Split-Offs, and Carve-Outs
Prefs vs. Common
Placements
Mergers &amp; Acquisitions/Tender Offers/Activism


12 Major IPOs & Event-Driven Trading Strategies in the Korean Stock Market

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Equity Capital Markets

Big Hit came up a little short of beating the previous record-holder (Kakao Games), but still, it proved that it could become another hot IPO in Korea.The final subscription rate was 1,117 to 1 as a total of 1,420 institutions bothered to care for this IPO. Of them, 125 (excluding those categorized in Foreign Others) came from overseas. Well, it isn't a lot for an IPO of this size.









By investor type
Institution
%
Demand
%


Local PO funds
478
33.66%
1,775,621,000
37.15%


Local BR/IA
31
2.18%
124,161,000
2.60%


Local pension/bank/insurance
253
17.82%
911,131,000
19.06%


Local others (hedge funds)
325
22.89%
1,163,673,000
24.35%


Foreign (foreign funds)
125
8.80%
90,662,789
1.90%


Foreign others (local hot money)
208
14.65%
714,365,000
14.95%


Total
1,420
100.00%
4,779,613,789
100.00%


Subscription rate
1,117.25

Source: DART

The pricing was aggressive. Everyone priced it at 75% of the upper end or higher.But there is a tendency here. The local institutions showed greater affection as they priced it more aggressively. The foreign institutions? Well, none of them placed their orders above the upper end.









By price
Institution
%
Demand
%


Above high end
422
29.74%
1,544,842,000
32.32%


75-100% of high end
959
67.58%
3,121,231,789
65.30%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
1
0.07%
8,000
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
1,000
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
37
2.61%
113,531,000
2.38%


Total
1,419
100.00%
4,779,613,789
100.00%

Source: DART











Local PO funds
Institution
%
Demand
%


Above high end
195
40.79%
715,327,000
40.29%


75-100% of high end
258
53.97%
984,017,000
55.42%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
0
0.00%
0
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
0
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
25
5.23%
76,277,000
4.30%


Total
478
100.00%
1,775,621,000
100.00%

Source: DART











Local BR/IA
Institution
%
Demand
%


Above high end
5
16.13%
21,390,000
17.23%


75-100% of high end
26
83.87%
102,771,000
82.77%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
0
0.00%
0
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
0
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
0
0.00%
0
0.00%


Total
31
100.00%
124,161,000
100.00%

Source: DART











Local pension/bank/insurance
Institution
%
Demand
%


Above high end
104
41.11%
384,988,000
42.25%


75-100% of high end
145
57.31%
513,301,000
56.34%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
1
0.40%
8,000
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
0
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
3
1.19%
12,834,000
1.41%


Total
253
100.00%
911,131,000
100.00%

Source: DART











Local others (hedge funds)
Institution
%
Demand
%


Above high end
118
36.31%
423,137,000
36.36%


75-100% of high end
197
60.62%
716,115,000
61.54%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
0
0.00%
0
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
1,000
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
9
2.77%
24,420,000
2.10%


Total
325
100.00%
1,163,673,000
100.00%

Source: DART











Foreign (foreign funds)
Institution
%
Demand
%


Above high end
0
0.00%
0
0.00%


75-100% of high end
125
100.00%
90,662,789
100.00%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
0
0.00%
0
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
0
0.00%


75-100% of median
0
0.00%
0
0.00%


50-75% of median
0
0.00%
0
0.00%


25-50% of median
0
0.00%
0
0.00%


0-25% of median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
0
0.00%
0
0.00%


Total
125
100.00%
90,662,789
100.00%

Source: DART











Foreign others (local hot money)
Institution
%
Demand
%


Above high end
0
0.00%
0
0.00%


75-100% of high end
208
100.00%
714,365,000
100.00%


50-75% of high end
0
0.00%
0
0.00%


25-50% of high end
0
0.00%
0
0.00%


0-25% of high end
0
0.00%
0
0.00%


Median
0
0.00%
0
0.00%


75-100% of the median
0
0.00%
0
0.00%


50-75% of the median
0
0.00%
0
0.00%


25-50% of the median
0
0.00%
0
0.00%


0-25% of the median
0
0.00%
0
0.00%


Low end or below
0
0.00%
0
0.00%


Unspecified
0
0.00%
0
0.00%


Total
208
100.00%
714,365,000
100.00%

Source: DART

Lock-up is also a bit disappointing. The final result is 44%, but nearly two-thirds are one month or less, suggesting there is a long-term trust issue here.








Lock-up

6 months
464,723,000


3 months
391,101,000


1 months
1,035,585,543


15 days
204,450,464


Total
2,095,860,007


- %
43.85%

Source: DART



Big Hit IPO: Book-Building Results, Mood, & BeNX (WEVERSE) Ownership Issue

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<div><p><a href="https://www.smartkarma.com/entities/yalla-group-ltd" target="_blank" data-smartkarma-citation="entities:29286:1" rel="noopener">Yalla Group Ltd (YALA US)</a> is the largest voice-centric social networking and entertainment platform in MENA as measured by revenue in 2019, according to Frost &amp; Sullivan. Yalla has launched its IPO at a price range of $7.00-9.00 per ADS. Existing shareholder, Orchid Asia, has indicated an interest in purchasing up to $30 million of the ADSs in the offering. Yalla will raise net proceeds of $135.4 million at the mid-point of the IPO price range. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/yalla-group-ipo-initiation-eat-pray-chat" target="_blank" rel="noopener">our initiation note</a>, we stated that Yalla has appealing fundamentals as it offers breakneck revenue growth with high margins and strong cash generation. Overall, we would be inclined to participate in the IPO at the proposed price range.</p></div></div></div>

Yalla Group Ltd (YALA US) is the largest voice-centric social networking and entertainment platform in MENA as measured by revenue in 2019, according to Frost &amp; Sullivan. Yalla has launched its IPO at a price range of $7.00-9.00 per ADS. Existing shareholder, Orchid Asia, has indicated an interest in purchasing up to $30 million of the ADSs in the offering. Yalla will raise net proceeds of $135.4 million at the mid-point of the IPO price range. In our initiation note, we stated that Yalla has appealing fundamentals as it offers breakneck revenue growth with high margins and strong cash generation. Overall, we would be inclined to participate in the IPO at the proposed price range.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The life of <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> as a listed entity with a listed future is now entering its Zombie Twilight. The Tender Offer by <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> to buy out minorities has ended and we now move on to the next stage. </p><p>Today the results of the Tender Offer for LINE were <a href="https://d.line-scdn.net/stf/linecorp/en/ir/all/LINE_20200916_EN_3.pdf" target="_blank" rel="noopener">announced</a> and the Offerors managed to acquire a sum total of 31,234,670 shares leaving about 25,000,000 shares left over un-tendered (plus options and converts un-converted). That is 25,000,000 million shares worth of zombie shareholders who will roam the markets until the shares' final retirement after the EGM. </p><p>That is $1.25bn+ worth of zombies at the Tender Offer Price. </p><p>The now-zombies defended their boundary, keeping the shares above the ¥5380 Tender Offer Price line from late June until the day before the Tender Offer went ex-.</p><p> </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/330/original/Screenshot%202020-09-16%20at%204.03.18%20PM.png?1600243413" class="editor-image img-responsive" data-smartkarma-image-id="159330"></figure><p></p><p>The period between now and the delisting of LINE could be 4-5 months. It could take 5-6 months to get one's money, unless one is going after appraisal rights. Then it will take a little longer, unless it takes a lot longer. </p><p>This situation is different from the post-Tender trading situation of <a href="https://www.smartkarma.com/entities/familymart-co-ltd" target="_blank" data-smartkarma-citation="entities:320:1" rel="noopener">FamilyMart Co Ltd (8028 JP)</a> and one should not expect the squeeze which happened there. </p><div>
<hr>
<p>Previous insights related to this situation and the names involved are listed below.</p>
</div><div><table class="table table-striped"><tbody>
<tr><td colspan="3" style="width: 724px;"><h2>Relevant Insights</h2></td></tr>
<tr>
<td style="width: 122px;"><strong>Date</strong></td>
<td style="width: 97px;"><strong>Author</strong></td>
<td style="width: 463px;"><strong>Title</strong></td>
</tr>
<tr><td colspan="3" style="width: 724px;"><h3>About Cashless Payments</h3></td></tr>
<tr>
<td style="width: 122px;">13 Mar 2019</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/loyalty-points-in-japan-more-loyalty-more-points-and-the-conduit-to-cashless-payments" target="_blank" data-smartkarma-citation="insights:28547" rel="noopener">Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments</a> </td>
</tr>
<tr>
<td style="width: 122px;">2 Apr 2019</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/mio-kato-cfa" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato, CFA</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/mercari-why-mercari-is-likely-to-be-a-winner-in-the-cashless-wars" target="_blank" data-smartkarma-citation="insights:28946" rel="noopener">Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars</a> </td>
</tr>
<tr>
<td style="width: 122px;">28 Jun 2019</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/supun-walpola" target="_blank" data-smartkarma-citation="accounts:1650" rel="noopener">Supun Walpola</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/paying-with-paypay-a-deep-dive-into-yahoo-japan-s-mobile-payment-business" target="_blank" data-smartkarma-citation="insights:30750" rel="noopener">Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business</a> </td>
</tr>
<tr>
<td style="width: 122px;">6 Jan 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/lawson-and-kddi-join-forces-in-cashless-payments-war" target="_blank" data-smartkarma-citation="insights:35596" rel="noopener">Lawson and KDDI Join Forces in Cashless Payments War</a> </td>
</tr>
<tr>
<td style="width: 122px;">24 Jan 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/mercari-merpay-acquisition-of-origami-pay-continues-cashless-consolidation" target="_blank" data-smartkarma-citation="insights:36051" rel="noopener">Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation</a> </td>
</tr>
<tr>
<td style="width: 122px;">15 Feb 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/japan-payment-wars-ntt-docomo-and-merpay-origami-to-attempt-catch-up-with-paypay-and-rakuten" target="_blank" data-smartkarma-citation="insights:36609" rel="noopener">Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten</a> </td>
</tr>
<tr>
<td style="width: 122px;">20 Mar 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/some-resistance-to-cashless-payments-in-japan" target="_blank" data-smartkarma-citation="insights:37629" rel="noopener">Some Resistance to Cashless Payments in Japan</a> </td>
</tr>
<tr>
<td style="width: 122px;">28 Apr 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/z-holdings-and-yamato-create-fulfilment-service-for-all-to-rival-rakuten-and-amazon" target="_blank" data-smartkarma-citation="insights:38797" rel="noopener">Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon</a> </td>
</tr>
<tr>
<td style="width: 122px;">29 Jul 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/supun-walpola" target="_blank" data-smartkarma-citation="accounts:1650" rel="noopener">Supun Walpola</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/z-holdings-alt-data-paypay-mall-and-paypay-flea-market-continue-to-disappoint" target="_blank" data-smartkarma-citation="insights:41671" rel="noopener">Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint</a> </td>
</tr>
<tr><td colspan="3" style="width: 724px;"></td></tr>
<tr><td colspan="3" style="width: 724px;"><h3>About This Deal</h3></td></tr>
<tr>
<td style="width: 122px;">14 Nov 2019</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/z-and-line-sitting-in-a-tree-m-e-r-g-i-n-g" target="_blank" data-smartkarma-citation="insights:34463" rel="noopener">Z and LINE, Sitting in a Tree... M.E.R.G.I.N... G...?</a> </td>
</tr>
<tr>
<td style="width: 122px;">18 Nov 2019</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/line-and-z-sitting-in-a-tree-m-e-r-g-i-n-g-and-a-tender-offer" target="_blank" data-smartkarma-citation="insights:34560" rel="noopener">LINE and Z, Sitting in a Tree... M.E.R.G.I.N.G! And a Tender Offer!</a> </td>
</tr>
<tr>
<td style="width: 122px;">26 Dec 2019</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;"><a href="https://www.smartkarma.com/insights/new-deal-for-line-a-lot-like-the-old-deal" target="_blank" rel="noopener">NEW Deal for LINE (A Lot Like the Old Deal)</a></td>
</tr>
<tr>
<td style="width: 122px;">6 July 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/market-is-pricing-a-line-bump-should-it" target="_blank" data-smartkarma-citation="insights:40976" rel="noopener">Market Is Pricing a LINE Bump - Should It?</a> </td>
</tr>
<tr>
<td style="width: 122px;">22 July 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/a-line-bump-the-other-argument-against" target="_blank" data-smartkarma-citation="insights:41419" rel="noopener">A LINE Bump - The Other Argument Against</a> </td>
</tr>
<tr>
<td style="width: 122px;">29 July 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/line-3938-this-is-not-the-kitchen-sink-you-are-looking-for" target="_blank" data-smartkarma-citation="insights:41674" rel="noopener">LINE (3938) - This Is Not the Kitchen Sink You Are Looking For</a> </td>
</tr>
<tr>
<td style="width: 122px;">3 August 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/the-end-of-the-line-3938" target="_blank" data-smartkarma-citation="insights:41828" rel="noopener">The End of the LINE (3938)</a> </td>
</tr>
</tbody></table></div><div><p><em>In addition to the above insights, Michael Causton's <a href="https://www.smartkarma.com/insights/the-zozo-revival-a-new-private-brand-of-many-names-category-expansion-merchants-return" target="_blank" data-smartkarma-citation="insights:41520" rel="noopener">The Zozo Revival: A New Private Brand of Many Names, Category Expansion, Merchants Return</a> is worth a read to know more about Z Holdings going forward and <a href="https://www.smartkarma.com/profiles/mio-kato-cfa" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato, CFA</a>'s <a href="https://www.smartkarma.com/insights/zozo-nice-results-but-it-s-just-a-covid-bump" target="_blank" data-smartkarma-citation="insights:41718" rel="noopener">Zozo – Nice Results but It’s Just a COVID Bump</a> takes the view that results announced last week were less impressive than the headline numbers.</em></p></div>

The life of LINE Corp (3938 JP) as a listed entity with a listed future is now entering its Zombie Twilight. The Tender Offer by Softbank Corp (9434 JP) and Naver Corp (035420 KS) to buy out minorities has ended and we now move on to the next stage. Today the results of the Tender Offer for LINE were announced and the Offerors managed to acquire a sum total of 31,234,670 shares leaving about 25,000,000 shares left over un-tendered (plus options and converts un-converted). That is 25,000,000 million shares worth of zombie shareholders who will roam the markets until the shares' final retirement after the EGM. That is $1.25bn+ worth of zombies at the Tender Offer Price. The now-zombies defended their boundary, keeping the shares above the ¥5380 Tender Offer Price line from late June until the day before the Tender Offer went ex-. The period between now and the delisting of LINE could be 4-5 months. It could take 5-6 months to get one's money, unless one is going after appraisal rights. Then it will take a little longer, unless it takes a lot longer. This situation is different from the post-Tender trading situation of FamilyMart Co Ltd (8028 JP) and one should not expect the squeeze which happened there. 

Previous insights related to this situation and the names involved are listed below.

Relevant Insights

Date
Author
Title

About Cashless Payments

13 Mar 2019

Michael Causton 

Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 


2 Apr 2019

Mio Kato, CFA 

Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 


28 Jun 2019

Supun Walpola 

Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 


6 Jan 2020

Michael Causton 

Lawson and KDDI Join Forces in Cashless Payments War 


24 Jan 2020

Michael Causton 

Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 


15 Feb 2020

Michael Causton 

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 


20 Mar 2020

Michael Causton 

Some Resistance to Cashless Payments in Japan 


28 Apr 2020

Michael Causton 

Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 


29 Jul 2020

Supun Walpola 

Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 


About This Deal

14 Nov 2019
Travis Lundy

Z and LINE, Sitting in a Tree... M.E.R.G.I.N... G...? 


18 Nov 2019
Travis Lundy

LINE and Z, Sitting in a Tree... M.E.R.G.I.N.G! And a Tender Offer! 


26 Dec 2019
Travis Lundy
NEW Deal for LINE (A Lot Like the Old Deal)


6 July 2020
Travis Lundy

Market Is Pricing a LINE Bump - Should It? 


22 July 2020
Travis Lundy

A LINE Bump - The Other Argument Against 


29 July 2020
Travis Lundy

LINE (3938) - This Is Not the Kitchen Sink You Are Looking For 


3 August 2020
Travis Lundy

The End of the LINE (3938) 

In addition to the above insights, Michael Causton's The Zozo Revival: A New Private Brand of Many Names, Category Expansion, Merchants Return is worth a read to know more about Z Holdings going forward and Mio Kato, CFA's Zozo – Nice Results but It’s Just a COVID Bump takes the view that results announced last week were less impressive than the headline numbers.

<p>We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.</p><p>So, let's make a more reasonable approach with PER.</p><p>Korea has three major entertainment talent agencies. They are often called Big Three.</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/s-m-entertainment-co" target="_blank" data-smartkarma-citation="entities:3500:1" rel="noopener">S.M.Entertainment Co (041510 KS)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/yg-entertainment-inc" target="_blank" data-smartkarma-citation="entities:16138:1" rel="noopener">YG Entertainment (122870 KS)</a> </li>
<li><a href="https://www.smartkarma.com/entities/jyp-entertainment-corp" target="_blank" data-smartkarma-citation="entities:17598:1" rel="noopener">JYP Entertainment (035900 KS)</a></li>
</ul><p>Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. </p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY20E earnings (₩B)"}'>PERs/FY20E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OP"}'>OP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER"}'>PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OPM"}'>OPM</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NPM"}'>NPM</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":569}'>569.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":37.3}'>37.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.2}'>10.2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":87.47769980882353}'><strong>87.48</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.06555360281195079}'>6.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.017926186291739893}'>1.79%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":237}'>237.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":8.3}'>8.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.3}'>10.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":103.03534913592232}'><strong>103.04</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.035021097046413506}'>3.50%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.04345991561181435}'>4.35%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":137.4}'>137.4</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":41}'>41.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":30.7}'>30.7</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":46.94456596742671}'><strong>46.94</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.29839883551673946}'>29.84%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.22343522561863172}'>22.34%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (1H×2/upper)"}'>Big Hit (1H×2/upper)</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[54]C[0]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":587.991592}'>588.0</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[55]C[-1]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":99.50966}'>99.5</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[56]C[-2]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":66.339512}'>66.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":68.87653801251959}'><strong>68.88</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.1692365356135909}'>16.92%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.11282391262492747}'>11.28%</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'><em>Source: KRX &amp; FnGuide</em></td></tr>
</tbody>
</table><p>But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.</p><p>Below is the 12M forward PER comparison, which should be a more normalized picture.</p><p>Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY21E earnings (₩B)"}'>PERs/FY21E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER (x)"}'>PER (x)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M lower)"}'>Big Hit (12M lower)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":75}'>75.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60.92}'><strong>60.92</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'>Big Hit (12M mid)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":82.5}'>82.5</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":55.38}'><strong>55.38</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M upper)"}'>Big Hit (12M upper)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90}'>90.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":50.77}'><strong>50.77</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'><em>Source: KRX &amp; FnGuide</em></td></tr>
</tbody>
</table><p>At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.</p><p>But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"12M PER (₩B)"}'>12M PER (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"12M PER (x)"}'>12M PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MC"}'>MC</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TP"}'>TP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Δ"}'>Δ</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Coverage"}'>Coverage</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":28.78}'><strong>28.78</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":37950}'>₩37,950</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":891.100038}'>891.1</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":46800}'>₩46,800</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.233201581027668}'>23.32%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":10}'>10</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":45.4}'><strong>45.40</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":58500}'>₩58,500</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1068.595275}'>1,068.6</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":55250}'>₩55,250</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":-0.05555555555555555}'>-5.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":8}'>8</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":35.99}'><strong>35.99</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":40750}'>₩40,750</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1446.522799}'>1,446.5</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":43722}'>₩43,722</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.07293251533742331}'>7.29%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":9}'>9</td>
</tr>
<tr><td colspan="7" rowspan="1" style="text-align: left;" data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'><strong>Big Hit (12M mid)</strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Lower"}'>- Lower</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":43.076971636363645}'><strong>43.08</strong></td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-20]C[-1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":105000}'>₩105,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":3553.85016}'>3,553.9</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper"}'>- Upper</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":55.38467781818183}'><strong>55.38</strong></td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-21]C[1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":135000}'>₩135,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":4569.23592}'>4,569.2</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2"}'>- Upper×2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":110.76935563636366}'><strong>110.77</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*2" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":270000}'>₩270,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":9138.47184}'>9,138.5</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3"}'>- Upper×2×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":144.00016232727273}'><strong>144.00</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":351000}'>₩351,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":11880.013392}'>11,880.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3×1.3"}'>- Upper×2×1.3×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":187.20021102545456}'><strong>187.20</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":456300}'>₩456,300</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":15444.0174096}'>15,444.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'><em>Source: KRX &amp; FnGuide</em></td></tr>
</tbody>
</table>

We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.So, let's make a more reasonable approach with PER.Korea has three major entertainment talent agencies. They are often called Big Three.

S.M.Entertainment Co (041510 KS) 

YG Entertainment (122870 KS) 
JYP Entertainment (035900 KS)
Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. 











PERs/FY20E earnings (₩B)
Sales
OP
Earnings
PER (x)
OPM
NPM


SM Entertainment Co Ltd
569.0
37.3
10.2
87.48
6.56%
1.79%


YG Entertainment Inc
237.0
8.3
10.3
103.04
3.50%
4.35%


JYP Entertainment Corp
137.4
41.0
30.7
46.94
29.84%
22.34%


Big Hit (1H×2/upper)
588.0
99.5
66.3
68.88
16.92%
11.28%

Source: KRX &amp; FnGuide

But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.Below is the 12M forward PER comparison, which should be a more normalized picture.Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.







PERs/FY21E earnings (₩B)
Earnings
PER (x)


Big Hit (12M lower)
75.0
60.92


Big Hit (12M mid)
82.5
55.38


Big Hit (12M upper)
90.0
50.77

Source: KRX &amp; FnGuide

At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.











12M PER (₩B)
12M PER (x)
Price
MC
TP
Δ
Coverage


SM Entertainment Co Ltd
28.78
₩37,950
891.1
₩46,800
23.32%
10


YG Entertainment Inc
45.40
₩58,500
1,068.6
₩55,250
-5.56%
8


JYP Entertainment Corp
35.99
₩40,750
1,446.5
₩43,722
7.29%
9

Big Hit (12M mid)

- Lower
43.08
₩105,000
3,553.9
-
-
-


- Upper
55.38
₩135,000
4,569.2
-
-
-


- Upper×2
110.77
₩270,000
9,138.5
-
-
-


- Upper×2×1.3
144.00
₩351,000
11,880.0
-
-
-


- Upper×2×1.3×1.3
187.20
₩456,300
15,444.0
-
-
-

Source: KRX &amp; FnGuide



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Price Gauge
52-week Range	0.00 - 0.00
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