Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

On 21 May, <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a> announced that <a href="http://www.koreaherald.com/view.php?ud=20210521000303" target="_blank" rel="noopener">Jam City,</a> its mobile game subsidiary in the U.S. will merge with a SPAC (Special Purpose Acquisition Company) called DPCM Capital which is publicly trading on the NYSE. DPCM has a $300 million cash held in trust. Jam City will become a public company in the U.S. in 2H 2021 (likely to be sometime in October). The filing of this merger is <a href="https://sec.report/Document/0001213900-21-028052/" target="_blank" rel="noopener">here. </a>Jam City, which is based in Los Angeles, develops popular mobile games including Cookie Jam and Panda Pop. Jam City is one of the top 10 game publishers in the U.S. According to Jam City, the combined company will have a valuation of $1.2 billion. The newly combined company will be called Jam City Holdings and its stock will be relisted on the NYSE. <div class="content-highlight">
As of end of 1Q 2021, Netmarble had a 58.69% stake in Jam City Inc.  Netmarble included a book value of 149.7 billion for its stake in Jam City. Netmarble purchased Jam City in 2015. Netmarble paid 149.7 billion won for its stake in Jam City in 2015 and the purchase value and book value (as of end of 1Q 2021) has remained the same. Adjusted EBITDA of the combined Jam City and Ludia is expected to increase from $33 million in 2020 to $54 million in 2021 and $112 million in 2022.
Since then, Jam City has made numerous acquisitions including buying rights to Disney’s popular game Emoji Blitz in 2018 and rights to Frozen intellectual properties in 2019. Jam City plans to use the cash proceeds from the public offering estimated to be about $400 million to buy a Canada based mobile game publisher called Ludia, which makes games based on the Jurassic World movies.
Overall, we believe this merger will have a positive impact on Netmarble Corp as it its controlling stake in Jam City will be valued at publicly listed market value, which is expected to be much larger than the book value of 149.7 billion won. In other words, Netmarble's stake in Jam City will be more clear and investors will be better able to put a firm value on this stake. Plus, the combined Jam City and Ludia entity has the potential to further capture higher market share in the North American game industry, in terms of both organic growth and strategic acquisitions. 
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On 21 May, Netmarble Corporation (251270 KS) announced that Jam City, its mobile game subsidiary in the U.S. will merge with a SPAC (Special Purpose Acquisition Company) called DPCM Capital which is publicly trading on the NYSE. DPCM has a $300 million cash held in trust. Jam City will become a public company in the U.S. in 2H 2021 (likely to be sometime in October). The filing of this merger is here. Jam City, which is based in Los Angeles, develops popular mobile games including Cookie Jam and Panda Pop. Jam City is one of the top 10 game publishers in the U.S. According to Jam City, the combined company will have a valuation of $1.2 billion. The newly combined company will be called Jam City Holdings and its stock will be relisted on the NYSE. 
As of end of 1Q 2021, Netmarble had a 58.69% stake in Jam City Inc.  Netmarble included a book value of 149.7 billion for its stake in Jam City. Netmarble purchased Jam City in 2015. Netmarble paid 149.7 billion won for its stake in Jam City in 2015 and the purchase value and book value (as of end of 1Q 2021) has remained the same. Adjusted EBITDA of the combined Jam City and Ludia is expected to increase from $33 million in 2020 to $54 million in 2021 and $112 million in 2022.
Since then, Jam City has made numerous acquisitions including buying rights to Disney’s popular game Emoji Blitz in 2018 and rights to Frozen intellectual properties in 2019. Jam City plans to use the cash proceeds from the public offering estimated to be about $400 million to buy a Canada based mobile game publisher called Ludia, which makes games based on the Jurassic World movies.
Overall, we believe this merger will have a positive impact on Netmarble Corp as it its controlling stake in Jam City will be valued at publicly listed market value, which is expected to be much larger than the book value of 149.7 billion won. In other words, Netmarble's stake in Jam City will be more clear and investors will be better able to put a firm value on this stake. Plus, the combined Jam City and Ludia entity has the potential to further capture higher market share in the North American game industry, in terms of both organic growth and strategic acquisitions. 


Netmarble's U.S. Subsidiary Jam City to Merge with a SPAC & List on NYSE

Equity Capital Markets

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In this insight, we provide an update on the Krafton IPO, including its 2020 financials. It has been reported in the local media that the Krafton IPO could value the company at about <a href="https://www.gamesindustry.biz/articles/2021-01-19-ipo-plans-value-krafton-at-up-to-27bn" target="_blank" rel="noopener">20 trillion won</a> ($18 billion) to 30 trillion won ($27 billion). 
If Krafton is valued at about 30 trillion won, it would be close to the combined market caps of <a href="https://www.smartkarma.com/entities/ncsoft-corp" target="_blank" data-smartkarma-citation="entities:5169:1" rel="noopener">NCSOFT Corp (036570 KS)</a> and <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS) </a>which are 29.5 trillion won right now. The current<a href="http://www.ipo38.co.kr/forum/?code=259960" target="_blank" rel="noopener"> gray market value</a> of Krafton is 24.5 trillion won ($21.9 billion). 
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In this insight, we provide an update on the Krafton IPO, including its 2020 financials. It has been reported in the local media that the Krafton IPO could value the company at about 20 trillion won ($18 billion) to 30 trillion won ($27 billion). 
If Krafton is valued at about 30 trillion won, it would be close to the combined market caps of NCSOFT Corp (036570 KS) and Netmarble Corporation (251270 KS) which are 29.5 trillion won right now. The current gray market value of Krafton is 24.5 trillion won ($21.9 billion). 


An Update on the Krafton IPO - The Largest Game Company in Korea

<div class="content-highlight">The <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> IPO has been one of the most successful IPOs for a company whose operations are mainly in Korea. There are likely to be a lot more Korean based companies (both public and private) that will consider listing their shares in the US market after a hugely successfully Coupang IPO. In this insight, we discuss 14 major Korean companies that may try to list their shares in the US exchanges in the next several years in order to reduce the infamous "Korea discount."</div>14 Korean Companies That May List Their Shares in the US Stock Exchange:<a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">1) Samsung Electronics (005930 KS)</a>2) Kurly (Private)3) SmartStudy (Private)4) Naver Webtoon (Private) 5) Krafton (Private) 6) LG Energy Solution (Private) 7) 11st (Private) 8) SSG.com (Private) 9) <a href="https://www.smartkarma.com/entities/ncsoft-corp" target="_blank" data-smartkarma-citation="entities:5169:1" rel="noopener">NCSOFT Corp (036570 KS)</a>10) <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>11) Kakao Entertainment (Private)  12) <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>13) Tmon (Private) 14) Non private equity firm that acquires Ebay Korea

The Coupang (CPNG US) IPO has been one of the most successful IPOs for a company whose operations are mainly in Korea. There are likely to be a lot more Korean based companies (both public and private) that will consider listing their shares in the US market after a hugely successfully Coupang IPO. In this insight, we discuss 14 major Korean companies that may try to list their shares in the US exchanges in the next several years in order to reduce the infamous "Korea discount."14 Korean Companies That May List Their Shares in the US Stock Exchange:1) Samsung Electronics (005930 KS)2) Kurly (Private)3) SmartStudy (Private)4) Naver Webtoon (Private) 5) Krafton (Private) 6) LG Energy Solution (Private) 7) 11st (Private) 8) SSG.com (Private) 9) NCSOFT Corp (036570 KS)10) Naver Corp (035420 KS)11) Kakao Entertainment (Private)  12) Kakao Corp (035720 KS)13) Tmon (Private) 14) Non private equity firm that acquires Ebay Korea 

Top 14 Korean Companies That May List in the US Stock Exchanges - Close The "Korea Discount Gap"

Cross Asset Strategy

NPS has been selling big in Korea in recent weeks. It was reported that NPS and other local pension funds sold nearly 6.5 trillion won of Korean stocks this year (as of 21 January). The NPS has net sold for 18 consecutive trading days.The local retail investors and foreign investors have been increasing their stakes in the major Korean stocks this year driving the Korean stock market higher. However, there are some growing concerns that NPS has been selling big in Korea and may continue to do so in the near future, as many Korean stocks reach their all time highs. Furthermore, among the 50 top stocks in Korea, NPS added to its position on just 4 of these stocks and reduced its stake in 17 of them (of the ones that have shown changes in ownership stake in the dart system). These four stocks (including NCsoft, SK Innovation, Samsung F&amp;M Insurance, and POSCO Chemical) that NPS added to its positions are worth further reviews since it shows that NPS is especially more bullish on the outlook of these companies. These four stocks are up on average 20.7% YTD, outperforming KOSPI which is up 9.3% YTD.

NPS has been selling big in Korea in recent weeks. It was reported that NPS and other local pension funds sold nearly 6.5 trillion won of Korean stocks this year (as of 21 January). The NPS has net sold for 18 consecutive trading days.The local retail investors and foreign investors have been increasing their stakes in the major Korean stocks this year driving the Korean stock market higher. However, there are some growing concerns that NPS has been selling big in Korea and may continue to do so in the near future, as many Korean stocks reach their all time highs. Furthermore, among the 50 top stocks in Korea, NPS added to its position on just 4 of these stocks and reduced its stake in 17 of them (of the ones that have shown changes in ownership stake in the dart system). These four stocks (including NCsoft, SK Innovation, Samsung F&amp;M Insurance, and POSCO Chemical) that NPS added to its positions are worth further reviews since it shows that NPS is especially more bullish on the outlook of these companies. These four stocks are up on average 20.7% YTD, outperforming KOSPI which is up 9.3% YTD.

Equity Bottom-Up

Although NCsoft's stock price  has performed well in the past year, we believe the stock is well poised to outperform the market again this year. NCsoft, similar to many other leading global game companies, have benefited from COVID-19 as millions of people in Korea and around the world have been forced to various forms of lockdown and spend more time at home.Currently, millions of people in countries such as are starting to take new vaccines for COVID-19. However, there are new mutated COVID-19 strains that have found to be 50%+ more contagious than the existing COVID-19 virus. These events suggest that the first half of 2021 will continue to be quite restrictive in major governments around the world including South Korea and U.K. continuing to impose various kinds of lockdowns and social distancing measures which mean that people in these countries will continue to spend a lot of time at home. This would continue to benefit leading global game companies such as NCsoft. We believe NCsoft has numerous, notable investment merits.<ul>
<li>First, it has an outstanding line-up of new games in different geographies around the world in 2021.</li>
<li>Second, its ROE is improving materially.</li>
<li>Third, NCsoft's stock price is trading at a discount to historical valuations and there could be further valuation multiples re-rating on this stock in the coming months.</li>
<li>Fourth, China has started to approve new Korean games again.</li>
<li>Fifth, NCsoft and CJ ENM have agreed to form a new JV to roll out new digital contents aimed at the global market.</li>
</ul>

Although NCsoft's stock price  has performed well in the past year, we believe the stock is well poised to outperform the market again this year. NCsoft, similar to many other leading global game companies, have benefited from COVID-19 as millions of people in Korea and around the world have been forced to various forms of lockdown and spend more time at home.Currently, millions of people in countries such as are starting to take new vaccines for COVID-19. However, there are new mutated COVID-19 strains that have found to be 50%+ more contagious than the existing COVID-19 virus. These events suggest that the first half of 2021 will continue to be quite restrictive in major governments around the world including South Korea and U.K. continuing to impose various kinds of lockdowns and social distancing measures which mean that people in these countries will continue to spend a lot of time at home. This would continue to benefit leading global game companies such as NCsoft. We believe NCsoft has numerous, notable investment merits.
First, it has an outstanding line-up of new games in different geographies around the world in 2021.
Second, its ROE is improving materially.
Third, NCsoft's stock price is trading at a discount to historical valuations and there could be further valuation multiples re-rating on this stock in the coming months.
Fourth, China has started to approve new Korean games again.
Fifth, NCsoft and CJ ENM have agreed to form a new JV to roll out new digital contents aimed at the global market.


NCsoft: Key Catalysts and Valuation Sensitivity Analysis

South Korea

NCSOFT Corporation develops and markets on-line games that enable users to play over the Internet and computer software, such as web editing software.  The Company also designs and constructs databases, Intranet, and commercial Internet access systems.

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NCSOFT Corp (036570 KS)

Netmarble's U.S. Subsidiary Jam City to Merge with a SPAC & List on NYSE

On 21 May, Netmarble announced that Jam City, its game subsidiary in the U.S. will merge with a SPAC called DPCM Capital which is publicly trading...

Douglas Kim

An Update on the Krafton IPO - The Largest Game Company in Korea

In this insight, we provide an update on the Krafton IPO. It has been reported in the local media that the Krafton could be valued at about 20...

Douglas Kim

Top 14 Korean Companies That May List in the US Stock Exchanges - Close The "Korea Discount Gap"

In this insight, we discuss 14 major Korean companies that may try to list their shares in the US exchanges in the next several years in order to...

Douglas Kim

NPS Is Selling Big in Korea - Why?

NPS has been selling big in Korea in recent weeks. It was reported that NPS and other local pension funds sold nearly 6.5 trillion won of Korean...

Douglas Kim

NCsoft: Key Catalysts and Valuation Sensitivity Analysis

We believe NCsoft has numerous, notable investment merits, including an outstanding line-up of new games in different geographies around the world...

Douglas Kim

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