Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Thematic (Sector/Industry)

<div class="content-highlight">
<p>In this insight, we provide 8 examples of how metaverse is revolutionizing numerous businesses in Korea. We also provide a list of Korean companies that are actively trying to expand their metaverse businesses. Because metaverse is in the initial stages of growth for many of these businesses, their contributions to their companies' sales and profits may not be meaningful right now. However, they are experiencing a significant popularity. Metaverse is certainly one of the key industry trends that is likely to have a multi-years impact on the companies mentioned in this insight.</p>
<p>The term "metaverse" was first coined by the writer Neal Stephenson in his 1992 science fiction novel <a href="https://digiday.com/marketing/wtf-is-the-metaverse/" target="_blank" rel="noopener"><em>Snow Crash </em></a>where metaverse refers to a popular virtual world where the main characters are equipped with augmented technologies. </p>
<p>Metaverse refers to a computerized domain where the users can share their virtual encounters. Still in the beginning phases of advancement, metaverse has become more important in key industries industries including technology, media, and telecom. In addition, metaverse is also impacting other major industries such as retail, gaming, and fashion. </p>
<p>Metaverse will empower its users to be more engaged in online shopping, web-based media, entertainment, and share virtual encounters. Metaverse is often considered as a "coming together" of numerous technologies including augmented reality (AR), virtual reality (VR), 5G, smartphones, and distributed computing. Up until recently, the gaming industry has been driving the demand for metaverse. However, greater improvements in technologies have allowed metaverse to flourish in other industries as well. </p>
<p>South Korea is one of the key countries driving the metaverse industry globally. This is one of the leaders in this area and there will be numerous, interesting opportunities involving metaverse in Korea. </p>
</div>


In this insight, we provide 8 examples of how metaverse is revolutionizing numerous businesses in Korea. We also provide a list of Korean companies that are actively trying to expand their metaverse businesses. Because metaverse is in the initial stages of growth for many of these businesses, their contributions to their companies' sales and profits may not be meaningful right now. However, they are experiencing a significant popularity. Metaverse is certainly one of the key industry trends that is likely to have a multi-years impact on the companies mentioned in this insight.
The term "metaverse" was first coined by the writer Neal Stephenson in his 1992 science fiction novel Snow Crash where metaverse refers to a popular virtual world where the main characters are equipped with augmented technologies. 
Metaverse refers to a computerized domain where the users can share their virtual encounters. Still in the beginning phases of advancement, metaverse has become more important in key industries industries including technology, media, and telecom. In addition, metaverse is also impacting other major industries such as retail, gaming, and fashion. 
Metaverse will empower its users to be more engaged in online shopping, web-based media, entertainment, and share virtual encounters. Metaverse is often considered as a "coming together" of numerous technologies including augmented reality (AR), virtual reality (VR), 5G, smartphones, and distributed computing. Up until recently, the gaming industry has been driving the demand for metaverse. However, greater improvements in technologies have allowed metaverse to flourish in other industries as well. 
South Korea is one of the key countries driving the metaverse industry globally. This is one of the leaders in this area and there will be numerous, interesting opportunities involving metaverse in Korea. 


How Is Metaverse Revolutionizing Businesses in Korea? Virtual Humans Rozy & Lucy Are Just a Start

Cross Asset Strategy

<blockquote><p><a href="https://twitter.com/TimSweeneyEpic/status/1432647669864878083?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1432647669864878083%7Ctwgr%5E%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fwww.pcgamer.com%2Fsouth-korea-passes-law-with-major-implications-for-apple-vs-epic%2F" target="_blank" rel="noopener">Korea</a> is first in open platforms! Korea has rejected digital commerce monopolies and recognized open platforms as a right. This marks a major milestone in the 45-year history of personal computing. It began in Cupertino, but the forefront today is in Seoul. (Tim Sweeney - Founder of Epic Games)</p></blockquote><p>In a landmark case (an amendment of the Telecommunications Business Act), the <a href="https://www.wsj.com/articles/google-apple-hit-in-south-korea-by-worlds-first-law-ending-their-dominance-over-app-store-payments-11630403335" target="_blank" rel="noopener">Korean government</a> announced on 31 August that Google and Apple will need to open their app stores to alternative payment systems in South Korea. This change in regulation is likely to negatively impact Google and Apple's lucrative commissions on digital sales.</p><p>A new bill was passed by the Korean National Assembly on 31 August which will significantly reduce Google and Apple's dominance of digital sales on their app platforms. The final step is for President Moon to sign this bill but it is almost a near certainty that he will sign this bill. The following are the major companies/sectors that could benefit from the change in law:</p><ul>
<li><strong><a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a></strong></li>
<li><strong><a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a></strong></li>
<li><strong>Korean Telcos</strong></li>
<li><strong>Korean Game Companies</strong></li>
<li><strong>Korean Entertainment/Music/Movies/Drama Companies </strong></li>
</ul>

Korea is first in open platforms! Korea has rejected digital commerce monopolies and recognized open platforms as a right. This marks a major milestone in the 45-year history of personal computing. It began in Cupertino, but the forefront today is in Seoul. (Tim Sweeney - Founder of Epic Games)In a landmark case (an amendment of the Telecommunications Business Act), the Korean government announced on 31 August that Google and Apple will need to open their app stores to alternative payment systems in South Korea. This change in regulation is likely to negatively impact Google and Apple's lucrative commissions on digital sales.A new bill was passed by the Korean National Assembly on 31 August which will significantly reduce Google and Apple's dominance of digital sales on their app platforms. The final step is for President Moon to sign this bill but it is almost a near certainty that he will sign this bill. The following are the major companies/sectors that could benefit from the change in law:
Naver Corp (035420 KS)
Kakao Corp (035720 KS)
Korean Telcos
Korean Game Companies
Korean Entertainment/Music/Movies/Drama Companies 


Korean Government Forces Google & Apple To Open Their App Stores to Alternative Payments

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

<h2>Listing date</h2><p>The listing date of Krafton has been confirmed as August 10th.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Schedule"}'>Krafton IPO schedule</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book open"}'>Book open</td>
<td data-sheets-value='{"1":3,"3":44391}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 14</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Book close"}'>Book close</td>
<td data-sheets-value='{"1":3,"3":44404}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 27</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Allotment"}'>Allotment</td>
<td data-sheets-value='{"1":3,"3":44406}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription"}'>Subscription</td>
<td data-sheets-value='{"1":3,"3":44410}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 8. 2</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Payment"}'>Payment</td>
<td data-sheets-value='{"1":3,"3":44413}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 8. 5</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'><strong>Listing</strong></td>
<td data-sheets-value='{"1":3,"3":44418}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 8. 10</strong></td>
</tr>
<tr>
<td><em><strong> - Kakao Bank's listing</strong></em></td>
<td><em><strong>2021. 8. 5</strong></em></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><ul>
<li><strong>The initially scheduled date was August 10th. However, as Kakao Pay's listing date was set for August 12, Krafton could not easily finalize the listing date due to the issue of mutual interference for retail investors with Kakao Pay.</strong></li>
<li><strong>The fact that Krafton confirmed the listing date as soon as Kakao Pay's listing schedule was delayed shows how sensitive Krafton was to this retail interference issue.</strong></li>
</ul><div class="content-highlight">
<p>The listing date of Kakao Bank is August 5, and there is a gap of 3 business days until the listing date of Krafton. However, in this case, Krafton is in a position to absorb retail demand from Kakao Bank. More importantly, Kakao Bank must draw less attention from retail investors than Kakao Pay in terms of business nature, so there is no need to worry too much about potential interference with Kakao Bank.</p>
<p><strong>And then, at least until the end of August, there is no major listing. That is, there is enough temporal buffer for Krafton to drive retail demand.</strong></p>
</div>

Listing dateThe listing date of Krafton has been confirmed as August 10th.





Krafton IPO schedule

Book open
2021. 7. 14


Book close
2021. 7. 27


Allotment
2021. 7. 29


Subscription
2021. 8. 2


Payment
2021. 8. 5


Listing
2021. 8. 10


 - Kakao Bank's listing
2021. 8. 5

Source: DART


The initially scheduled date was August 10th. However, as Kakao Pay's listing date was set for August 12, Krafton could not easily finalize the listing date due to the issue of mutual interference for retail investors with Kakao Pay.
The fact that Krafton confirmed the listing date as soon as Kakao Pay's listing schedule was delayed shows how sensitive Krafton was to this retail interference issue.

The listing date of Kakao Bank is August 5, and there is a gap of 3 business days until the listing date of Krafton. However, in this case, Krafton is in a position to absorb retail demand from Kakao Bank. More importantly, Kakao Bank must draw less attention from retail investors than Kakao Pay in terms of business nature, so there is no need to worry too much about potential interference with Kakao Bank.
And then, at least until the end of August, there is no major listing. That is, there is enough temporal buffer for Krafton to drive retail demand.


Krafton Listing Date Confirmed as August 10th: Rebalancing Trading Timeline

APAC IPOs & Placements

Zhen Zhou, Toh

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><p><a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"></a><a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> is looking to raise up to US3.8bn in its South Korea IPO. </p></div><div>
<p>Krafton Inc is a video game developer based in South Korea. The company is known for developing the global hit, PlayerUnknown's Battlegrounds (PUBG), an online multiplayer battle royale game. It is backed by Tencent and has also developed other games such as Tera, Elyon, Golf King: World Tour, Mini Golf King, Bowling King, and Archery King.</p>
<p>In this note, we will share our thoughts on assumptions and valuation.</p>
<p>We covered the IPO earlier in:</p>
<ul><li>
<a href="https://www.smartkarma.com/insights/krafton-ipo-adapting-and-transforming-well" target="_blank" data-smartkarma-citation="insights:54117" rel="noopener">Krafton IPO - Adapting and Transforming Well</a> </li></ul>
</div>

 Krafton Inc (259960 KS) is looking to raise up to US3.8bn in its South Korea IPO. 
Krafton Inc is a video game developer based in South Korea. The company is known for developing the global hit, PlayerUnknown's Battlegrounds (PUBG), an online multiplayer battle royale game. It is backed by Tencent and has also developed other games such as Tera, Elyon, Golf King: World Tour, Mini Golf King, Bowling King, and Archery King.
In this note, we will share our thoughts on assumptions and valuation.
We covered the IPO earlier in:

Krafton IPO - Adapting and Transforming Well 


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

South Korea

Pearl Abyss Corp. operates as a computer games making company. The Company offers games development, games exporting, and other services. Pearl Abyss serves customers worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Pearl Abyss (263750 KS)

How Is Metaverse Revolutionizing Businesses in Korea? Virtual Humans Rozy & Lucy Are Just a Start

In this insight, we provide 8 examples of how metaverse is revolutionizing businesses in Korea. We also provide a list of Korean companies that are...

Douglas Kim

Korean Government Forces Google & Apple To Open Their App Stores to Alternative Payments

In a landmark case, the Korean government announced on 31 August that Google and Apple will need to open their app stores to alternative payment...

Douglas Kim

Krafton Listing Date Confirmed as August 10th: Rebalancing Trading Timeline

The listing date of Krafton has been confirmed as August 10th. So, this post examines the index rebalancing trading timeline.

Sanghyun Park

Krafton IPO - Assumptions and Valuation

Krafton Inc (259960 KS) is looking to raise up to US3.8bn in its South Korea IPO. In this note, we will share our thoughts on assumptions and...

Zhen Zhou, Toh

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

How Is Metaverse Revolutionizing Businesses in Korea? Virtual Humans Rozy & Lucy Are Just a Start

In this insight, we provide 8 examples of how metaverse is revolutionizing businesses in Korea. We also provide a list of Korean companies that are...

Douglas Kim

Korean Government Forces Google & Apple To Open Their App Stores to Alternative Payments

In a landmark case, the Korean government announced on 31 August that Google and Apple will need to open their app stores to alternative payment...

Douglas Kim

Krafton Listing Date Confirmed as August 10th: Rebalancing Trading Timeline

The listing date of Krafton has been confirmed as August 10th. So, this post examines the index rebalancing trading timeline.

Sanghyun Park

Krafton IPO - Assumptions and Valuation

Krafton Inc (259960 KS) is looking to raise up to US3.8bn in its South Korea IPO. In this note, we will share our thoughts on assumptions and...

Zhen Zhou, Toh

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 IPO Offering Price/Size Adjustment & Valuation Re-Review