Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">
With only three weeks remaining in 2020, we now look forward to the major IPOs in Korea in 2021. This is our 6th "Annual Edition of the Major Korean IPOs Pipeline Preview" already at Smartkarma! In this report, we have identified 50 companies that are expected to complete their IPOs in the Korean Stock Market in 2021. This year has been a big year for IPOs in Korea with many IPOs that have done really well including <a href="https://www.smartkarma.com/entities/sk-biopharmaceuticals-co-ltd" target="_blank" data-smartkarma-citation="entities:28966:1" rel="noopener">SK Biopharmaceuticals (326030 KS)</a> and <a href="https://www.smartkarma.com/entities/kakao-games-corp" target="_blank" data-smartkarma-citation="entities:26730:1" rel="noopener">Kakao Games (293490 KS)</a>.  
In 2020, there were only three IPOs in Korea that were more than US$1 billion in market cap including SK Biopharm, Kakao Games, and Big Hit Entertainment. However, in 2021, we believe there could be more than 10 IPOs in Korea that are more than US$1 billion in market cap including the following:
<ol>
<li>LG Energy Solutions</li>
<li>Krafton</li>
<li>SK Bioscience</li>
<li>Kakao Bank</li>
<li>Kakao Page</li>
<li>Kakao Pay</li>
<li>SK IET</li>
<li>One Store</li>
<li>HK inno.N </li>
<li>Coupang</li>
</ol>
</div>


With only three weeks remaining in 2020, we now look forward to the major IPOs in Korea in 2021. This is our 6th "Annual Edition of the Major Korean IPOs Pipeline Preview" already at Smartkarma! In this report, we have identified 50 companies that are expected to complete their IPOs in the Korean Stock Market in 2021. This year has been a big year for IPOs in Korea with many IPOs that have done really well including SK Biopharmaceuticals (326030 KS) and Kakao Games (293490 KS).  
In 2020, there were only three IPOs in Korea that were more than US$1 billion in market cap including SK Biopharm, Kakao Games, and Big Hit Entertainment. However, in 2021, we believe there could be more than 10 IPOs in Korea that are more than US$1 billion in market cap including the following:

LG Energy Solutions
Krafton
SK Bioscience
Kakao Bank
Kakao Page
Kakao Pay
SK IET
One Store
HK inno.N 
Coupang



Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Korea Exchange (KRX) will announce the results of the December 2020 review of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> in November. The constituent changes will be effective from the open on 11 December 2020 and the rebalancing trades will need to be done at the closing auction on 10 December 2020.At the current time, we see nine stocks being added to and deleted from the index with another three stocks as very close adds and deletes. There could be an additional change with <a href="https://www.smartkarma.com/entities/big-hit-entertainment" target="_blank" data-smartkarma-citation="entities:28959:1" rel="noopener">Big Hit Entertainment (352820 KS)</a> getting index inclusion as a Fast Entry - this change could be announced ahead of the regular review announcement or as a part of the regular announcement, though the implementation will be at the same time as the December review.The potential inclusions have outperformed the potential exclusions by a wide margin over the last 6 months though the performance has been subdued over the last 2 months. With the short sell ban still in force, we could see the potential inclusions continue to outperform the potential exclusions after this period of consolidation, especially once the announcement of the changes has been made.In the Insight, we look at the expected changes, the impact of the changes on the stocks, the performance of the stocks and the short interest, the behaviour of the inclusions/exclusions at the June review and recommend some trades going forward.

The Korea Exchange (KRX) will announce the results of the December 2020 review of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in November. The constituent changes will be effective from the open on 11 December 2020 and the rebalancing trades will need to be done at the closing auction on 10 December 2020.At the current time, we see nine stocks being added to and deleted from the index with another three stocks as very close adds and deletes. There could be an additional change with Big Hit Entertainment (352820 KS) getting index inclusion as a Fast Entry - this change could be announced ahead of the regular review announcement or as a part of the regular announcement, though the implementation will be at the same time as the December review.The potential inclusions have outperformed the potential exclusions by a wide margin over the last 6 months though the performance has been subdued over the last 2 months. With the short sell ban still in force, we could see the potential inclusions continue to outperform the potential exclusions after this period of consolidation, especially once the announcement of the changes has been made.In the Insight, we look at the expected changes, the impact of the changes on the stocks, the performance of the stocks and the short interest, the behaviour of the inclusions/exclusions at the June review and recommend some trades going forward.

KOSPI200 Index Rebalance Preview: Review Period Nearly Complete, Nine (Or Ten) Possible Changes

Cross Asset Strategy

One of the most important developments arising in Korea is the potential amendment of the<a href="https://n.news.naver.com/article/009/0004680246?cds=news_edit" target="_blank" rel="noopener">Fair Trade Act</a>, especially on the clause involving (일감몰아주기), which includes taking strict actions against excessive intra-affiliate transactions among large business groups. 
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Overall, it appears that the potential changes to the Fair Trade Act could be very disruptive for so many top Korean companies. Plus, although the incumbent party (Democratic Party of Korea) has a lot of power in the National Assembly, it remains uncertain whether the government will actually be able to make the amendments since the changes in regulations could be so burdensome on so many top business groups in Korea. In addition, even if they pass the amendments, it is not all sure if the controlling shareholders will reduce their ownership in their companies. 
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One of the most important developments arising in Korea is the potential amendment of theFair Trade Act, especially on the clause involving (일감몰아주기), which includes taking strict actions against excessive intra-affiliate transactions among large business groups. 

Overall, it appears that the potential changes to the Fair Trade Act could be very disruptive for so many top Korean companies. Plus, although the incumbent party (Democratic Party of Korea) has a lot of power in the National Assembly, it remains uncertain whether the government will actually be able to make the amendments since the changes in regulations could be so burdensome on so many top business groups in Korea. In addition, even if they pass the amendments, it is not all sure if the controlling shareholders will reduce their ownership in their companies. 


Will SK Holdings Required to Sell a 25% Stake in SK Biopharm Due to Changes in the Fair Trade Act?

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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

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.<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>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. <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}'>87.48</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}'>103.04</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}'>46.94</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}'>68.88</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"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>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.<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}'>60.92</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}'>55.38</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}'>50.77</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table>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.<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}'>28.78</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}'>45.40</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}'>35.99</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)"}'>Big Hit (12M mid)</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}'>43.08</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-20]C[-1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":105000}'>₩105,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":3553.85016}'>3,553.9</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper"}'>- Upper</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":55.38467781818183}'>55.38</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-21]C[1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##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}'>110.77</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*2" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":270000}'>₩270,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":9138.47184}'>9,138.5</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3"}'>- Upper×2×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":144.00016232727273}'>144.00</td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##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}'>187.20</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"}'>Source: KRX &amp; FnGuide</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



Big Hit Ent. IPO: Valuations & Exit Price Level

Today is the first trading day of Kakao Games.The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.More importantly, Kakao Games' trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/093/original/1.png?1599685671" class="editor-image img-responsive" data-smartkarma-image-id="158093"></figure>But the street consensus is substantially lower.Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/097/original/11.png?1599686118" class="editor-image img-responsive" data-smartkarma-image-id="158097"></figure>It is pretty much in line with my projected range (₩60.6~73.2bil).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/098/original/13.png?1599686149" class="editor-image img-responsive" data-smartkarma-image-id="158098"></figure>The PER range is 22.34~26.47x at the offering price of ₩24,000.If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/099/original/12.png?1599686265" class="editor-image img-responsive" data-smartkarma-image-id="158099"></figure>

Today is the first trading day of Kakao Games.The latest OTC price is ₩78,000, which gives a market cap of ₩5.9tril.More importantly, Kakao Games' trading volume in the OTC market is astonishingly high, suggesting an insanely high level of interest by local retail.But the street consensus is substantially lower.Three local brokerages gave an earnings estimate for FY2020. They range from ₩68.7bil (Hanwha) to ₩81.4bil (Daishin).It is pretty much in line with my projected range (₩60.6~73.2bil).The PER range is 22.34~26.47x at the offering price of ₩24,000.If we see the opening price hit the upper end (200%), it will be 44.68~52.94x on FY2020 projected earnings.Then, it reaches the daily ceiling (+30%), we will have a 58.08~69.82x. 

Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

South Korea

SK Biopharmaceuticals Co., Ltd. researches and develops new drugs. The Company develops and markets brain disorders treatment drugs, central nervous system disorders treatment drugs, and other products. SK Biopharmaceuticals markets its products worldwide.

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

SK Biopharmaceuticals (326030 KS)

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Big Hit Ent. IPO: Valuations & Exit Price Level

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Revise up Kakao G Exit Price: Local Retail Insanity, Hot Money Float, & Valuation Pressure

Today is the first trading day of Kakao Gam???

Sanghyun Park

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)