Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p>In this insight, we provide an updated valuation analysis of <a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a>. We update our financials to account for the company's 1H 2021 results. In addition, we have used the updated financials comparisons of the comps.</p><div class="content-highlight"><p>Our base case valuation of Kakao Pay is an implied market cap of 11.1 trillion won or 81,829 won per share. Our base case valuation of the company is reduced by 9% mainly due to lower sales estimates in 2022 combined with lower valuation multiple (EV/S of 10x in 2022 versus 10.6x previously). </p><ul style="list-style-type: disc;"><li>Our base case valuation is based on 10.0x EV/Sales multiple and applying this to our estimated sales of 919 billion won in 2022. </li><li>The EV/S multiple of 10.0x is based on the median valuation multiple of the comps in 2022. Among the comps, the valuation multiple of Upstart Holdings has increased materially in the past two months, which was offset by lower valuation multiples of 360 Digitech and Lemonade.</li></ul><p>The IPO price range is from 60,000 won to 90,000 won. If the IPO is priced near the mid to high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.</p><p><strong>Furthermore, although our one year base case valuation is 8</strong><strong>1,829 won per share, we do think there could be moderate (but not excessive) pop in the first 1-2 days of trading rising to as high as 103,366 won per share. We believe that many investors may opt to take some profits if the stock pops to more than 100,000 won per share. </strong></p></div>

In this insight, we provide an updated valuation analysis of Kakao Pay (377300 KS). We update our financials to account for the company's 1H 2021 results. In addition, we have used the updated financials comparisons of the comps.Our base case valuation of Kakao Pay is an implied market cap of 11.1 trillion won or 81,829 won per share. Our base case valuation of the company is reduced by 9% mainly due to lower sales estimates in 2022 combined with lower valuation multiple (EV/S of 10x in 2022 versus 10.6x previously). Our base case valuation is based on 10.0x EV/Sales multiple and applying this to our estimated sales of 919 billion won in 2022. The EV/S multiple of 10.0x is based on the median valuation multiple of the comps in 2022. Among the comps, the valuation multiple of Upstart Holdings has increased materially in the past two months, which was offset by lower valuation multiples of 360 Digitech and Lemonade.The IPO price range is from 60,000 won to 90,000 won. If the IPO is priced near the mid to high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.Furthermore, although our one year base case valuation is 81,829 won per share, we do think there could be moderate (but not excessive) pop in the first 1-2 days of trading rising to as high as 103,366 won per share. We believe that many investors may opt to take some profits if the stock pops to more than 100,000 won per share. 

Kakao Pay - Slightly Lower Our Base Case Valuation

<p><strong><a href="https://www.smartkarma.com/entities/kakao-pay-corp" target="_blank" data-smartkarma-citation="entities:29675:1" rel="noopener">Kakao Pay (377300 KS)</a> provided a new timeline of its IPO after the market close today.</strong> The book building for the institutional investors will now start on <strong>20 October.</strong> Previously, this was supposed to start on 29 September. Despite another delay in the IPO schedule, the company has maintained the IPO price range of 60,000 won to 90,000 won. The IPO base deal size ranges from $871 million to $1.3 billion.</p><p>According to the bankers' valuation, the expected market cap of Kakao Pay is expected to range from 8.2 trillion won to 12.2 trillion won. Kakao Pay IPO is expected to start trading on <strong>3 November. </strong></p><div class="content-highlight">
<div>We maintain our base case valuation of EV of 10.1 trillion won, implied market cap of 12.2 trillion won, and target price per share of 89,739 won per share. This is based on an EV/S multiple of 10.6x using our estimated sales of 954 billion won for the company in 2022.</div>
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<div>At the high end of the IPO price range (90,000 won), we see limited upside as compared to our base case valuation. On the other hand, at the low or mid end of the IPO price range (60,000 won to 75,000 won per share), we see a solid upside as compared to our target price. </div>
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Kakao Pay (377300 KS) provided a new timeline of its IPO after the market close today. The book building for the institutional investors will now start on 20 October. Previously, this was supposed to start on 29 September. Despite another delay in the IPO schedule, the company has maintained the IPO price range of 60,000 won to 90,000 won. The IPO base deal size ranges from $871 million to $1.3 billion.According to the bankers' valuation, the expected market cap of Kakao Pay is expected to range from 8.2 trillion won to 12.2 trillion won. Kakao Pay IPO is expected to start trading on 3 November. 
We maintain our base case valuation of EV of 10.1 trillion won, implied market cap of 12.2 trillion won, and target price per share of 89,739 won per share. This is based on an EV/S multiple of 10.6x using our estimated sales of 954 billion won for the company in 2022.

At the high end of the IPO price range (90,000 won), we see limited upside as compared to our base case valuation. On the other hand, at the low or mid end of the IPO price range (60,000 won to 75,000 won per share), we see a solid upside as compared to our target price. 


Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/upstart-holdings-inc" target="_blank" data-smartkarma-citation="entities:29727:1" rel="noopener">Upstart Holdings Inc (UPST US)</a> has been one of the best performing SaaS stocks in the United States in the past year. Upstart Holdings completed its IPO in December 2020 at an IPO price of $20 per share. Since then, its share price has skyrocketed by 1,252% to reach $270.46 per share. Upstart's market cap has also jumped to $21 billion. Upstart Holdings is also one of the comps to Kakao Pay that the bankers used to price the Kakao Pay IPO. </p><div class="content-highlight">
<p>All in all, Upstart Holdings has experienced extraordinary growth in sales and profits in the past couple of years, driven by its superior AI driven technologies in the personal and auto loans sector. Upstart Holdings is clearly one of the most important companies to pay attention in the global AI-driven lending industry. </p>
<p>As Kakao Pay is trying to complete its IPO next month, it has chosen to include Upstart Holdings as one of the comps. However, we have concerns that investors are likely to put significant discount on the relative valuations of Kakao Pay as compared to Upstart due to the following factors such as increased regulatory scrutiny on the fintech services provided by Kakao Pay and higher marketing and operating costs that are likely to be required to change the way its current financial services are provided.</p>
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Upstart Holdings Inc (UPST US) has been one of the best performing SaaS stocks in the United States in the past year. Upstart Holdings completed its IPO in December 2020 at an IPO price of $20 per share. Since then, its share price has skyrocketed by 1,252% to reach $270.46 per share. Upstart's market cap has also jumped to $21 billion. Upstart Holdings is also one of the comps to Kakao Pay that the bankers used to price the Kakao Pay IPO. 
All in all, Upstart Holdings has experienced extraordinary growth in sales and profits in the past couple of years, driven by its superior AI driven technologies in the personal and auto loans sector. Upstart Holdings is clearly one of the most important companies to pay attention in the global AI-driven lending industry. 
As Kakao Pay is trying to complete its IPO next month, it has chosen to include Upstart Holdings as one of the comps. However, we have concerns that investors are likely to put significant discount on the relative valuations of Kakao Pay as compared to Upstart due to the following factors such as increased regulatory scrutiny on the fintech services provided by Kakao Pay and higher marketing and operating costs that are likely to be required to change the way its current financial services are provided.


Upstart Holdings - Up 1,252% from the IPO Price & A Key Comp for Kakao Pay

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Granite Bay Capital

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Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

<p>Headline Developments On the back of the Epic v Apple case, documents were released highlighting that Google (GOOG) had considered buying Epic outright.  During the case, Epic Games outlined Google’s plans to develop “a series of internal projects to address the ‘contagion’ it perceived from efforts by Epic and others to offer consumers and developers competitive alternatives and has even contemplated buying some or all of Epic to squelch this threat”.</p>

Headline Developments On the back of the Epic v Apple case, documents were released highlighting that Google (GOOG) had considered buying Epic outright.  During the case, Epic Games outlined Google’s plans to develop “a series of internal projects to address the ‘contagion’ it perceived from efforts by Epic and others to offer consumers and developers competitive alternatives and has even contemplated buying some or all of Epic to squelch this threat”.

<div class="content-highlight">
<div style="text-align: start;">Our base case valuation of Kakao Pay is an implied market cap of 12.1 trillion won or 89,335 won per share.</div>
<div style="text-align: start;"></div>
<ul>
<li>Our base case valuation is based on 10.7x EV/Sales multiple and applying this to our estimated sales of 954 billion won in 2022.</li>
<li>The EV/S multiple of 10.7x is based on the median valuation multiple of the comps in 2022.</li>
</ul>
<p>The IPO price range is from 63,000 won to 96,000 won. If the IPO is priced near the high end of the IPO price range, we would avoid this deal. <span>On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.</span></p>
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Our base case valuation of Kakao Pay is an implied market cap of 12.1 trillion won or 89,335 won per share.


Our base case valuation is based on 10.7x EV/Sales multiple and applying this to our estimated sales of 954 billion won in 2022.
The EV/S multiple of 10.7x is based on the median valuation multiple of the comps in 2022.

The IPO price range is from 63,000 won to 96,000 won. If the IPO is priced near the high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.


United States

Upstart Holdings, Inc. operates as a holding company. The Company, through its subsidiaries, provides cloud-based artificial intelligence (AI) lending platform to improve access of credit while reducing the risk and costs of lending for bank partners.

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Upstart Holdings (UPST US)

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