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

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

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Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Equity Capital Markets

Currently, the biggest controversy in the valuation presented by Kakao Pay on local streets is the inclusion of PayPal.Of course, PayPal is similar to Kakao Pay in that the payment method accounts for the majority of sales. However, the problem is that Paypal is significantly different from Kakao Pay in terms of sales volume, service market scope, and market capitalization.PayPal operates in global markets, with a market cap of ₩385T and sales of ₩24T. On the other hand, Kakao Pay has no business base other than the domestic market. And as of last year, Kakao Pay's sales amounted to ₩284B, which is nearly one-hundredth of that of PayPal.In particular, Kakao Pay's share of the domestic payment service market last year was only 16.6%. Even in the local market, Kakao Pay does not have a clear advantage over competing services like Samsung Pay, Payco, and Naver Pay.In conclusion, although Kakao Pay has a fast growth rate, a direct comparison with PayPal, which has a significantly different target market size and sales level, is simply unreasonable.Paypal's growth-adjusted EV/Sales multiple came in at a whopping 81.6x. Including Paypal in the valuation peer group was the direct cause of raising Kakao Pay's valuation to an irrational level.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Kakao Pay: Growth-adjusted EV/Sale"}'>Kakao Pay: Growth-adjusted EV/Sale</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Current"}'>Current</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Excluding Paypal"}'>Excluding Paypal</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Sales growth rate"}'>Sales growth rate</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.834}' data-sheets-numberformat='[null,3,"0.00%",1]'>83.40%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.834}' data-sheets-numberformat='[null,3,"0.00%",1]'>83.40%</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Growth rate adjustment factor (EV/Sales multiple ÷ Sales growth rate)"}'>Growth rate adjustment factor (EV/Sales multiple ÷ Sales growth rate)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44.7619777559236}' data-sheets-numberformat='[null,2,"0.00x"]' data-sheets-formula="=R[-5]C[0]">44.76x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":26.3039095727218}' data-sheets-numberformat='[null,2,"0.00x"]' data-sheets-formula="=average(R[-6]C[0]:R[-6]C[1])">26.30x</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Growth-adjusted EV/Sales multiple"}'>Growth-adjusted EV/Sales multiple</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":37.33148944844028}' data-sheets-numberformat='[null,2,"0.00x"]' data-sheets-formula="=R[-1]C[0]*R[-2]C[0]">37.33x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21.93746058364998}' data-sheets-numberformat='[null,2,"0.00x"]' data-sheets-formula="=R[-1]C[0]*R[-2]C[0]">21.94x</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C = A X B"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>C = A X B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Annualized sales based on 1Q21 sales"}'>Annualized sales based on 1Q21 sales</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":428.575}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>₩428.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":428.575}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>₩428.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"D"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>D</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Enterprise value (EV)"}'>Enterprise value (EV)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15971.899}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>₩15,971.9B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9401.84716963779}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-2]C[0]*R[-1]C[0]">₩9,401.8B</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"E = C X D"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>E = C X D</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Net debt"}'>Net debt</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-647.284}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>-₩647.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-647.284}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>-₩647.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"F"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>F</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":16619.183}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-2]C[0]-R[-1]C[0]">₩16,619.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10049.131169637789}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-2]C[0]-R[-1]C[0]">₩10,049.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"G = E - F"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>G = E - F</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of diluted shares after IPO"}'>Number of diluted shares after IPO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":135880810}' data-sheets-numberformat='[null,2,"#,##0",1]'>135,880,810</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":135880810}' data-sheets-numberformat='[null,2,"#,##0",1]'>135,880,810</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"H"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>H</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price per share"}'>Price per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":122307.0645516464}' data-sheets-numberformat='[null,4,"[$₩]#,##0",1]' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩122,307</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":73955.48473428874}' data-sheets-numberformat='[null,4,"[$₩]#,##0",1]' data-sheets-formula="=R[-2]C[0]*1000000000/R[-1]C[0]">₩73,955</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"I = G / H"}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]'>I = G / H</td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>Then, if we use only the average of the other two peers excluding PayPal, the growth-adjusted EV/Sales multiple will be 26.3x. Applying this, the market cap is ₩10T, and the price per share is ₩74,000. If the same 21.51~48.49% discount rate is applied here, the market cap will range from ₩5T to ₩7.6T, and the price per share will range from ₩38,000 to ₩58,000.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price band"}'>Indicative price band</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Low"}'>Low</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"High"}'>High</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Low, excl. Paypal"}'>Low, excl. Paypal</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"High, excl. Paypal"}'>High, excl. Paypal</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":63000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩63,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":96000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩96,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":38094.247093083985}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R20C3*(1-R[4]C[0])">₩38,094</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":58048.376522794635}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R20C3*(1-R[4]C[0])">₩58,048</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Base deal size"}'>Base deal size</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1071}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩1,071.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1632}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩1,632.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":647.6022005824277}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩647.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":986.8224008875088}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R8C2/1000000000">₩986.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Institutional allotment"}'>- Institutional allotment</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":589.0500000000001}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R12C2">₩589.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":897.6}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R12C2">₩897.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":356.18121032033525}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R12C2">₩356.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":542.7523204881298}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-1]C[0]*Terms!R12C2">₩542.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Implied market cap"}'>Implied market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8213.128875}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*130367125/1000000000">₩8,213.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12515.244}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*130367125/1000000000">₩12,515.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4966.237472564967}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*130367125/1000000000">₩4,966.2B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7567.599958194233}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*130367125/1000000000">₩7,567.6B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Discount"}'>- Discount</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.48490301659233187}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R20C2-R[-4]C[0])/R20C2">48.49%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.21509031099783904}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R20C2-R[-4]C[0])/R20C2">21.51%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.48490301659233187}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-2]">48.49%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.21509031099783904}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-2]">21.51%</td>
</tr>
<tr><td colspan="5" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Currently, the biggest controversy in the valuation presented by Kakao Pay on local streets is the inclusion of PayPal.Of course, PayPal is similar to Kakao Pay in that the payment method accounts for the majority of sales. However, the problem is that Paypal is significantly different from Kakao Pay in terms of sales volume, service market scope, and market capitalization.PayPal operates in global markets, with a market cap of ₩385T and sales of ₩24T. On the other hand, Kakao Pay has no business base other than the domestic market. And as of last year, Kakao Pay's sales amounted to ₩284B, which is nearly one-hundredth of that of PayPal.In particular, Kakao Pay's share of the domestic payment service market last year was only 16.6%. Even in the local market, Kakao Pay does not have a clear advantage over competing services like Samsung Pay, Payco, and Naver Pay.In conclusion, although Kakao Pay has a fast growth rate, a direct comparison with PayPal, which has a significantly different target market size and sales level, is simply unreasonable.Paypal's growth-adjusted EV/Sales multiple came in at a whopping 81.6x. Including Paypal in the valuation peer group was the direct cause of raising Kakao Pay's valuation to an irrational level.








Kakao Pay: Growth-adjusted EV/Sale
Current
Excluding Paypal
Note


Sales growth rate
83.40%
83.40%
A


Growth rate adjustment factor (EV/Sales multiple ÷ Sales growth rate)
44.76x
26.30x
B


Growth-adjusted EV/Sales multiple
37.33x
21.94x
C = A X B


Annualized sales based on 1Q21 sales
₩428.6B
₩428.6B
D


Enterprise value (EV)
₩15,971.9B
₩9,401.8B
E = C X D


Net debt
-₩647.3B
-₩647.3B
F


Market cap
₩16,619.2B
₩10,049.1B
G = E - F


Number of diluted shares after IPO
135,880,810
135,880,810
H


Price per share
₩122,307
₩73,955
I = G / H

Source: DART

Then, if we use only the average of the other two peers excluding PayPal, the growth-adjusted EV/Sales multiple will be 26.3x. Applying this, the market cap is ₩10T, and the price per share is ₩74,000. If the same 21.51~48.49% discount rate is applied here, the market cap will range from ₩5T to ₩7.6T, and the price per share will range from ₩38,000 to ₩58,000.









Indicative price band
Low
High
Low, excl. Paypal
High, excl. Paypal


Price
₩63,000
₩96,000
₩38,094
₩58,048


Base deal size
₩1,071.0B
₩1,632.0B
₩647.6B
₩986.8B


- Institutional allotment
₩589.1B
₩897.6B
₩356.2B
₩542.8B


Implied market cap
₩8,213.1B
₩12,515.2B
₩4,966.2B
₩7,567.6B


- Discount
48.49%
21.51%
48.49%
21.51%

Source: DART



Kakaopay

Kakao Pay IPO Valuation Discussions