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原标题:Kakao:Value of subsidiaries on the rise

浏览次数:50 时间:2019-10-02

    Kakao Bank enjoying robust asset growth: The deposit and loan growth of KakaoBank has thus far beat forecasts, with its loans topping KRW1.4t as of Aug 27 (one monthsince debuting) while recent recapitalization would further boost deposit and loan growth.

    We expect such events to lend momentum to ad sales growth at Naver and Kakao.

    Investment points: Investors should focus on interest-rate hike led earningsimprovements by traditional players more than threats from the internet primary banks,with the 58% stake held by Korea Investment Holdings in Kakao Bank likely to bestow itwith a valuation premium as the latter approaches BEP.

WHAT’S THE STORY?Kakao Games to receive boost from Battlegrounds: Kakao Games signed acontract with Bluehole Games that will have it publishing the latter’s flagship titleBattlegrounds domestically by year-end. The game enjoys significant popularityworldwide, with concurrent users exceeding 1.3m on global game platform Steam. Eventhough it has yet to be officially launched in Korea, the PC café share of Battlegrounds hasalready reached the number-two spot at 16%, and once released by Kakao Games as apartially-paid model, we would expect it to take the top spot. For reference, Korea’sleading game (in terms of traffic) League of Legends generates annual sales of KRW300bin Korea. We expect Battlegrounds to significantly boost Kakao Games’ enterprise value.

    Gaming stocks to diverge: The domestic game market rallied 1H backed by thesuccess of Lineage II: Revolution and listing of Netmarble Games. However, as sales forthat title are falling fast and Netmarble’s shares are struggling, we expect Korean gamecompanies to see their shares diverge in 2H depending on game lineups and earningsperformances. Meanwhile, a June launch of Lineage Mobile should keep market growthintact; while market interest is focusing on easing regulations, launches of potentialblockbusters, and usage of IP.

3Q results of Kakao Bank and K-Bank reveal…: Kakao Bank and K-Bank postedrespective net losses KRW48.1b and KRW 19.6b for 3Q, but the former’s positivesindicate it should reach BEP faster than most forecasts, backed by sharp asset growth.

    The bank has yet to prove its risk-management ability, but unexpectedly rapid assetgrowth and likelihood of expanding into other financial areas bodes well for further hikesin enterprise value.

    Indeed, rising commission revenues from the commerce business should offset falteringad sales. In the medium to long term, merchants should be attracted to ad products on thecommerce platform, boosting sales at platform companies.

    Fee losses inevitable while seeking economies of scale: Net fee losses seemunavoidable as banks seek to increase their customer base, but once it reaches a certainthreshold and the portion of internal transfers increases, commission fees from externaltransactions should gradually decline.

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