Kakao Games shares hit upper limit for two consecutive days, further fueling IPO hype

  • 2020-09-11

Kakao Games Corp. shares reached the daily upper limit for the second consecutive day on Sept. 11, pushing the company to the third place on KOSDAQ with a 5.93 trillion won market cap ($5 billion). The shares opened at 81,100 won ($68), more than triple the offering price of 24,000 won.

The company had made an impressive trading debut on Sept. 10 with its share price shooting up from 48,000 won to 62,400 won almost immediately, touching the upper limit in just two minutes.

Investors hoping to snatch up shares had flocked to the market placing orders for a total of 58 million shares — worth 2.8 trillion won — of which only 0.003% were successful.

Overwhelming demand for Kakao Games was expected as the game unit of South Korean platform giant Kakao Corp. recorded fresh highs during bookbuilding with bids outnumbering offers 1,479 to 1 in addition to raising over 58.6 trillion won in deposits during the public subscription process.

The Kakao Games hype can be attributed to the current investor fever surrounding public offering stocks, according to securities industry sources. But the company’s share price appears to be too high compared to other game companies, according to industry sources.

Based on Thursday’s (Sept. 10) closing price, the price-to-earnings ratio of Kakao Games is 72 times, which is much higher than larger peers Netmarble (P/E ratio of 47 times) and NCSoft (P/E ratio of 23 times), both listed on the country’s main KOSPI bourse.

Kakao Games has a strong lineup of games set to launch in November and early 2021, but even the highly anticipated pipeline does not justify the share price.

“The stocks appear to be overshooting, as the company’s share price can’t be backed by its ability to develop games or its intellectual property portfolio,” said Kim Chang-kwean, an analyst at Mirae Asset Daewoo.

Analysts say 30,000 to 35,000 won apiece is a fair price range for Kakao Games. Meanwhile, some securities firms have upgraded the company’s target price to the 40,000 won range.

Kakao Games earned 27.8 billion won in net profit on revenues of 203 billion won in the first half of this year, up 264% and 8.2% year on year, respectively. The company’s affiliates Kakao Page Corp., Kakao Commerce Corp., and Kakao Bank are also expected to prepare for listings.

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GROWING APPETITE FOR PUBLIC OFFERING STOCKS

Industry experts predict the initial public offering share price hype to continue for some time as most of the stocks that went public this year performed well. Newly listed companies had posted an average 55.6 percent hike from their offering price during the first half of the year.

“Investors’ craze over public offering shares is not expected to dissipate anytime soon given upcoming IPO blockbusters such as Big Hit Entertainment,” said a source from Korea Investment & Securities.

SK Biopharmaceuticals Co., OLED maker Leading Edge Technology Co., and secondary battery maker A-Pro Co. all debuted this year at more than double the offering price and reached the daily upper limit.

Investors are eagerly anticipating the upcoming IPO of Big Hit Entertainment Co., the label behind BTS, the global boy band sensation that became the first Korean artist or group to reach the No. 1 spot on the Billboard Hot 100 list.

The company is expected to raise up to 1 trillion won ($842 million) on the listing,  boasting the highest Korean IPO price tag of the second half of the year — with investors hungry for the same success seen in previous IPOs.

Big Hit is aiming to make its trading debut on the KOSPI in October.

By Ye-jin Jun

ace@hankyung.com

<Edited by Danbee Lee>