Kakao Bank, KakaoPay face bumpy road ahead in IPOs
Seen above is Kakao's signature character, Ryan. Courtesy of Kakao
FSS, Yuanta, Morgan Stanley raise questions about valuation
By Park Jae-hyuk
Kakao's ambitious plans to list Kakao Bank and KakaoPay on the benchmark KOSPI market in August are facing growing doubts recently from financial regulators and securities analysts, who regard the valuations of the IT firm and its financial subsidiaries as overestimated.
On Friday, the Financial Supervisory Service (FSS) asked KakaoPay to correct its prospectus, submitted July 2, saying that the document may hinder reasonable investments or cause a serious misunderstanding for investors.
“As a result, the overall stock issuance schedule may change, so we hope investors take this into account,” KakaoPay said in its regulatory filing.
The mobile payment service provider was planning to go public on Aug. 12.
Selecting three foreign financial platform operators ― America's PayPal, Square and Brazil's PagSeguro ― as its comparable companies, it has sought to price its stock at somewhere between 63,000 won ($55) and 96,000 won, so that its market capitalization can reach up to 12.5 trillion won.
The FSS declined to disclose which parts were specifically problematic in KakaoPay's prospectus, but its request has been interpreted by many as an order to lower the target price range, given that Krafton and SD BioSensor, both of which had also selected firms based abroad as their comparable companies, lowered their target price ranges after the financial watchdog asked them to correct their prospectuses.
KakaoPay has yet to confirm whether it will lower its target price range and delay its initial public offering (IPO).
A user makes a transaction with Kakao Bank's mobile app. Yonhap
Yuanta Securities Korea raised questions about the valuation of Kakao Bank.
“Kakao Bank is a bank, so it should do its business in compliance with banking regulations,” Yuanta analyst Jeong Tae-joon said in his report last Thursday. “Considering the nature of the banking industry, Kakao Bank's return on equity cannot surpass 10 percent, so its target price range seems to be inappropriate.”
The internet-only bank, which seeks to go public on Aug. 5, has sought to price its stock at somewhere between 33,000 won and 39,000 won, so that its market capitalization can surpass at least 15.7 trillion won, which is far higher than those of the Hana and Woori financial groups.
The Yuanta analyst pointed out that the bank selecting America's Rocket Companies, Brazil's PagSeguro, Sweden's Nordnet and Russia's TCS as its comparable firms was inappropriate, saying that the choice resulted in such an excessively high target price range.
“Its comparable firms are KB, Shinhan, Hana and Woori financial groups, because Kakao Bank is a domestic bank,” he said.
Kakao itself has also received an unfavorable review from Morgan Stanley, which suggested an underweight rating for Kakao's share last Wednesday, citing that it has been overestimated, compared to the share of its rival, Naver, considering their anticipated price-earnings ratios for next year.
The U.S. investment bank mentioned in particular that Kakao's stock price has already reflected expectations about the forthcoming listings of Kakao Bank and KakaoPay. It predicted that investors will shift their focus to the two financial subsidiaries, causing a drop in their parent company's stock price.