[Click e Stocks] Merger Synergy of Kakao and Kakao Commerce

[Asia Economy Reporter Hwang Junho] Kyobo Securities analyzed on the 15th that Kakao's plan to fully absorb Kakao Commerce through a merger is expected to enhance profit strength by absorbing a valuable subsidiary. Accordingly, the target stock price was maintained at 140,000 KRW.

On the 14th, Kakao announced through a disclosure titled "Clarification on Rumors or Reports (Unconfirmed)" that it is currently reviewing the merger and plans to finalize the matter after a board meeting on the 22nd. Kakao Commerce was spun off from Kakao in December 2018. As of March this year, Kakao holds a 99.05% stake.

Kyobo Securities anticipated synergy in terms of commerce expansion within KakaoTalk. They foresee potential synergy between the advertising division and the commerce division, expecting the development speed as a commerce application to accelerate.

In particular, last year Kakao Commerce generated a net profit of 123.3 billion KRW. It showed the highest profit contribution within the Kakao ecosystem. Based on 2020 figures, simply combining the separate income statements of Kakao and Kakao Commerce turns a pre-tax loss of 35.1 billion KRW into a pre-tax profit of 128 billion KRW, strengthening the profit capacity of the separate entity.

In May, Kakao also decided to spin off the Melon business division into 'Melon Company,' a wholly owned subsidiary. Through the Melon spin-off, the separate entity is expected to record a pre-tax profit of approximately 200 billion KRW as of last year.

Park Ji-won, a researcher at Kyobo Securities, stated, "Even during major subsidiary IPOs, the expansion of commerce-centered business is expected to act as a driving force leading Kakao's stock price in the long term."

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