The Dire New Low Fate of Kakao Group Stocks "80% Plunge"... Why Did the People's Stock Get to This Point?

Questions Raised About Growth Prospects of Kakao Group... Securities Firms "Sell Ratings & Target Price Downgrades"
Over 80% Drop From Peak... Kakao's Four Siblings Crumble Miserably "Listing Controversy Again"
Individual Investors "Kakao's Overexpansion Through Subsidiary Listings Damages Corporate Value... Only Retail Investors Suffer"

[Asia Economy Reporter Lee Seon-ae] The stock prices of Kakao Group's "Kakao 4 Brothers (Kakao, KakaoBank, KakaoPay, KakaoGames)" have plummeted, facing a "new low fate." The relentless decline has also raised complaints from individual investors. The "national stock" Kakao has been steadily listing its subsidiaries, which has damaged corporate value. Ultimately, it is criticized for splitting off successful businesses through physical division to benefit major shareholders while the losses are entirely borne by individual investors, and this criticism is not easily fading.

Kakao 4 Brothers Hit New Lows with 'Plunge'... Harsh Evaluations from Securities Firms

According to the Korea Exchange on the 8th, Kakao closed at 50,900 KRW, down 7.12% from the previous day. During the session, it fell to 50,500 KRW, breaking its 52-week low again, now approaching the "40,000 Kakao" mark. Compared to the intraday high of 173,000 KRW recorded in June last year, it has plunged 71%.

The other brothers are no different. KakaoPay experienced the largest drop. KakaoPay closed at 40,100 KRW, down 14.4%, collapsing miserably. Compared to the intraday high of 248,500 KRW recorded on November 30 last year, it has plunged 84%. KakaoBank (-9.38%) and KakaoGames (-5.15%) also closed sharply down. Since their listings, all have broken their all-time lows. Their declines from their respective highs are approximately 80% and 65%.

KakaoPay, which fell the most sharply, was significantly affected by Citibank's "sell" report. Citibank Securities downgraded its investment opinion to "sell" in a report titled "Time to Face Reality" released the previous day, forecasting that KakaoPay's operating losses will continue through 2023. Citibank Securities predicted, "With Naver launching a credit loan comparison service and Apple Pay entering Korea, competition will intensify further next year, causing quarterly operating profit declines to persist until the end of 2023."

KakaoBank also faced a shocking report for the first time with a target price in the 10,000 KRW range, citing slowed growth. DB Financial Investment lowered KakaoBank's target price from 24,600 KRW to 16,200 KRW the previous day. Researcher Lee Byung-geon of DB Financial Investment evaluated, "In Q3 this year, KakaoBank's won-denominated loans were 640 billion KRW, down from 851.2 billion KRW in the previous quarter. The real estate market downturn slowed the increase in jeonse loans, and rising interest rates caused credit loans to shrink, leading to a sharp slowdown in KakaoBank's loan growth."

Kakao's target price is also on a downward trend. Recently, securities firms have proposed target prices below 100,000 KRW. Hyundai Motor Securities lowered its previous target price from 104,000 KRW to 90,000 KRW. IBK Investment & Securities and Samsung Securities, which had previously set Kakao's target price at 110,000 KRW, also lowered their targets to 93,000 KRW and 90,000 KRW, respectively.

Amid Corporate Value Damage Controversy, Another KakaoGames Subsidiary IPO Planned

Complaints from individual investors about the corporate value damage controversy are growing louder. Over the past two years, Kakao has successively listed subsidiaries: KakaoGames in September 2020, KakaoBank in August 2021, and KakaoPay in November 2021. Since then, the stock prices of both the parent company Kakao and its affiliates have plummeted, increasing losses for individual investors. Accordingly, Kakao is not free from the view that it physically splits off successful businesses to benefit major shareholders only. In this context, Lionheart Studio, a game company under KakaoGames, is preparing for another listing, intensifying the double counting (overlapping corporate value calculation) controversy. Lionheart is the developer of KakaoGames' flagship game "Odin," which is a core game for KakaoGames.

However, Lionheart claims it is somewhat unfairly judged. Lionheart was founded by CEO Kim Jae-young, who hit a mobile game "Blade" in 2018. In other words, it has a different origin. In the year it was established, KakaoGames invested 5 billion KRW to acquire shares. Subsequently, it made additional investments in 2020 to increase its stake, and in November last year, KakaoGames' European subsidiary purchased shares, incorporating Lionheart into the Kakao group.

Therefore, Lionheart informs shareholders that it is a company acquired by KakaoGames and not a split listing, but perceptions remain unfavorable. The reason is that although the proportion of Lionheart's operating profit within KakaoGames is undisclosed, it is judged to be significant. Individual investors express anxiety about a "parent company discount" because if Lionheart lists, its market capitalization could rival that of the parent company KakaoGames. According to the securities registration statement, 11.4 million shares will be offered, with a desired public offering price per share of 36,000 to 53,000 KRW. The expected market capitalization is 3.1 trillion to 4.56 trillion KRW. If the desired public offering price is set at the upper limit, the valuation will exceed 4.5 trillion KRW, making it the largest KOSDAQ IPO this year.

The previous day, Ebest Investment & Securities maintained a "buy" rating on KakaoGames but lowered the target price by 15.7% from 70,000 KRW to 59,000 KRW. They noted that with weak earnings momentum and valuation momentum, it is necessary to monitor the impact of Lionheart's listing on the stock price and to establish future investment strategies accordingly. Researcher Sung Jong-hwa of Ebest Investment & Securities pointed out, "Currently, the stock price is trading at a price-to-earnings ratio (PER) of 21.4 times based on the 2023 controlling shareholder earnings per share (EPS), which is considerably higher than the average of major domestic game stocks, making the valuation burdensome. Also, the market consensus earnings forecast is too optimistic, which is burdensome from an earnings momentum perspective."

This content was produced with the assistance of AI translation services.