[Corporate Exploration] Reliance on Main Game 'Odin'... Kakao Subsidiary Must Overcome Dual Listing Controversy

Game Odin Released in 2021
Hits Consecutively in Korean and Taiwan Markets
Cumulative Sales of 500 Billion Won by Q2

Preliminary IPO Review Approved Last Month
Expected Offering Price 36,000~53,000 Won
Valuation Controversy in the Market

[Asia Economy Reporter Kwangho Lee] Lionheart Studio, the developer of the game ‘Odin,’ is set to officially begin its public offering schedule aiming for a listing next month. If the initial public offering (IPO) process is completed as planned, it will be recorded as the second ‘big deal’ of the year. However, following criticisms of overvaluation and controversies over overlapping listings among Kakao affiliates, the path to entering the stock market is expected to be challenging.

Lionheart Studio is a game developer established in May 2018. It is led by CEO Jaeyoung Kim, the founder of Action Square, who created ‘Blade.’ The company gained recognition with its first title, ‘Odin: Valhalla Rising.’ CEO Kim entered the gaming industry after completing a master’s degree in mechanical design engineering at Hanyang University Graduate School and starting his career at Japan’s KOEI.

The release of Odin in June 2021 drew significant attention. Kakao Games expressed its intention to acquire the company, bringing it back into the spotlight. Subsequently, Kakao Games purchased a 24.57% stake in Lionheart Studio and, through its wholly owned Dutch European subsidiary ‘KaKao Games Europe B.V.,’ acquired an additional 30.37%, holding a total of 54.94% of the shares. Currently, CEO Kim holds 35.95% of the shares.

As a subsidiary of Kakao Games, Lionheart Studio was incorporated differently from other Kakao affiliates. It was originally established as an independent corporation and joined Kakao Games as an affiliate through the success of Odin. Kakao Games anticipates Odin’s global market expansion and future intellectual property (IP) collaborations.

Odin, which consecutively hit the mark in the Korean and Taiwanese markets, has surpassed cumulative sales of 500 billion KRW through the second quarter of this year since its launch. It maintains a top position in sales rankings on domestic application markets. Competing against the traditional gaming giant NCSoft’s ‘Lineage,’ Odin even achieved first place in Google sales. Since its release, Odin has consistently remained among the top-grossing games, solidifying its position.

Lionheart Studio recorded a net profit of 212.756 billion KRW for the four quarters prior to the second quarter of this year (July 2021 to June 2022). This contrasts with previous years, which showed increasing net losses: 4.1 billion KRW loss in 2019, 25.379 billion KRW loss in 2020, and 150.71 billion KRW loss in 2021. Revenue was nonexistent in 2019 and 2020 but reached 232.585 billion KRW in 2021 and 118.448 billion KRW in the first half of this year.

In the investment banking (IB) industry, Kakao Games’ 2022 business report valued its 51.95% stake in Lionheart Studio at 1.6892 trillion KRW, leading to an estimated valuation of about 3 trillion KRW for the company. However, reliance on Odin’s sales is viewed as a negative factor.

Riding on the fame of Odin and under Kakao’s umbrella, Lionheart Studio has launched its IPO challenge. After receiving preliminary listing approval on the 29th of last month, it submitted its securities registration statement to the Financial Supervisory Service, officially starting the listing process. The desired public offering price ranges from 36,000 to 53,000 KRW. The planned offering amount is between 410.4 billion and 604.2 billion KRW. Based on the offering price, the expected market capitalization is between 3.0565 trillion and 4.5 trillion KRW.

The number of shares offered is 11.4 million, consisting of 10 million newly issued shares and 1.4 million existing shares. The existing shares are allocated to key executives including Beom Kim, Chief Art Officer of Lionheart, Junseok Lee, Chief Technology Officer, and Hansoon Lee, Chief Development Officer. Demand forecasting for institutional investors will be conducted over two days, the 28th and 31st, to finalize the offering price. General subscription will take place on the 7th and 8th of next month, with the listing scheduled on the KOSDAQ within the same month.

If all goes as planned, Lionheart Studio’s market capitalization on KOSDAQ will surpass its parent company Kakao Games (3.4333 trillion KRW) and Pearl Abyss (2.9388 trillion KRW), ranking approximately 5th in terms of market cap. Meanwhile, valuation controversies have emerged in the market. The offering price band was set using the price-to-earnings ratio (PER), but critics argue that the applied PER multiple is higher than the average for domestic and international gaming companies.

The performance of the flagship game Odin is also uncertain. Donghwan Oh, a researcher at Samsung Securities, stated, “The iOS sales ranking in Taiwan has rapidly dropped to around the 50th position. Odin Taiwan’s average daily sales are expected to decline from 800 to 900 million KRW in Q2 to 100 to 200 million KRW in Q3.”

There are also opinions that the possibility of listing within this year is unclear. Jonghwa Sung, a researcher at Ebest Investment & Securities, said, “Although the securities registration statement indicates a November schedule for Lionheart Studio’s IPO, the likelihood of listing within this year is low.”

Researcher Sung added, “The market capitalization based on the post-offering number of shares at the desired offering price in the registration statement is unrealistic. It is necessary to consider not only market sentiment and discounts to prevent double counting of value for a subsidiary IPO but also the pros and cons of the company’s valuation.”

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