Kakao (035720) - Summary
Core Content Overview
This document provides an analysis of Kakao's financial performance and outlook, including its current stock price, earnings, and strategic developments. It highlights the analyst's views on the company's future performance and valuation, along with key financial metrics and forecasts.
Key Points
Current Stock Performance
- Current price: KRW103,500
- Market cap: KRW7.0t / USD6.2b
- Shares (float): 67,781,135 (55.7%)
- 52-week high/low: KRW109,800 / KRW71,300
- Avg daily trading value (60-day): KRW59.3b / USD52.8m
- Target price: KRW120,000 (159% of current price)
- Rating: BUY (unchanged)
One-Year Performance
- Kakao (%): 0.6 (1M), 27.6 (6M), 11.1 (12M)
- Vs Kospi (%pts): -2.1 (1M), 8.9 (6M), -7.5 (12M)
Key Changes
- Recommendation: No change (BUY)
- Target price: No change (KRW120,000)
- 2017E EPS: Increased by 6.0% to KRW2,034
- 2018E EPS: Increased by 8.5% to KRW1,767
SAMSUNG vs THE STREET
- No of estimates: 24
- Target price: KRW121,522
- Recommendation: 3.8 (on a scale)
- BUY: 5, HOLD: 3, SELL: 2, SELL★★★: 1
Financial Highlights
Revenue and Earnings
| Metric |
2016 (KRWb) |
2017E (KRWb) |
2018E (KRWb) |
2019E (KRWb) |
| Revenue |
1,464 |
1,897 |
2,202 |
2,515 |
| Net profit (adj) |
65 |
129 |
127 |
154 |
| EPS (adj) |
891 |
2,034 |
1,767 |
2,078 |
| EBITDA margin |
15.7 |
15.2 |
16.1 |
16.6 |
| ROE |
1.9 |
3.2 |
2.8 |
3.4 |
| P/E (adj) |
116.2 |
50.9 |
58.6 |
49.8 |
| P/B |
2.0 |
2.0 |
1.9 |
1.9 |
| EV/EBITDA |
32.2 |
24.6 |
19.5 |
15.9 |
| Dividend yield |
0.1 |
0.2 |
0.2 |
0.2 |
Key Catalysts for Investor Sentiment
- Kakao Bank Launch: Expected to commence operations in 3Q, with competitive rates, big data-based credit scoring, and partnerships with KakaoTalk.
- Kakao Mobility Business Models: Expected to develop profit-making models.
- Subsidiaries Going Public or Attracting Investments: Could improve investor sentiment.
Ad Sales Performance
- 2Q17 Ad Sales: KRW147.0b, up 0.0% from Samsung's estimate and 10.3% from 2Q16.
- Ad Sales Rebound in 2H: Expected to accelerate due to Moment platform beta testing, higher ad ASPs, and increased ad placements in Kakao Talk.
Game Sales
- 2Q17 Game Sales: KRW77.0b, down 4.1% q-q, due to sluggish mobile game performance.
- Black Desert Online: Strong performance, but game sales as a whole are expected to decline.
Commerce Sales
- 2Q17 Commerce Sales: KRW85.2b, down 3.9% q-q due to contraction from new store openings and seasonal fluctuations.
Operating Profit
- 2Q17 Operating Profit: KRW39.6b, up 3.2% q-q, slightly below consensus estimates.
Valuation Analysis
Sum-of-the-Parts Valuation
| Component |
Value (KRWb) |
| Enterprise value |
7,784 |
| KakaoTalk value |
5,511 |
| Loen stake value |
1,461 |
| Daum portal value |
1,165 |
| Net cash |
(354) |
| Fair value per share |
115,118 |
| Target price |
120,000 |
Global Valuation Comparison
| Company |
P/E (2017E) |
P/E (2018E) |
| Google |
23.1 |
20.3 |
| Baidu |
33.2 |
24.1 |
| Yahoo Japan |
20.6 |
20.3 |
| Average |
25.6 |
21.5 |
Value per MAU
| Company |
Value (USDm) |
MAU (mil) |
Value per MAU (USD) |
| Facebook |
462,963 |
1,860 |
249 |
| Snapchat |
17,840 |
268 |
66 |
| LINE |
7,586 |
226 |
34 |
| Average |
- |
- |
116 |
Forecast Revisions
| Metric |
Old (2017E) |
New (2017E) |
Diff (%) |
| Sales |
1,888.7 |
1,896.8 |
0.4 |
| Advertising |
595.8 |
595.8 |
0.0 |
| Content |
924.1 |
934.9 |
1.2 |
| Game |
329.8 |
328.0 |
-0.6 |
| Music |
460.2 |
466.9 |
1.4 |
| Other content |
134.0 |
140.0 |
4.4 |
| Other |
368.8 |
366.1 |
-0.7 |
| Operating profit |
143.4 |
154.1 |
7.4 |
| Pre-tax profit |
107.2 |
117.8 |
9.9 |
| Net profit |
121.2 |
129.2 |
6.6 |
| Adjusted EPS |
1,920 |
2,035 |
6.0 |
Financial Ratios
| Ratio |
2015 |
2016 |
2017E |
2018E |
2019E |
| Sales growth (%) |
86.9 |
57.1 |
29.5 |
16.1 |
14.2 |
| Operating profit growth |
-49.8 |
31.1 |
32.7 |
25.8 |
16.4 |
| Net profit growth |
-47.4 |
-16.9 |
97.4 |
-1.6 |
21.5 |
| Adjusted EPS growth |
-83.4 |
-13.0 |
128.3 |
-13.1 |
17.6 |
| EPS (parent-based) |
1,269 |
874 |
1,645 |
1,502 |
1,827 |
| EPS (consolidated) |
1,321 |
991 |
1,907 |
1,876 |
2,279 |
| Adjusted EPS |
1,024 |
891 |
2,034 |
1,767 |
2,078 |
| BVPS |
42,476 |
50,769 |
52,065 |
53,390 |
55,039 |
| DPS (common) |
167 |
148 |
178 |
178 |
178 |
| P/E (adj) |
101.1 |
116.2 |
50.9 |
58.6 |
49.8 |
| P/B (adj) |
2.4 |
2.0 |
2.0 |
1.9 |
1.9 |
| EV/EBITDA |
39.6 |
32.2 |
24.6 |
19.5 |
15.9 |
| ROE |
3.0 |
1.9 |
3.2 |
2.8 |
3.4 |
| ROA |
2.6 |
1.5 |
2.3 |
2.1 |
2.5 |
| ROIC |
3.3 |
2.6 |
4.7 |
4.8 |
5.9 |
| Payout ratio |
13.3 |
17.3 |
10.8 |
11.8 |
9.7 |
| Dividend yield (common) |
0.2 |
0.1 |
0.2 |
0.2 |
0.2 |
| Net debt to equity |
-21.1 |
3.3 |
-5.2 |
-10.9 |
-17.4 |
| Interest coverage |
105.9 |
8.1 |
n/a |
n/a |
n/a |
Conclusion
Kakao's performance in 2Q17 showed a slight increase in operating profit, driven by strong ad revenue and lower marketing expenses. The company faces a high valuation but is expected to benefit from several catalysts, including the launch of Kakao Bank, the development of profit-making business models by Kakao Mobility, and the potential for subsidiaries to go public or attract investments. The analyst maintains a BUY rating with a target price of KRW120,000, suggesting the stock still has upside potential. Financial forecasts indicate continued growth in revenue and earnings, with the company aiming to improve its financial ratios and valuation metrics over the next few years.
