Securing Robust Market Position

The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. — Ed.

Kakao’s platform competitiveness is strengthening. Having fared well even during the pandemic, its digital ad, commerce, fintech, content, and mobility businesses should enjoy even faster growth from 2H20.

Enjoying growth amid Covid-19

Maintaining our Buy rating and top pick status for Kakao, we raise our TP from W270,000 to W330,000. Kakao has benefitted greatly from increased non-face-to-face activity amid the Covid-19 pandemic. Its main businesses, including digital ad (Kakao Talk), commerce, fintech (Kakao Bank and Kakao Pay), and content (Kakao Page and Kakao M) have all fared well, securing strong positions in their respective fields.

Profits anticipated from digital ad, webtoon, and fintech services

We estimate Kakao’s 2020 sales at W3.84tn (+25.1% y-y) and OP at W435.7bn (+110.7% y-y), believing that its earnings will rise in earnest on the back of: 1) full-fledged OP growth at the Kakao Talk ad business, stemming from the strong performance of Kakao Talk Bizboard; 2) continued robust growth at Kakao Page; 3) meaningful NP expansion at Kakao Bank; and 4) shrinking losses at Kakao Pay, as the sale of financial products has begun.

Dampened by Covid-19, earnings at Kakao Mobility are predicted to bounce back once the pandemic eases.

IPOs expected for well-performing subsidiaries

Discussions over IPOs for well-performing subsidiaries such as Kakao Bank, Kakao Page, and Kakao Games are likely to start in earnest from 2H20. Such IPOs are anticipated to bolster Kakao’s EV, with the proceeds expected to be used for generating additional growth at Kakao.