PUBG publisher applies for South Korean 2021 IPO

South Korea-based game developer Krafton Inc., touted as one of this year's hottest initial public offerings, has filed a preliminary listing application to the Korea Exchange in hopes of going public in the second half of the year, according to investment banking sources on Apr. 8.

If the review goes smoothly, the firm behind the international hit game PlayerUnknown's Battlegrounds (PUBG) will kick off the IPO process in the first half of this year. Krafton aims to raise over 1 trillion won ($886 million) through the listing.

The company's enterprise value is expected to hover around 20 trillion won ($17.8 billion), according to financial industry sources.

Last year, Krafton logged around 1.7 trillion won in revenue and an operating profit of near 774 billion won, up by 54% and 115%, respectively. The company's net profit also surged from 278.9 billion won to 556.3 billion won during the same period, up by 99%.

The company's valuation may reach around 17 trillion won to 22 trillion won if a price-to-earnings ratio of 30 to 40 times is applied to last year's net profit.

Industry watchers say applying a PE ratio of over 30 times may not be out of reach for Krafton considering that the game industry's PE ratios range between 30 and 50 times, including industry peers NCSoft Corp., Netmarble Corp., and Com2uS Corp.

However, the key point will be the company's earnings trend. In the first quarter of 2020, Krafton posted 508.2 billion won in revenue, but since then its performance has been sluggish. In the second and third quarters of last year, the company logged 379.1 billion won and 349.9 billion won, respectively.

Also, the company's net profit in the first quarter of 2020 stood at 294 billion won but dropped to 111 billion won and 110 billion won, respectively, in the second and third quarters of last year. In the fourth quarter, Krafton's net profit plunged to 40 billion won, a stark contrast to last year when the company's valuation was expected to reach around 40 trillion won based on a cumulative net profit of 1 trillion won.

The stagnant performance may be owing to investors' fear of the “one-game risk,” given Krafton's rise to stardom as a mega game company via its blockbuster title PUBG. The game gained immense popularity upon its release in 2017, driving up the company's revenue by 261% from 310.4 billion won in 2017 to 1.1 trillion won the following year.

But the game's popularity has fizzled, causing the company's growth to dwindle in turn. At the end of last year, Krafton rolled out its new title, Elyon, to secure a new revenue source, but the game’s performance wasn't satisfying.

On top of this, the mobile version of PUBG, which Krafton co-developed with China's Tencent, was banned in India due to a border dispute between China and India. This was a significant setback since India had accounted for over 20% of mobile PUBG downloads.

Fortunately, Krafton is set to launch a new mobile game this year, PUBG: New State. The game is already showing signs of success with over five million users signing up for pre-registration earlier this month.

“PUBG’s popularity has cooled down compared to its glory days, but it still has a large pool of loyal users,” an investment banking industry official said, adding that if the new game is successful then it could become the driving force behind Krafton's growth.

The PUBG developer will become the country’s first unicorn company to list on the Kospi. The company is planning a five-for-one share split ahead of the IPO to make its stock accessible to a broader base of investors.

The IPO lead manager is Mirae Asset Daewoo. Joint bookrunners include NH Investment & Securities, Credit Suisse, Citigroup Global Market Securities and JPMorgan.


By Jong-woo Kim 

jongwoo@hankyung.com

Danbee Lee edited this article.