[Exclusive] Krafton Accelerates IPO Process... Chinese Private Equity Also Bets 44 Billion Won

Baemin and Market Kurly Investor Hillhouse Capital Secures 80,000 Existing Shares of Krafton
Underwriter Selection This Year, IPO Planned for Next Year
Chinese Mobile Sales to Be Included in Quarterly Results

[Asia Economy Reporter Minwoo Lee] Hillhouse Capital, a China-based private equity firm, has invested 44 billion KRW in Krafton, a domestic game company famous for the first-person shooter (FPS) game 'Battlegrounds.' It appears to have secured shares aiming for a 'jackpot' after Krafton's listing. Krafton, regarded as the biggest IPO candidate in the gaming industry, is accelerating efforts to increase its valuation with a goal to go public next year.

According to the financial investment industry on the 11th, Hillhouse Capital purchased 80,000 shares of Krafton last month from some shareholders at 550,000 KRW per share. This accounts for about 1% of the total 7.97 million outstanding shares. This implies a minimum market capitalization of 4.4 trillion KRW for Krafton. This ranks 4th among game companies and 47th among KOSPI-listed companies. Hillhouse Capital, which has invested broadly in major domestic unicorns (unlisted startups valued over 1 trillion KRW) such as Woowa Brothers, operator of Baedal Minjok, and Market Kurly, a dawn delivery service, has now also set its sights on Krafton.

Previously, Krafton emerged as the big 4 in the gaming industry by surpassing 1 trillion KRW in sales in 2018, a feat previously only achieved by the '3N'?Nexon, NCSoft, and Netmarble. This was due to the global popularity of Battlegrounds, released in 2017 by its subsidiary PUBG, which achieved $600 million in exports within two years of launch. At that time, the company was valued at 5 trillion KRW and was considered one of the few unicorns in Korea.

Krafton plans to officially start its listing process this year. Internally, it has set a major plan of 'selecting underwriters this year and listing next year.' Efforts to increase corporate value have also begun. From the fourth quarter results of last year, to be announced at the end of this month, sales from Battlegrounds Mobile in China, which had not been reflected so far, will be included.

Krafton ambitiously launched the mobile version of Battlegrounds, but in China, its largest market, it could not obtain a publishing license due to the 'Hanhanryeong' (Korean Wave ban), preventing official paid service. Eventually, in May last year, it shut down 'Battlegrounds Mobile,' which was operated as an open beta test (OBT) without paid transactions through Tencent, its second-largest shareholder. Subsequently, Tencent released and operated a mobile game called 'Hua Ping Jing Ying,' which is very similar to Battlegrounds. Krafton has consistently stated that Hua Ping Jing Ying is unrelated to Battlegrounds. However, it is reported that Krafton signed a contract with Tencent to receive 12.5% of Hua Ping Jing Ying's revenue in China as a kind of license fee.

Reflecting these results would cause Krafton's performance to surge. Considering Hua Ping Jing Ying's annual revenue in China is about 1 trillion KRW, operating profit would increase by as much as 120 billion KRW from license income. Krafton's cumulative operating profit from the first to third quarters of last year was 114.6 billion KRW.

Therefore, analyses suggest Krafton's corporate value could jump from the current 3.6 trillion KRW (based on unlisted trading price) to as high as 9 trillion KRW. An investment industry insider said, "Applying a price-earnings ratio (PER) of 30 times, which is typical for existing listed game companies, the value could exceed 9 trillion KRW, and even conservatively applying a PER of 20 times would reach at least 6 trillion KRW. If it settles in the KOSPI market with a market cap over 3 trillion KRW, it will be included in the KOSPI 200 index, which would attract public institutional funds and ultimately cause the stock price to surge significantly," he predicted.