Regional Company Focus Kakao Bloomberg: 035720 KS, Reuters: 035720.KS Refer to important disclosures at the end of this report DBS Group Research . Equity 16 Aug 2018 BUY, KRW128,000 KOSPI: 2,282.8 Close to long-awaited turnaround (Closing price as of 10/8/18) Revenue growth continues for Kakao Ads, high Price Target 12-mth: KRW150,000 (prev. KRW130,000) hopes for Kakao M’s new businesses Reason for Report: Rating upgrade Kakao Page seeing higher gross merchandise value Potential catalyst: Advance towards music/video production industry and user traffic; Kakao Pay set to launch new Where we differ: We are more positive than the market on Kakao Pay’s new financial services financial services Upgrade to BUY, TP lifted to KRW150,000 Analyst Regional Research Team
[email protected] Earnings turnaround soon. We upgrade our rating from HOLD to BUY as signs of earnings turnaround should be seen for Kakao going forward. From as early as 4Q18, Kakao’s quarterly earnings Price Relative are likely to return to growth (y-o-y). Top line is expanding and 200,000 110 2H18 advertising / labour costs are expected to be similar to 1H18 100 150,000 levels, backed by efficient cost management. 90 80 Finally, new businesses to yield results. Furthermore, new 100,000 70 businesses should start to bear fruit soon, with Kakao Bank 50,000 60 projected to reach its breakeven point in 2H18. The likely shift 50 by the government towards a more relaxed separation 0 40 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 between banking and commerce is also a positive.