We raise our target price for South Korea's e-commerce champion Coupang by 5% to US$50, implying 67% upside. The surge in payments app Kakao Pay's IPO raises the likelihood of a spin-off listing of Coupang's payments arm CouPay.
Kakao Pay's IPO doubles on debut
On Wednesday, Kakao Pay's shares doubled on its debut on the KRX and the company now has a valuation of US$21bn. Kakao Pay is a subsidiary of e-commerce company Kakao and Alipay is one of its major shareholders. The app has 20mn monthly users and has handled Total Payment Value (TPV) of US$72bn in FY 21.
Kakao Pay's US$1.3bn issue was oversubscribed 1,700 times, with both domestic and international investors scrambling for shares.
In terms of strategy, the marriage of e-commerce and fintech is a powerful theme in emerging markets, which is one that Kakao Pay has followed. Its parent company Kakao Corp's unique business model is built on the prospect of cross-selling between its e-commerce, messaging and payments platforms. Indeed, Kakao Pay's strategy of building on the market position of an e-commerce parent is from the Alibaba playbook – its own payments arm Alipay has grown through cross-selling.
Coupang could follow Kakao Pay's lead
Kakao Pay's successful debut – despite the recent heightened regulatory scrutiny of tech firms in South Korea – could encourage other payments firms to list, including Coupang's own payments arm CouPay.
CouPay was spun off last year as a separate fintech company and has 17 million members. Its TPV stands at US$21bn.
CouPay has grown sharply in the Covid era, as has Coupang's core e-commerce business. In Q2 21, CouPay's active customers rose 26% yoy and revenue per active customer grew by 36% yoy.
If we were to apply an SOTP valuation on Coupang, the Kakao Pay valuation could provide a guide. An SOTP analysis suggests that Coupang may be 14% undervalued if one takes the implied valuation of CouPay – which would be US$35 if one were to use the same multiple – showing a clear upside from a separate listing.
Coupang, meanwhile, is 13% below its IPO price, but its GMV is due to rise 39% in FY 21. Hence we remain bullish on its fundamentals as a disruptive EM Tech play and retain our Buy recommendation.