Fintech
The author is an analyst for Shinhan Securities. He can be reached at heeyeon.lim@shinhan.com -- Ed.
2Q operating loss of KRW12.6bn in line with expectations
Kakaopay posted decent 2Q23 preliminary results with consolidated operating loss of KRW12.6bn (continued loss QoQ) on sales of KRW148.9bn (+5.2% QoQ), meeting our forecast of a KRW12.2bn loss. Total payment value (TPV) and revenue generating TPV (RTPV) increased to KRW34.2tr (+5.4% QoQ) and KRW10tr (+9.9% QoQ), respectively. Kakaopay’s monthly active users (MAU) came to 24.3mn, roughly a half of the MAU of the KakaoTalk messaging app.
We note that the users’ contribution to profits is on a steady uptrend. The portion of users who use only the remittance service, which makes a limited profit contribution, dropped to 10%. Monthly average payment value (TPV+RTPV) per user recorded KRW470,000 (+2.6% QoQ), which breaks down to a daily average of KRW15,000. Based on our estimates, daily average RTPV per user is KRW4,522, worth a cup of Starbucks Americano coffee in Korea.
Key indicators on recovery trend, limited doubts over directionality
Major business indicators show a clear recovery trend. The number of users using the refinancing service exceeded 200,000, with the transaction volume topping the KRW100bn mark. Kakaopay Securities’ deposit volume stood at KRW2tr levels, and its market share in overseas stock trading is estimated at roughly 7%. The introduction of the stock trading system on KakaoTalk has helped enhance user convenience. Kakaopay Insurance became one of the top performers in the sector for travel insurance in just 50 days of its launch, with the daily average number of policy subscribers reaching as high as 1,800. Cross-border payment value expanded by 28% QoQ.
Improvement in profitability will be crucial going forward. Kakaopay has been making efforts to enhance the profitability of its financial subsidiaries, such as increasing market share of Kakaopay Securities and a KRW100bn rights offering for Kakaopay Insurance. Although it may take some time before it sees visible margin gains, we have no doubt that profitability will continue on an uptrend.
Meanwhile, the company saw a whopping 250% QoQ growth in advertisement sales. Ad contracts signed with automaker Kia will last until the end of the year, and ad campaigns for dramas, movies, and other contents are currently ongoing. A significant upturn in ad sales is expected to trigger a turnaround in earnings.
Retain BUY for a target price of KRW64,000
Our target price for Kakaopay remains unchanged at KRW64,000. The fair value is the sum of the value of paying MAU (KRW6.6tr) and net debt (KRW2tr). With business conditions unlikely to deteriorate any further, we retain our BUY rating on Kakaopay.