SaaS Solution and IDC Businesses to Expand
The author is an analyst of NH Investment & Securities. He can be reached at jack.baek@nhqv.com. -- Ed.
Interest in DAOU Technology’s IDC and cloud businesses is forecast to increase in line with higher demand for cloud services. The e-commerce business’s contribution to the firm’s earnings has climbed dramatically since its acquisition of Sabangnet. Currently, its market cap represents a 24% discount to NAV, excluding Kiwoom Securities’ stake value.
SaaS solution and IDC businesses to expand
DAOU Technology offers a cloud-based software-as-a-service (SaaS) version of groupware solution DAOU Office, mainly for SMEs rather than affiliates of large business groups. Coming in sixth in terms of groupware M/S, DAOU Technology has secured an increasing number of domestic companies as clients, backed by its electronic approval solutions and other noteworthy features.
DAOU Technology runs an Internet data center (IDC) in Mapo. Its utilization rate improved to around 80% in 2019, and it mainly provides its services to companies other than group affiliates. Posting 2019 sales of W16.6bn, the IDC has strived to attract additional clients. We expect the firm to secure captive orders once DAOU Kiwoom Group boosts IT investment.
Take note of value of in-house businesses
DAOU Technology’s market cap is estimated at W690.9bn, a level below the value of its W752.7bn stake in subsidiary Kiwoom Securities. With the two firms showing a share-price correlation coefficient of as high as 0.598, it appears safe to say that DAOU Technology’s share performance hinges on that of the brokerage house. However, we note that the value of the firm’s in-house businesses is rising steadily. The company’s NAV (excluding Kiwoom Securities’ stake value) stands at W912.6bn.
Forecast to post consolidated 2020 sales of W3,120bn (-3.9% y-y) and OP of W317.0bn (-37.7% y-y), DAOU Technology is trading at a 58.5% discount to NAV—a discount rate below those for other holding companies. However, the firm’s in-house businesses alone are valued at W528.7bn, which accounts for more than 70% of its market cap. Its shares are trading at a 2020E P/E of only 5x, a level below that of Kiwoom Securities.