Kakao Splits in Two as Affiliate CEOs Gather in One Place to Make the Case for a Split Valuation

Two months after announcing its spin-off, Kakao brought together the CEOs of its key affiliates for the first time to speak directly with the market. On the 13th, the company held its first groupwide analyst briefing at Kakao AI Campus in Yongin, Gyeonggi Province, and began persuading the capital market of the split's value.

Kakao is pushing ahead with the separation of the company on the grounds of easing the conglomerate discount, and its split plan divides the business into Kakao AI and Kakao X. After the split, the value created by each entity has emerged as a target of market assessment.

In particular, the businesses to be placed under Kakao X are finance, content and mobility, and the challenge for Kakao X is to prove the growth of each affiliate and present the additional value of the bundled structure. Right after the split announcement, the securities industry raised the possibility that a separate discount rate could be applied to Kakao X, and the possibility of a separate discount rate for Kakao X was pointed to as a key variable.

On the 13th, Kakao held its first groupwide analyst briefing at Kakao AI Campus in Yongin, Gyeonggi Province. The event was arranged against the backdrop of Kakao's push for a spin-off and its policy of revaluing corporate value. It was the first joint IR in which the CEOs of Kakao's key affiliates participated together.

The briefing was attended by Kakao CEO Chung Shina, as well as the CEOs of key affiliates including Kakao Pay, KakaoBank, Kakao Entertainment, SM Entertainment and Kakao Piccoma. The audience comprised capital market participants such as securities analysts.

At the event, Kakao explained the business direction and growth strategies for Kakao AI and Kakao X after the split. The backdrop for the joint IR was the August announcement of the spin-off and the presentation of a corporate value revaluation. The scale of the valuation gap presented by Kakao was KRW 17 trillion.

The split plan calls for dividing Kakao into Kakao AI and Kakao X. Kakao AI will be responsible for KakaoTalk, advertising, commerce and AI businesses. Kakao X will handle techfin, content and mobility affiliates as well as investments.

After the split, current CEO Chung Shina has been nominated to head Kakao AI. Kim Do-young, CEO of Kakao Investment, has been nominated to lead Kakao X.

Kakao proposed separating its business functions from its investment functions, citing the fact that while the SOTP average estimated by domestic and overseas securities firms stands at KRW 34.2 trillion, its recent three-month average market capitalization was KRW 16.8 trillion, leaving a gap of KRW 17.4 trillion versus the SOTP average. The goal is to narrow the conglomerate discount and allow each business value to be assessed individually in the market.

The market reaction, however, was cautious. Of the 11 securities firms that issued reports on Kakao after the split announcement, 5 lowered their target prices. The securities industry cited as key variables the possibility that a separate discount rate could be applied to Kakao X and whether Kakao AI could prove the profitability of its AI business.

This assessment was also reflected in the corporate value calculations by Samsung Securities and Hana Securities. Samsung Securities applied a 30% holding-company discount rate to Kakao X and valued the company at KRW 10.8 trillion. Hana Securities estimated Kakao X at KRW 10.4 trillion and Kakao AI at KRW 12.5 trillion, adjusting for the separation of KakaoTalk and affiliated services while lowering the premium previously applied to Talkbiz.

After the split, the two entities will each become an independent target of market valuation. Accordingly, Kakao AI's task is to prove the profitability of its AI business, while Kakao X's task is to present the value of the affiliates it holds. Kakao X must also show the effect of simultaneously holding businesses with different characteristics.

At this joint IR, the growth plans of the affiliates to be included in Kakao X were presented in sequence. The company outlined growth drivers and expansion plans by business segment, presenting the direction of Kakao X.

In the techfin segment, AI agent-based finance and digital assets were presented as growth drivers for Kakao Pay. For KakaoBank, the growth drivers presented were a shift to an 'AI-native bank' and expansion of global business.

In the content segment, expansion plans were presented for Kakao Entertainment, SM Entertainment and Kakao Piccoma. The expansion areas cited for the content segment were intellectual property (IP), fandom, performances and AI video. In mobility, autonomous driving and physical AI were presented as future growth areas.

Kim Do-young, the nominee to lead Kakao X, said the company aims to create new growth opportunities by connecting techfin, content and mobility through platform, foundational technology and customer touchpoints. He then said these new growth opportunities will be linked to enhancing Kakao X's long-term corporate value.

The newly disclosed content at this joint IR centered on the growth strategies of each affiliate. No specific joint business model at the Kakao X level was presented at the briefing, and no additional revenue target was disclosed.

Kakao X described itself as a 'future value investment company.' Kakao explained its plan to assign Kakao X the role of enhancing the corporate value of its affiliates instead of converting it into a holding company, while also giving it the role of investing in future growth businesses.

Under this structure, the value of individual affiliates after the split is expected to be reflected in Kakao X's market valuation. The effect of placing techfin, content and mobility under one company after the split is also expected to be reflected in Kakao X's market valuation.

Kakao also presented its strategy for Kakao AI. Chung Shina, the nominee to lead Kakao AI, said the company plans to advance KakaoTalk into an 'integrated agentic AI interface' based on understanding user requests and context.

Kakao AI includes KakaoTalk, as well as the advertising and commerce businesses. Kakao's sales target for Kakao AI, presented at the time of the split announcement, is more than KRW 6 trillion in 2030, up from about KRW 2.8 trillion currently, and its AI revenue target is more than KRW 1 trillion in 2030.

The securities industry is viewing the expansion of AI service users and whether monetization can translate into actual performance as the key variables that will determine corporate value after the split. It also cites the discount applied to Kakao X and the valuation level for Kakao AI as an AI growth company as variables that will shape the company's value after the split.

Kakao is continuing to explain its post-split business structure in this regard. The targets of those explanations are the capital market and shareholders, and after holding its first meeting with minority shareholders in September, it plans to hold a second such meeting on the 20th at the Korea Financial Investment Association building in Yeouido, Seoul.

The spin-off plan is set to be approved at an extraordinary shareholders' meeting on December 17. If it passes the shareholders' meeting, the split will be completed on January 1 next year, after which there will be a suspension of stock trading. Kakao X is then scheduled to relist on the 27th of that month, and Kakao AI will relist as well.

Source: IT DAILY · Kim Byeong-ju
Original: https://www.itdaily.kr/news/articleView.html?idxno=242176

References

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