Shift Up IPO Valuation Analysis

• Our base case valuation of Shift Up is target price of 95,510 won, which is 59% higher than the high end of the IPO price range (60,000 won).

• We believe Shift Up deserves higher valuation multiples than its peers mainly due to higher sales growth, much higher operating margins, and higher ROE.

• Since its launch in April of this year, Stellar Blade (PS console game) has ranked first in sales in eight countries, including the United States, United Kingdom, Canada, and Japan.

Shift Up (462870 KS) is getting ready to complete its IPO in KOSPI in June 2024. Established in 2013, Shift Up is one of the leading game developers in Korea. The company is offering 7.25 million shares in this IPO, of which 100% are new shares. The IPO price range is 47,000 won to 60,000 won. The IPO offering amount is 340.8 billion won to 435 billion won.

According to the bankers' valuation, the market capitalization of the company ranges from 2.8 trillion won to 3.6 trillion won. The book building for the institutional investors lasts from 3 to 13 June. Korea Investment & Securities and JP Morgan Securities are the joint lead underwriters of this IPO. At the high end of the IPO valuation (3.6 trillion won), Shift Up would be the 110th largest stock in KOSPI. Currently, there are three companies with higher market cap than 3.6 trillion won.

• Krafton (259960 KS) - 12.2 trillion won (market cap)

• Netmarble (251270 KS) - 5.7 trillion won (market cap)

• NCSOFT Corp (036570 KS) - 4.7 trillion won (market cap)

Major Shareholders - As of 20 May 2024, the CEO and founder Kim Hyung-Tae owns a 44.63% stake in Shift Up. Other related parties own an additional 4.2% stake in the company. Tencent (700 HK)'s subsidiary Aceville Pte, LTD is the second largest shareholder of Shift Up with a 40.03% stake. In October 2023, Tencent (through its subsidiary Aceville Pte, LTD) raised its investment stake in Shift Up. Aceville purchased 79.9 billion won (US$58.8 million) worth of Shift Up shares from Wemade.

After the IPO, the CEO Kim Hyung-Tae's ownership stake in Shift Up is expected to decline to 39.05% and Aceville (Tencent)'s stake will also decline to 35.03%.

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Company Background

Shift Up was founded by the CEO Kim Hyung-tae in 2013. CEO Kim is an original artist who worked as an art director for popular games such as 'Genesis' and 'Blade & Soul' at NCsoft. In July 2022, several Shift Up employees sold some of their stakes in the company to IMM Investment and Smilegate Investment. In this transaction, Shift Up Corp was valued at about 1 trillion won. Shift Up has received investments from Kakao Ventures, Wemade, Daesung Startup Investment, IMM Investment, and Smilegate Investment.

One of the key strengths of Shift Up is that it provides all-in-one game design and development services. The company's studios feature original art and solid design and programming skills, allowing developers to tap into all aspects of game production, from game creation to promotional videos to music production.

The company's main games include Destiny Child (released in 2016), Goddess of Victory: Nikke (released in 2022), and Stellar Blade (released in April, 2024).

• Destiny Child, a RPG game was completed with 33 development personnel over a period of about 2 years and 7 months from March 2014 to October 2016. Destiny Child was first released in the domestic mobile market in October 2016.

• Goddess of Victory: Nikke is a game that integrates elements of third-person shooting (TPS) gameplay and collectible role-playing game (RPG) with the subcultural game genre. Goddess of Victory: Nikke has been the best selling blockbuster game for Shift Up.Goddess of Victory: Nikke is a game developed with the goal of providing the highest level of quality and experience in the global subculture game field. Goddess of Victory: Nikke is a game that even general users can enjoy, going beyond the confines of ‘subculture games’ that emphasize characters. RPG elements and shooting elements are designed creatively and with visual emphasis, so even users who are not immersed in the story and characters can fully enjoy the game.

• Stellar Blade is an action adventure that focuses on fast, dynamic action play and high-quality 3D graphics. Since its launch in April of this year, Stellar Blade has ranked first in sales in eight countries, including the United States, United Kingdom, Canada, and Japan, and recorded a rating of 9.3, the highest among all PS5 games of all time, according to user reviews on professional review site Metacritic.

Stellar Blade is an action-adventure game in which the user becomes the drop trooper EVE and takes back the Earth from the invaders NA:tive who drove out humanity. In the process, they uncover the mysteries of the past and learn about the origins of humanity and the natives. It has a narrative of discovering the truth about the war with. It has a post-apocalyptic worldview with a science fiction atmosphere, and the main points of the game are stylish visuals (sci-fi culture + Asian style) and fast and dynamic gameplay.

What are subculture games? Subculture games refer to games that highlight Japanese anime-style girl characters and are targeted at specific groups of enthusiasts. Subculture games are gaining in popularity in key markets such as China, Japan, and Korea.

Goddess of Victory: Nikke (Source: Company data)

Why is Nikke a massive success? (Source: Youtube)

Stellar Blade Introduction (Source: Youtube)

Stellar Blade Review (Source: Youtube)

Stellar Blade Review (Source: Youtube)