Kakao Group stocks drop amid gloomy earnings outlook, short sale

[Photo by MK DB]

Kakao Group stocks are losing ground in the South Korean stock market as concerns grow over weak earnings and a rise in short selling transactions.

According to the Korea Exchange on Wednesday, stocks of Kakao Group remain weak this year. Shares of platform giant Kakao Corp. gained 10.36 percent and Kakaopay Corp. 4.24 percent while KakaoBank Corp. lost 3.7 percent, and Kakao Games Corp. 8.85 percent, which are all lower than the Kospi’s gain of 15 percent.

Investor sentiment has worsened further as short selling transactions that bet on lower stock prices rise.

Of the entire outstanding stocks on Tuesday, KakaoBank accounted for 3.01 percent in terms of short sale, Kakaopay 1.67 percent, and Kakao 1.32 percent. Foreign securities firms including Merrill Lynch and JPMorgan Chase & Co. were behind the short sale against KakaoBank.

In terms of short selling transaction volume, KakaoBank and Kakaopay accounted for 21.1 percent and 14.91 percent respectively.

The price of Kakao shares had rebounded early this year on the back of an expected recovery in the advertisement market and other positive factors after seeing a drop last year. However, the company has been volatile, facing some unfavorable factors, including suspicions of its involvement in alleged market manipulative acts and raids in the process of taking over a stake in SM Entertainment Co.

Kakao’s subsidiaries remain weak mostly due to gloomy earnings projections.

Industry insiders note that Kakao Games lack an upward momentum as new game releases have been delayed. Two out of four reports on Kakao Games published this month by brokerage houses lowered their price targets –for example, NH Investment & Securities Co. to 52,000 won ($39.11) from 57,000 won.

“As the release of the highly anticipated game “Ares: Rise of Guardians” has been delayed until the end of June, related earnings have been adjusted,” said Ahn Jae-min, a researcher at the firm.

Brokerage houses are also lowering their price targets for Kakao amid an overall bearish trend across the group’s shares. NH Investment & Securities lowered its target price for Kakao to 80,000 won from 82,000 won.

“The corporate value concerning the advertising and portal businesses fell following lower earnings estimates, affecting also the stock prices of other listed subsidiaries,” NH Investment & Securities said.