Cho Kye-hyun, right, CEO of Kakao Games, and Namkoong Whon, then the co-CEO of the company and now the CEO of Kakao, pose for a photo when Kakao Games was listed on the Kosdaq stock market at the Korea Exchange in Seoul, Sept. 10, 2020. Courtesy of Kakao Games

By Baek Byung-yeul

Kakao Games' shares surged nearly 10 percent, Friday, after the company announced on Thursday afternoon that it would defer a plan to list its subsidiary, Lionheart Studio. Industry analysts said the withdrawal of the listing of Kakao Games' subsidiary would enable Kakao Games to avoid depreciation, adding that the company's value would be reevaluated.

Kakao Games is the game distribution arm of the internet company Kakao. It has generated profits by serving various kinds of games, and its subsidiary and game developer, Lionheart Studio, has played the most important role, accounting for 65 percent of Kakao Games' operating profit as of last year with the role-playing game "Odin: Valhalla Rising."

However, Kakao Games has been heavily criticized by investors since July, when it said it will list Lionheart Studio, in which it holds a 24.57-percent stake. Its Europe branch holds 30.37 percent, on the Kosdaq stock market in November.

Facing setbacks from investors worrying that the value of Kakao Games would significantly decrease due to listing the affiliate separately, the stock price of the company has fallen by about 30 percent since then.

Due to these concerns, the company said Thursday afternoon that it withdrew the report it submitted to the Financial Services Commission (FSC) on Sept. 30.

After the announcement, the stock price of the company soared 9.59 percent to end at 38,300 won on after-hours trading, Thursday. On Friday, Kakao Games shares closed at 38,250 won, up 9.44 percent from the previous day.

Lionheart Studio said the company submitted a withdrawal report "because it is difficult to properly evaluate the value of the company due to various domestic and overseas conditions." But the company added that the decision is only a withdrawal of the report it submitted to the FSC and it will continue to work on listing itself on the stock market.

Industry analysts said the value of Kakao Games could be reevaluated because the negative factor that has reduced its value disappeared, although the overall market for game companies remains tight.

"The worst-case scenario has disappeared. It is positive that Kakao Games avoided the risk of losing value due to the spin-off at a time when it is highly dependent on Lionheart," Lim Hee-seok, a researcher at Mirae Asset Securities, said, suggesting a target price of 60,000 won.

Kim Ha-jung, a researcher at Daol Investment & Securities, also suggested a target price of 55,000 won for Kakao Games, saying, "I present a strong buy view of Kakao Games, as its subsidiary withdrew the listing report."