Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight"><p>In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</p></div><p>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. </p><p>Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. </p><div class="content-highlight">
<p>In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).</p>
<p>In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  </p>
</div><p>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. </p>

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

The May 3 short-selling resumption will likely highlight the 5 local pairs:
1 stub pair
4 share class pairs
They are the exclusive members of the MC &gt; ₩1T and DTV &gt; ₩10B club, making them the most actively arb-traded pairs in Korea.Also, they are eligible for short-selling right on May 3 as they are part of the Short 350.












Name
Ticker
MC (₩B)
SO
DTV
DTV/SO
30D avg
DTV (₩B)


AmoreG
002790
5,648.4
82,458,180
160,858
0.20%
₩66,850
10.8


Amorepacific
090430
15,023.8
58,458,490
187,379
0.32%
₩260,386
48.8



Samsung Elec 1P
005935
61,716.5
822,886,700
1,415,401
0.17%
₩74,655
105.7


Samsung Elec Ord
005930
493,104.0
5,969,782,550
16,220,095
0.27%
₩83,305
1,351.2



LG Chem 1P
051915
3,017.9
7,688,800
30,796
0.40%
₩387,955
11.9


LG Chem Ord
051910
60,991.8
70,592,343
418,077
0.59%
₩830,818
347.3



Hyundai Motor 1P
005385
2,630.5
24,356,685
79,662
0.33%
₩105,491
8.4


Hyundai Motor Ord
005380
48,182.2
213,668,187
955,060
0.45%
₩226,159
216.0



Hyundai Motor 2PB
005387
3,794.5
36,485,451
90,328
0.25%
₩103,468
9.3


Hyundai Motor Ord
005380
48,182.2
213,668,187
955,060
0.45%
₩226,159
216.0

Source: KRX

On a 20D MA, LG Chem is the only one at -1σ or less.












σ on 20D MA
Ticker
Today
T-1
T-2
T-3
T-4
T-5


AmoreG
002790
1.31
1.77
1.46
1.79
0.92
1.28


Amorepacific
090430



Samsung Elec 1P
005935
1.44
0.69
1.10
0.18
-0.35
-0.03


Samsung Elec Ord
005930



LG Chem 1P
051915
-1.34
-1.80
-1.30
-1.93
-1.53
-0.95


LG Chem Ord
051910



Hyundai Motor 1P
005385
1.13
1.16
1.73
1.87
2.18
2.60


Hyundai Motor Ord
005380



Hyundai Motor 2PB
005387
0.34
1.45
1.06
0.79
1.29
1.45


Hyundai Motor Ord
005380

Source: KRX

But they (the holding company and prefs) are at a discount to the 1-yr means, except for Samsung Elec 1P.Hyundai Motor 2PB, AmoreG, and LG Chem 1P had substantially declined relative to their respective partner.












Price ratio
Ticker
Today
120D mean
120DH
120DL
1Y mean
2Y mean


AmoreG
002790
0.26654
-1.08%
-9.30%
9.17%
-9.13%
-22.50%


Amorepacific
090430



Samsung Elec 1P
005935
0.90799
0.87%
-4.16%
4.52%
2.76%
6.01%


Samsung Elec Ord
005930



LG Chem 1P
051915
0.45428
-3.34%
-13.17%
5.11%
-6.10%
-10.43%


LG Chem Ord
051910



Hyundai Motor 1P
005385
0.47894
3.09%
-5.02%
12.74%
-4.68%
-11.77%


Hyundai Motor Ord
005380



Hyundai Motor 2PB
005387
0.46120
1.18%
-6.27%
10.15%
-9.48%
-20.03%


Hyundai Motor Ord
005380

Source: KRX



5 Most Actively Arb-Traded Pairs in Korea: 1 Stub & 4 Share Class with +₩1T MC & +₩10B DTV

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

Thematic (Sector/Industry)

<p>We highlight 14 stocks in Asia that look interesting to us based upon our FVMR Methodology. Our research team constantly reviews the Asian markets to try to find interesting ideas based on Fundamentals or Valuation or Momentum or Risk or some combination thereof.</p>

We highlight 14 stocks in Asia that look interesting to us based upon our FVMR Methodology. Our research team constantly reviews the Asian markets to try to find interesting ideas based on Fundamentals or Valuation or Momentum or Risk or some combination thereof.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

EURO STOXX 50 Price EUR / Technical Analysis

<p>Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.</p>

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

<p>Amore G is now at a -2.23σ on a 20D MA relative to its major subsidiary, Amore P.</p><p>It is a 2M low and also a 2-yr low.</p><p>In fact, it is virtually at a historic low. </p><table class="table table-striped">
<colgroup>
<col width="140">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"% of sigma"}'>% of sigma</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Today"}'>Today</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"T-1"}'>T-1</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"T-2"}'>T-2</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"T-3"}'>T-3</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"T-4"}'>T-4</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"T-5"}'>T-5</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Amore G"}'>Amore G</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.233672373317701}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=importrange(R9C1, "2!I2")'><strong>-223.37%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.5482241709598867}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=importrange(R9C1, "2!I3")'>-154.82%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.195277974328186}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=importrange(R9C1, "2!I4")'>-119.53%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2360685150394095}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=importrange(R9C1, "2!I5")'>23.61%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9598659936653405}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=importrange(R9C1, "2!I6")'>95.99%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.1379503406354312}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=importrange(R9C1, "2!I7")'>113.80%</td>
</tr>
<tr><td colspan="7" data-sheets-value='{"1":2,"2":"Celltrion"}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>Source: KRX</td></tr>
</tbody>
</table><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/196/028/original/chart+%282%29.png?1616348888" class="editor-image img-responsive" data-smartkarma-image-id="196028"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/196/029/original/chart.png?1616349056" class="editor-image img-responsive" data-smartkarma-image-id="196029"></figure></section><p>Holdco NAV discount now sits at 34.3%, still a historical peak level.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"NAV (₩B)"}' data-sheets-note="Sang Hyun Park: Cases when a company's net cash position and the value of its publically traded interests are worth more than its market cap create the opportunity of a stub trade, in which investors can take a view that the company's core business will rise by shorting the minority stakes whilst going long the underlying. Such an opportunity has arisen in the wake of the Alibaba listing which has seen early investing company Yahoo trade at a discount to the value of its stake in Alibaba.">NAV (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of listed holdings"}'>Value of listed holdings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5350.125102254677}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=SUM(R[36]C[2]:R[39]C[2])">5,350.1</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of holdco market cap"}'>- % of Holdco market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.0464982413988084}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-1]C[0]/((R[-12]C[0]*R[-15]C[0])/1000000000)">104.65%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of unlisted holdings"}'>Value of unlisted holdings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1585.995}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=SUM(R[38]C[2]:R[45]C[2])">1,586.0</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value"}'>Stub value</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1823.7129422546768}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=(R[-14]C[0]*R[-17]C[0]/1000000000)-R[-3]C[0]-R[-1]C[0]">-1,823.7</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value per share"}'>Stub value per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-22116.82263972691}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*1000000000/R[-18]C[0]">-₩22,117</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of operating assets"}'>Value of operating assets</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":135}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=SUM(R[64]C[2]:R[65]C[2])">135.0</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV"}'>GAV</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7071.120102254677}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[-6]C[0]+R[-4]C[0]+R[-1]C[0]">7,071.1</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV per share"}'>GAV per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":91942.05008636798}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]/R[-11]C[0]*1000000000">₩91,942</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to GAV (excl. treasury shares)"}'>Discount to GAV (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.325662197636894}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-19]C[0])/R[-1]C[0]">32.57%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Holdco net cash/debt (deconsolidated)"}'>Holdco net cash/debt (de-consolidated)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":327.2}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[62]C[2]">327.2</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of pref shares"}'>Value of pref shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":140.1519975}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[-20]C[0]*R[-17]C[0]/1000000000">140.2</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV"}'>NAV</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7258.168104754676}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[-5]C[0]+R[-2]C[0]-R[-1]C[0]">7,258.2</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV per share (excl. treasury shares)"}'>NAV per share (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":94374.13673823046}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]/R[-16]C[0]*1000000000">₩94,374</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to NAV"}'>Discount to NAV</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3430403483109782}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R[-24]C[0])/R[-1]C[0]">34.30%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART","6":1}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table>

Amore G is now at a -2.23σ on a 20D MA relative to its major subsidiary, Amore P.It is a 2M low and also a 2-yr low.In fact, it is virtually at a historic low. 











% of sigma
Today
T-1
T-2
T-3
T-4
T-5


Amore G
-223.37%
-154.82%
-119.53%
23.61%
95.99%
113.80%

Source: KRX

Holdco NAV discount now sits at 34.3%, still a historical peak level.





NAV (₩B)

Value of listed holdings
5,350.1


- % of Holdco market cap
104.65%


Value of unlisted holdings
1,586.0


Stub value
-1,823.7


Stub value per share
-₩22,117


Value of operating assets
135.0


GAV
7,071.1


GAV per share
₩91,942


Discount to GAV (excl. treasury shares)
32.57%


Holdco net cash/debt (de-consolidated)
327.2


Value of pref shares
140.2


NAV
7,258.2


NAV per share (excl. treasury shares)
₩94,374


Discount to NAV
34.30%

Source: KRX &amp; DART



Amore G Stub Trade: Three Reasons Why Now Is an Entry Point

South Korea

AMOREPACIFIC Group is an investment holding company. The Company, through its subsidiaries, produce cosmetics and toiletries.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Amorepacific Group (002790 KS)

Closing the Gap: Korean Holdcos Vs. Opcos

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This post reasons why we are at an entry point for an Amore stub trade, which is at a -2.3σ on a 20D MA relative to Amore P.

Sanghyun Park

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

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Sanghyun Park

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This post reasons why we are at an entry point for an Amore stub trade, which is at a -2.3σ on a 20D MA relative to Amore P.

Sanghyun Park