Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight">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.</div>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. <div class="content-highlight">
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.  
</div>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.

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

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. 
Companies mentioned this week:
<a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, <a href="https://www.smartkarma.com/entities/sk-innovation-co-ltd" target="_blank" data-smartkarma-citation="entities:1268:1" rel="noopener">SK Innovation (096770 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a>, <a href="https://www.smartkarma.com/entities/mtn-group-ltd" target="_blank" data-smartkarma-citation="entities:24897:1" rel="noopener">MTN Group Ltd (MTN SJ)</a>, <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" data-smartkarma-citation="entities:127:1" rel="noopener">Geely Auto (175 HK)</a>, <a href="https://www.smartkarma.com/entities/grupo-televisa-sab" target="_blank" data-smartkarma-citation="entities:24642:1" rel="noopener">Grupo Televisa Sab (TLEVICPO MM)</a>, <a href="https://www.smartkarma.com/entities/cia-hering" target="_blank" data-smartkarma-citation="entities:27765:1" rel="noopener">Cia Hering (HGTX3 BZ)</a>, Arezzo

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. 
Companies mentioned this week:
Alibaba Group (9988 HK), Ant Financial Services Group (6688 HK), SK Innovation (096770 KS), LG Chem Ltd (051910 KS), MTN Group Ltd (MTN SJ), Geely Auto (175 HK), Grupo Televisa Sab (TLEVICPO MM), Cia Hering (HGTX3 BZ), Arezzo 

Global Emerging Markets Weekly: 16 April 2021

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Korea has had 2 milestone cases that have been settled this year in the US courts - one was regards to botox (AbbVie/Allergan/ <a href="https://www.smartkarma.com/entities/medy-tox-inc" target="_blank" data-smartkarma-citation="entities:11403:1" rel="noopener">Medy Tox Inc (086900 KS)</a> vs. <a href="https://www.smartkarma.com/entities/evolus-inc" target="_blank" data-smartkarma-citation="entities:28008:1" rel="noopener">Evolus Inc (EOLS US)</a> / <a href="https://www.smartkarma.com/entities/daewoong-pharmaceutical-co" target="_blank" data-smartkarma-citation="entities:3742:1" rel="noopener">Daewoong Pharmaceutical Co (069620 KS)</a> ) and now, <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> vs. <a href="https://www.smartkarma.com/entities/sk-innovation-co-ltd" target="_blank" data-smartkarma-citation="entities:1268:1" rel="noopener">SK Innovation (096770 KS)</a> - while both finally settled, what does this say about Korea to minority investors?

Korea has had 2 milestone cases that have been settled this year in the US courts - one was regards to botox (AbbVie/Allergan/ Medy Tox Inc (086900 KS) vs. Evolus Inc (EOLS US) / Daewoong Pharmaceutical Co (069620 KS) ) and now, LG Chem Ltd (051910 KS) vs. SK Innovation (096770 KS) - while both finally settled, what does this say about Korea to minority investors?

LGChem/SKI Deal - Another Korea Discount Worry? Follow the Female Lead

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.

Equity Capital Markets

SK IE Technology   / Equity Capital Markets

SK IET book opens tomorrow.This post has the checklist for the BB to help formulating BB strategies.1. Pricing discountsThe IPO book EV/EBITDA multiple is 48.12x. The MTM EV/EBITDA rises to 54.03x.










EV/EBITDA, IPO book (₩B)
Yunnan Energy New Material Co Ltd
Ecopro BM Co Ltd
Iljin Materials Co Ltd
Posco Chemical Co Ltd
Chunbo Co Ltd


Ticker
SHE:002812
247540
020150
003670
278280


Ref MC
16,579.1
3,298.3
2,881.9
8,959.2
1,576.0


Interest-bearing debt
1,027.8
197.0
49.8
841.4
26.0


Cash &amp; cash equivalents
645.7
59.2
150.8
121.7
62.9


Net borrowings
382.1
137.8
-101.0
719.7
-36.9


Non-controlling int
85.7
23.7
251.1
22.9
0.0


EV
17,046.8
3,459.8
3,032.1
9,701.9
1,539.1


OP
228.8
54.8
51.0
60.3
30.1


D&amp;A
97.7
36.9
34.2
64.4
11.2


EBITDA
326.5
91.6
85.3
124.7
41.3


EV/EBITDA (x)
52.20
37.80
35.60
77.80
37.20


Average (x)
48.12

Source: DART












EV/EBITDA, MTM (₩B)
Yunnan Energy New Material Co Ltd
Ecopro BM Co Ltd
Iljin Materials Co Ltd
Posco Chemical Co Ltd
Chunbo Co Ltd


Ticker
SHE:002812
247540
020150
003670
278280


Current MC
17,156.1
3,796.8
3,550.5
10,307.0
1,730.0


Interest-bearing debt
1,027.8
197.0
49.8
841.4
26.0


Cash &amp; cash equivalents
645.7
59.2
150.8
121.7
62.9


Net borrowings
382.1
137.8
-101.0
719.7
-36.9


Non-controlling int
85.7
23.7
251.1
22.9
0.0


EV
17,623.8
3,958.4
3,700.7
11,049.7
1,693.1


OP
228.8
54.8
51.0
60.3
30.1


D&amp;A
97.7
36.9
34.2
64.4
11.2


EBITDA
326.5
91.6
85.3
124.7
41.3


EV/EBITDA (x)
53.97
43.19
43.40
88.63
40.97


Average (x)
54.03

Source: DART, KRX, &amp; Bloomberg

At MTM, the discount range moves up from 19.59~40.27% to 28.52~46.90%.







Discount (₩B)
Lower
Upper


Price (₩)
₩78,000
₩105,000


Base deal size
1,668.4
2,246.0


- Institutional allotment
917.6
1,235.3


Implied MC
5,561.2
7,486.2


EV/EBITDA, IPO book
9,310.4
9,310.4


- Discount
40.27%
19.59%


EV/EBITDA, MTM
10,472.6
10,472.6


- Discount
46.90%
28.52%

Source: DART

At MTM PER, the range falls to 13.78~35.95%, if excluding POSCO Chemical, whose 348.45x PER should make it an outlier.







Discount (₩B)
Lower
Upper


Price (₩)
₩78,000
₩105,000


Base deal size
1,668.4
2,246.0


- Institutional allotment
917.6
1,235.3


Implied MC
5,561.2
7,486.2


PER, MTM
8,682.8
8,682.8


- Discount
35.95%
13.78%

Source: DART








PER, MTM valuation (₩B)



SO
71,297,592


Earnings
88.2


EPS
₩1,521


PER (x)
80.07


MC
8,682.8


Price per share
₩121,782

Source: DART












PER, MTM (₩B)
Yunnan Energy New Material Co Ltd
Ecopro BM Co Ltd
Iljin Materials Co Ltd
Posco Chemical Co Ltd
Chunbo Co Ltd


Ticker
SHE:002812
247540
020150
003670
278280


Current MC
17,156.5
3,796.8
3,550.5
10,307.0
1,730.0


SO
887,721,966
21,035,166
46,110,835
60,988,220
10,000,000


Price per share
₩19,326
₩180,500
₩77,000
₩169,000
₩173,000


Earnings
191.7
42.7
44.2
29.6
27.4


EPS
₩216
₩2,065
₩959
₩485
₩2,742


PER (x)
89.47
87.41
80.29
348.45
63.09


Average (x) (excl. POSCO Chem)
80.07

Source: DART, KRX, &amp; Bloomberg

Compared with the more direct peers (Asahi Kasei and Toray Industries), SK IET's indicative price band is at a 21.71~63.85% premium (PER) and a whopping 239.89~357.54% premium (EV/EBITDA).The Asahi Kasei/Toray multiple raised a valuation concern earlier. But the current sentiment doesn't seem to be taking it critically. The market seems to be paying more attention to the aspect that they aren't a pure-play company as their LiBS portion is less than 30% of the total revenue.







Discount (₩B)
Lower
Upper


Price (₩)
₩78,000
₩105,000


Base deal size
1,668.4
2,246.0


- Institutional allotment
917.6
1,235.3


Implied MC
5,561.2
7,486.2


EV/EBITDA, Asahi Kasei/Toray
1,636.2
1,636.2


- Discount
-239.89%
-357.54%


PER, Asahi Kasei/Toray
4,569.1
4,569.1


- Discount
-21.71%
-63.85%

Source: DART









Valuation (₩B)
EV/EBITDA, Asahi Kasei/Toray
PER, Asahi Kasei/Toray


Multiple
EV/EBITDA
PER


SO
71,297,592
71,297,592


EBITDA
196.6
-


EV/EBITDA (x)
9.08
-


EV
1,784.9
-


Interest-bearing debt
515.8
-


Cash &amp; cash equivalents
367.1
-


Net borrowings
148.7
-


Earnings
-
88.2


EPS
-
₩1,521


PER (x)
-
42.13


MC
1,636.2
4,569.1


Price per share
₩22,949
₩64,084

Source: DART









EV/EBITDA, Asahi Kasei/Toray (₩B)
Asahi Kasei
Toray Industries


Ticker
TYO:3407
TYO:3402


Current MC
17,491.1
11,317.8


EV
22,738.4
20,063.3


EV/EBITDA (x)
7.46
10.70


Average (x)
9.08

Source: DART, KRX, &amp; Bloomberg









PER, Asahi Kasei/Toray (₩B)
Asahi Kasei
Toray Industries


Ticker
TYO:3407
TYO:3402


Current MC
17,491.1
11,317.8


Earnings
823.9
179.5


PER (x)
21.23
63.04


Average (x)
42.13

Source: DART, KRX, &amp; Bloomberg

The 5-yr average pricing discount band of the KOSPI IPOs is 19.00~31.80%.Even the MTM PER isn't awfully skewed from the 5-yr average. 









Name
Ticker
IPO date
Lower
Upper


JS Corp
194370
2016-02-04
47.40%
36.40%


Daelim C&amp;S
-
2016-03-30
28.00%
15.10%


Haitai Confectionery and Foods Co Ltd
101530
2016-05-11
28.10%
11.80%


Yong Pyong Resort Corp
070960
2016-05-27
26.30%
16.20%


Haesung DS Co Ltd
195870
2016-06-24
27.60%
9.50%


Korea Asset In Trust Co Ltd
123890
2016-07-13
23.90%
13.80%


Dual Co Ltd
016740
2016-07-29
25.50%
10.60%


LS Cable &amp; System Asia Ltd
229640
2016-09-22
18.70%
6.50%


Hwaseung Enterprise Co Ltd
241590
2016-10-04
21.00%
10.70%


JW Life Science Corp
234080
2016-10-27
21.20%
5.20%


Samsung Biologics Co Ltd
207940
2016-11-10
32.20%
18.40%


Doosan Bobcat Inc
241560
2016-11-18
48.10%
40.90%


Hands Corporation Ltd
143210
2016-12-02
21.10%
7.90%


Hojeon Ltd
111110
2017-02-02
29.00%
17.20%


Dentium Co Ltd
145720
2017-03-15
39.10%
32.30%


Orange Life Ins
-
2017-05-11
22.20%
1.30%


Netmarble Corp
251270
2017-05-12
39.00%
20.90%


Tapex Inc
055490
2017-10-31
27.20%
17.80%


Samyang Packaging Corp
272550
2017-11-29
28.20%
17.20%


Jin Air Co Ltd
272450
2017-12-08
20.00%
5.10%


Dongyang Piston Co Ltd
092780
2017-12-08
34.60%
16.30%


Aekyung Industrial Co Ltd
018250
2018-03-22
31.50%
19.80%


Lotte Data Communication Co
286940
2018-07-27
27.20%
13.10%


T'way Air Co Ltd
091810
2018-08-01
31.10%
21.20%


Woojin I&amp;S Co Ltd
010400
2018-09-14
29.70%
20.30%


Hana Pharm Co Ltd
293480
2018-10-02
28.20%
17.90%


Asiana IDT Inc
267850
2018-11-23
45.50%
32.00%


Air Busan Co Ltd
298690
2018-12-27
38.40%
31.50%


DreamTech Co Ltd
192650
2019-03-14
36.30%
24.70%


Hyundai Autoever Corp
307950
2019-03-28
33.10%
26.40%


Zinus Inc
013890
2019-10-30
27.80%
18.80%


Xi S&amp;D Inc
317400
2019-11-06
31.50%
15.20%


Hanwha Systems Co Ltd
272210
2019-11-13
35.70%
26.50%


Hyundai Energy Solutions Co Ltd
322000
2019-11-19
33.30%
22.10%


CENTRAL MOTEK Co Ltd
308170
2019-11-25
31.70%
18.00%


SK Biopharmaceuticals Co Ltd
326030
2020-07-02
39.80%
18.00%


Big Hit Entertainment Co Ltd
352820
2020-10-15
34.40%
15.70%


Kyochon F&amp;B Co Ltd
339770
2020-11-12
31.20%
20.10%


A Plus Asset Advisor Co Ltd
244920
2020-11-20
45.10%
35.70%


Myoung Shin Industrial Co Ltd
009900
2020-12-07
27.60%
14.30%


SoluM Co Ltd
248070
2021-02-02
35.30%
26.80%


Prestige Biopharma Ltd
950210
2021-02-05
42.90%
26.90%


SK Bioscience Co Ltd
302440
2021-03-18
40.40%
21.00%


Average

-
31.80%
19.00%

Source: DART



SK IET BB: Pricing Discounts, Major Shareholder Selling, & K200 Entry

This morning, multiple local news outlets reported that LG Chem and SK Innovation had finally reached a full agreement in the electric vehicle battery dispute.Official words will likely come out later today.<a href="https://www.sedaily.com/NewsView/22L1IC823K" target="_blank" rel="noopener">Here is the news link.</a>According to SED, multiple officials who are familiar with the issue confirmed in a call interview that the two companies had reached an agreement, including the amount of compensation, and are currently finalizing the announcement's format.<div class="content-highlight">
Legal battle summary between LG Chem and SK Innovation:
LG Chem (now LG Energy Solutions) filed a full complaint with the US International Trade Commission (ITC) in April 2019, claiming SK Innovation had infringed on its business secrets.
In February this year, the US ITC imposed a 10-year import ban, claiming that SK had violated the LG ES business secrets.
US President Joe Biden could veto the ITC's 10-year SK battery import ban, and the deadline is tomorrow.
</div>Why now?SK Innovation has reportedly concluded that President Biden wouldn't exercise his veto on this case (10-year import ban).SK is said to have even considered shutting down the US factory in Georgia after the end of next year. But given the importance of the US market and the US-based partners, it finally made a last-minute decision.

This morning, multiple local news outlets reported that LG Chem and SK Innovation had finally reached a full agreement in the electric vehicle battery dispute.Official words will likely come out later today.Here is the news link.According to SED, multiple officials who are familiar with the issue confirmed in a call interview that the two companies had reached an agreement, including the amount of compensation, and are currently finalizing the announcement's format.
Legal battle summary between LG Chem and SK Innovation:
LG Chem (now LG Energy Solutions) filed a full complaint with the US International Trade Commission (ITC) in April 2019, claiming SK Innovation had infringed on its business secrets.
In February this year, the US ITC imposed a 10-year import ban, claiming that SK had violated the LG ES business secrets.
US President Joe Biden could veto the ITC's 10-year SK battery import ban, and the deadline is tomorrow.
Why now?SK Innovation has reportedly concluded that President Biden wouldn't exercise his veto on this case (10-year import ban).SK is said to have even considered shutting down the US factory in Georgia after the end of next year. But given the importance of the US market and the US-based partners, it finally made a last-minute decision.

LG Chem & SK Innovation Reach an Agreement Right Before SK IET IPO Book Opens

South Korea

SK Innovation Co., Ltd. refines, markets, and distributes oil.  The Company produces a variety of petroleum products, such as gasoline, kerosene, liquefied petroleumgas (LPG), and diesel oil.  SK Energy also manufactures petrochemical p roducts, including paraxylene, synthetic resins, styrene monomer, and ethylene.

Price Gauge
52-week Range	0.00 - 0.00
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SK Innovation (096770 KS)

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...

Douglas Kim

Global Emerging Markets Weekly: 16 April 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

LGChem/SKI Deal - Another Korea Discount Worry? Follow the Female Lead

IP protection is a big worry for Korean firms - has the 2 precedent cases in Korea in 2021 lower the value of IP from the view of international...

Ken S. Kim

SK IET BB: Pricing Discounts, Major Shareholder Selling, & K200 Entry

SK IE Technology IPO book opens tomorrow. This post has the checklist (pricing discount, major shareholder potential selling, & KOSPI 200 fast...

Sanghyun Park

LG Chem & SK Innovation Reach an Agreement Right Before SK IET IPO Book Opens

LG Chem and SK Innovation reached an agreement in the fierce battery dispute right before the SK IET IPO book opens on April 13. Official words...

Sanghyun Park

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