Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>The Korean government has initiated the M&amp;A privatization of HMM, the largest container shipping company in Korea. </li>
<li>We are Negative on the shares of HMM Co., Ltd. (011200 KS) in the next 6-12 months. We expect additional 20% to 30%+ downside risk on HMM in this period.</li>
<li>Although HMM has a strong balance sheet, more investors are likely to emphasize on the negatives including excessive share dilution risk and worsening environment for the global shipping industry.</li>
</ul>


The Korean government has initiated the M&amp;A privatization of HMM, the largest container shipping company in Korea. 
We are Negative on the shares of HMM Co., Ltd. (011200 KS) in the next 6-12 months. We expect additional 20% to 30%+ downside risk on HMM in this period.
Although HMM has a strong balance sheet, more investors are likely to emphasize on the negatives including excessive share dilution risk and worsening environment for the global shipping industry.


Privatization of HMM: Enormous Shares Dilution Risk

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.

<ul>
<li>Those that the local market is particularly interested in are the 192nd convertible bonds (CB) held by KDB, along with the 193rd bonds with warrants (BW) owned by KOBC.</li>
<li>These two bonds' call option exercise date is September 25th. Upon conversion of these bonds, 200M new shares will be issued (41% of SO and a 30% dilution).</li>
<li>The key is the trade-off between not disrupting the selling process and avoiding any breach of trust. The prevailing local sentiment suggests that KDB and KOBC will choose stock conversion.</li>
</ul>


Those that the local market is particularly interested in are the 192nd convertible bonds (CB) held by KDB, along with the 193rd bonds with warrants (BW) owned by KOBC.
These two bonds' call option exercise date is September 25th. Upon conversion of these bonds, 200M new shares will be issued (41% of SO and a 30% dilution).
The key is the trade-off between not disrupting the selling process and avoiding any breach of trust. The prevailing local sentiment suggests that KDB and KOBC will choose stock conversion.


Investigating HMM's Latest Bond Conversion Situation for a Shorting Setup

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Thematic (Sector/Industry)

<ul>
<li>US PPI has steadily eased over the past 15 months, and lower transportation costs have helped</li>
<li>US long-distance trucking and international air freight costs have fallen dramatically from the peak, but ocean freight has surprisingly remained close to peak levels</li>
<li>We believe falling transportation costs are unlikely to provide "tailwinds" for much longer</li>
</ul>


US PPI has steadily eased over the past 15 months, and lower transportation costs have helped
US long-distance trucking and international air freight costs have fallen dramatically from the peak, but ocean freight has surprisingly remained close to peak levels
We believe falling transportation costs are unlikely to provide "tailwinds" for much longer


US PPI: Tailwinds from Transportation Price Collapse Set to Subside in H2 2023

Equity Bottom-Up

<ul>
<li>Previously, we criticized CJ Logistics as unfocused, pursuing deals in low-margin segments around the world as if to fill a logistics <em>'Bingo!'</em> card rather than in-line with a rational strategy</li>
<li>In recent years, investors have punished the company's shares, which have fallen by more than half since reaching a high of over 184,000 won per share in March 2021. </li>
<li>However, with management de-emphasizing its Global segment and focusing instead on the more promising Parcel / E-commerce line of business, there is cause for optimism, in our view</li>
</ul>


Previously, we criticized CJ Logistics as unfocused, pursuing deals in low-margin segments around the world as if to fill a logistics 'Bingo!' card rather than in-line with a rational strategy
In recent years, investors have punished the company's shares, which have fallen by more than half since reaching a high of over 184,000 won per share in March 2021. 
However, with management de-emphasizing its Global segment and focusing instead on the more promising Parcel / E-commerce line of business, there is cause for optimism, in our view


Catching Up With CJ Logistics (000120 KS): With Shares Beaten Down, Management Forced to Refocus

AP Moeller - Maersk A/S / Equity Bottom-Up

<ul>
<li>Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. </li>
<li>Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.</li>
<li>Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.</li>
</ul>


Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. 
Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.
Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.


Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

South Korea

HMM Co., Ltd. provides marine transportation services.  The Company commands different types of vessels including full container vessels, oil tankers, car carriers, LNG carriers, bulk carriers, and tramps.

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HMM Co., Ltd. (011200 KS)

Privatization of HMM: Enormous Shares Dilution Risk

The Korean government has initiated the privatization of HMM, the largest container shipping company in Korea. We are Negative on the shares of HMM...

Douglas Kim

Investigating HMM's Latest Bond Conversion Situation for a Shorting Setup

This post explores how HMM's latest bond conversion situation sets the stage for a shorting setup aimed at late September this year.

Sanghyun Park

US PPI: Tailwinds from Transportation Price Collapse Set to Subside in H2 2023

Falling costs for multiple modes of transportation have provided a strong "tailwind" to US PPI, which has declined steadily over the past 15...

Tracking Traffic

Catching Up With CJ Logistics (000120 KS): With Shares Beaten Down, Management Forced to Refocus

In this insight we check on CJ Logistics' recent financial performance. Management has de-emphasized the Global segment and put more resources into...

Tracking Traffic

Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Maersk's Q1 result showed a steep Y/Y decline in earnings due to lower rates. But RoE is fine, and the company maintained guidance, which supports...

Tracking Traffic

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