Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

Lotte Chilsung Beverage Co / Event-Driven

<ul>
<li>After the market close today, Lotte Chilsung Beverage Co announced that there will be a block deal sale of the company (200,000 shares), representing 2.15% of total outstanding shares.</li>
<li>The discount rate range is 185,250 won to 189,150 won, which are 3% to 5% discount from the closing price today (195,000 won). </li>
<li>We have a Positive view on Lotte Chilsung Beverage and we would take this deal. </li>
</ul>


After the market close today, Lotte Chilsung Beverage Co announced that there will be a block deal sale of the company (200,000 shares), representing 2.15% of total outstanding shares.
The discount rate range is 185,250 won to 189,150 won, which are 3% to 5% discount from the closing price today (195,000 won). 
We have a Positive view on Lotte Chilsung Beverage and we would take this deal. 


Lotte Chilsung Beverage: Block Deal Sale by Hotel Lotte

<ul>
<li>On 23 March, it was announced that Lotte Confectionery (280360 KS) (market cap of 744 billion won) will merge with Lotte Food (002270 KS) (market cap of 395 billion won).</li>
<li>We believe this merger will have a positive impact on the shares of Lotte Confectionery and Lotte Food.</li>
<li>Lotte Confectionery and Lotte Food are not currently included in the KOSPI200. There will be a growing likelihood that the combined entity could be included in the KOSPI200 index. </li>
</ul>


On 23 March, it was announced that Lotte Confectionery (280360 KS) (market cap of 744 billion won) will merge with Lotte Food (002270 KS) (market cap of 395 billion won).
We believe this merger will have a positive impact on the shares of Lotte Confectionery and Lotte Food.
Lotte Confectionery and Lotte Food are not currently included in the KOSPI200. There will be a growing likelihood that the combined entity could be included in the KOSPI200 index. 


A Merger Between Lotte Confectionery and Lotte Food: An Alpha Generating Event

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.

<p>One noteworthy news came out on Hanssem. One of Korea's local first-tier economic newspapers, Seoul Economic Daily, put out an exclusive report after the market closed on Monday, precisely at 4:50 pm local time. The report says that IMM Private Equity, which will acquire a 27.7% stake held by Hanssem's major shareholder, has decided to cancel Hanssem's treasury stock (26.7%) after the acquisition.</p><p><a href="https://signalm.sedaily.com/NewsView/22RMLWH489/GX1101" target="_blank" rel="noopener">Here is the link to the news report by Seoul Economic Daily.</a></p><div class="content-highlight"><p>Hanssem currently has <strong>6,274,504 treasury shares</strong>, representing <strong>26.66%</strong> of the shares outstanding.</p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/124/original/1.png?1632755230" class="editor-image img-responsive" data-smartkarma-image-id="232124"></figure></section><div class="content-caption">(Source: FnGuide)</div><p>This news flowed into the market around 5 pm and made some impact in the after-hours single-price trading window. The share closed with a 0.84% gain during the regular trading hours and enjoyed an additional 3%p increase in the last 30 minutes of the after-hours single-price trading window. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/125/original/2.png?1632756022" class="editor-image img-responsive" data-smartkarma-image-id="232125"></figure></section><div class="content-caption">(Source: Shinhan HTS)</div><p>However, as the number of shares traded during this after-hours trading window was less than 3,000, it is still too early to accurately estimate the impact this news will have on the share price in the short term.</p>

One noteworthy news came out on Hanssem. One of Korea's local first-tier economic newspapers, Seoul Economic Daily, put out an exclusive report after the market closed on Monday, precisely at 4:50 pm local time. The report says that IMM Private Equity, which will acquire a 27.7% stake held by Hanssem's major shareholder, has decided to cancel Hanssem's treasury stock (26.7%) after the acquisition.Here is the link to the news report by Seoul Economic Daily.Hanssem currently has 6,274,504 treasury shares, representing 26.66% of the shares outstanding.(Source: FnGuide)This news flowed into the market around 5 pm and made some impact in the after-hours single-price trading window. The share closed with a 0.84% gain during the regular trading hours and enjoyed an additional 3%p increase in the last 30 minutes of the after-hours single-price trading window. (Source: Shinhan HTS)However, as the number of shares traded during this after-hours trading window was less than 3,000, it is still too early to accurately estimate the impact this news will have on the share price in the short term.

IMM PE Has Reportedly Decided to Cancel Hanssem's 26.7% Treasury Shares

Equity Capital Markets

<div class="content-highlight">
<p><a href="https://www.kedglobal.com/newsView/ked202105310007" target="_blank" rel="noopener">Lotte Rental</a> is getting ready to complete its IPO in Korea in 2H 2021 (around September). It has been reported in the media that the company may be seeking a valuation of about 2 trillion won ($1.8 billion). </p>
</div>
<p>The company generated total revenue of 2.3 trillion won (up 9.8% YoY) and an operating profit of 164.3 billion won (up 25.9% YoY) in 2020. From 2018 to 2020, it had an average operating margin of 6.6%. Despite the company's improving income statement, it has a leveraged balance sheet and it will try to improve its balance sheet through an IPO. </p>


Lotte Rental is getting ready to complete its IPO in Korea in 2H 2021 (around September). It has been reported in the media that the company may be seeking a valuation of about 2 trillion won ($1.8 billion). 

The company generated total revenue of 2.3 trillion won (up 9.8% YoY) and an operating profit of 164.3 billion won (up 25.9% YoY) in 2020. From 2018 to 2020, it had an average operating margin of 6.6%. Despite the company's improving income statement, it has a leveraged balance sheet and it will try to improve its balance sheet through an IPO. 

The Korea Fair Trade Commission (KFTC) annually designates local conglomerates having an aggregate asset value of more than ₩5T as a Business Group Subject to Disclosure. These are the largest industrial conglomerates designated as a Business Group Subject to Disclosure as of the last yearend.









Rank
Conglomerate
Aggregate asset value
Number of subsidiaries
Holdco type


1
Samsung
₩424.9T
59
De-facto operating holdco


2
Hyundai Motor
₩234.7T
54
-


3
SK
₩225.5T
125
Legitimate operating holdco


4
LG
₩137.0T
70
Legitimate pure holdco


5
Lotte
₩121.5T
86
Legitimate pure holdco


6
POSCO
₩80.3T
35
-


7
Hanwha
₩71.7T
86
De-facto pure holdco


8
GS
₩66.8T
69
Legitimate pure holdco


9
Hyundai Heavy Industries
₩62.9T
30
Legitimate pure holdco


10
Shinsegae
₩44.1T
41
-


11
KT
₩36.3T
44
-


12
CJ
₩34.5T
77
Legitimate pure holdco


13
Hanjin
₩33.6T
31
Legitimate pure holdco


14
Doosan
₩29.3T
25
De facto pure holdco


15
LS
₩23.7T
54
Legitimate operating holdco


16
Booyoung
₩23.3T
23
-


17
DL
₩18.7T
32
Legitimate operating holdco

Source: Kore Fair Trade Commission

Of these 17 largest industrial conglomerates having an aggregate asset value of more than ₩20T, 6 business groups are suitable for pair trading with a synthetic subsidiary.
Samsung Group
SK Group
LG Group
Lotte Group
Hanwha Group
CJ Group
Hyundai Motor Group is a circular shareholding structure, not suitable for pair trading. POSCO, Shinsegae, KT, LS, and DL have substantial operating operations outweighing their respective listed subsidiaries. GS and Hyundai Heavy Industries have a significant presence from the unlisted companies: GS Caltex and Hyundai Oilbank. Hanjin and Doosan are more of single-subsidiary holding companies. Lastly, Booyoung is a privately-held company.Discount to NAV Samsung C&amp;T has the highest discount to the NAV at 62.77%, followed by SK Inc with 52.14%. On the other hand, CJ Corp has the lowest discount at 34.19%. Hanwha Corp also has a lower discount than the others at 38.87%.











NAV
LG Corp
Samsung C&amp;T Corp
SK Inc
Lotte Corp
Hanwha Corp
CJ Corp


Value of listed holdings
₩41,080.4B
₩52,346.7B
₩24,237.4B
₩5,377.5B
₩4,501.4B
₩5,038.1B


- % of Holdco market cap
188.20%
201.51%
128.30%
139.29%
195.29%
158.42%


Value of unlisted holdings
₩2,631.7B
₩2,528.3B
₩9,890.5B
₩1,147.7B
₩1,657.0B
₩311.7B


Stub value
-₩21,883.7B
-₩28,897.7B
-₩15,236.2B
-₩2,664.6B
-₩3,853.5B
-₩2,169.5B


Stub value per share
-₩126,820
-₩154,626
-₩216,545
-₩25,399
-₩51,408
-₩74,357


Value of operating assets
₩0.0B
₩6,100.3B
₩2,235.2B
₩0.0B
₩0.0B
₩0.0B


GAV
₩43,712.1B
₩60,975.2B
₩36,363.1B
₩6,525.2B
₩6,158.4B
₩5,349.8B


GAV per share
₩253,320
₩373,019
₩695,187
₩92,157
₩89,623
₩197,713


Discount to GAV (excl. treasury shares)
50.06%
62.74%
61.38%
60.07%
65.69%
44.87%


Holdco net cash/debt (de-consolidated)
₩1,941.8B
₩268.6B
-₩6,879.4B
-₩1,764.4B
-₩2,330.8B
-₩357.6B


Value of pref shares
₩329.8B
₩219.7B
₩140.4B
₩63.2B
₩371.0B
₩510.3B


NAV
₩45,324.1B
₩61,024.1B
₩29,343.3B
₩4,697.6B
₩3,456.7B
₩4,481.9B


NAV per share (excl. treasury shares)
₩262,662
₩373,318
₩560,983
₩66,346
₩50,304
₩165,638


Discount to NAV
51.84%
62.77%
52.14%
44.53%
38.87%
34.19%

Source: KRX &amp; DART

Synthetic subsidiary weightThe number of subsidiaries in a synthetic varies from 2 to 4, representing 67.91% to 130.22% of the NAV. LG Corp has 4, the most, having a synthetic weight of 87.87% of the NAV. SK Inc has 3 subsidiaries in its synthetic, representing 67.91% of the NAV. 









Holdco pair
Number of subsidiaries in a synthetic
Synthetic subsidiary weight in NAV
Synthetic subsidiary weight in GAV


LG Corp
4
87.87%
91.11%


Samsung C&amp;T Corp
2
76.04%
76.10%


SK Inc
3
67.91%
54.80%


Lotte Corp
2
80.47%
57.93%


Hanwha Corp
3
130.22%
73.09%


CJ Corp
2
99.77%
83.58%

Source: KRX

Sigma on a 20-day moving averageWhen I'm writing this post (2 PM in Korea local time today), SK Inc and Hanwha Corp are in a diversion below -1.0σ on a 20-day moving average relative to their respective synthetic subsidiary. In contrast, CJ Corp is in a 2.0σ diversion, just the opposite way.











Sigma (σ) on a 20-day moving average
Today
T-1
T-2
T-3
T-4


LG Corp
0.87
1.02
1.26
1.39
1.56


Samsung C&amp;T Corp
-0.47
-0.55
0.30
-2.25
-2.53


SK Inc
-1.41
-1.64
-1.67
-1.74
-1.81


Lotte Corp
0.86
1.44
1.91
1.97
2.64


Hanwha Corp
-1.16
-0.77
-0.96
0.44
1.35


CJ Corp
1.92
1.03
0.54
0.82
1.83

Source: KRX



Korea Top Conglomerates Synthetic Pair Trading

South Korea

Ottogi Corporation manufactures food seasonings and instant food, such as mayonnaise, ketchup, salad dressing, sesame and cooking oils, and instant curry. The Company also produces frozen salads, fruit preservatives, instant noodles, and canned tuna.

Lotte Confectionery Co., Ltd. operates as a snack food manufacturing company. The Company produces and sells chewing gum, candy, biscuits, chocolates, pies, snacks, and other products. Lotte Confectionery markets its products worldwide.

Dongwon Industries Co., Ltd. is a deep-sea fishing company.  The Company produces and distributes fish can goods and processed seafood products including tuna sashimi.

Dongwon F&B Co., Ltd. manufactures various processed food products. The Company' s products include agricultural and marine products, beverages, dairy products, processed meat, fast food, frozen food, and ginseng. The company's main product in early stage was canned tuna and expanded their business into a variety of food production.

Daesang Corporation manufactures food seasonings, fermentations, sweeteners, starches, coffee, fodder, and bulk pharmaceutical ingredients.  The Company also constructs commercial buildings, infrastructures, and environmental facilities.

Orion Holdings Corp. manufactures snacks products. The Company produces and sells candies, gums, chocolates, pies, and other products. Orion Holdings also develops smart systems. Orion Holdings serves customers worldwide.

Nongshim Co., Ltd. manufactures, and markets instant noodles, snacks, and beverages.  The Company also produces refined palm oil and food ingredients.

Naturecell Co Ltd manufactures fruit beverages, canned beverage, and health functional foods. The Company's prodcuts are tomato juices, peach juice, pineapple juice, orange juice, organic health conscious beverage, and canned yellow peach.  The Company was established in 1971, and its headquarters are located in Korea.

Sajodaerim Corporation specializes in deep sea fishing of pollack, cod, tuna, mackerel, and squid.  The Company's fishing territories cover domestic coastal areas, the North Pacific, South Atlantic, Western Africa, and Southeast Asia. Sajodaerim also manufactures, wholesales, and resells raw fish and processed frozen seafood.

Binggrae Co., Ltd. manufactures dairy food products.  The Company has cold-storage and frozen divisions.  Bonggrae's main items include Banana Flavoured Milk, yogurts, snacks and various types of ice cream.

Xinjiang Tecon Animal Husbandry Bio-Technology Co., Ltd. is engaged in producing and distributing feeds and feed additives. The Company also produces and sells veterinary drugs, agricucutural and milk products.

Xinjiang Tecon Anml Hsbndry Bio Tchnlgy (002100 CH)

Visionox Technology Inc. manufactures electronic components. The Company researches, develops, produces, and sells organic light emitting displays. Visionox Technology markets its products domestically and overseas.

Star Lake Bioscience Co., Inc. Zhaoqing Guangdong manufactures and markets biochemical pharmaceuticals and seasoning products, including inosine medicines, L-proline medicines, monosodium glutamate and other related products.  The Company also operates in real estate development.

Starlake Bioscience Co Inc Zhqng Gngdng (600866 CH)

Yunnan Energy Investment CO.,LTD manufactures and distributes chemical products. The Company produces table salt, industrial salt, glauber salt, and other related products. Yunnan Energy Investment also participates in the natural gas industry.

Yunnan Salt & Chemical Industry Co., (002053 CH)

Hunan New Wellful Co., Ltd. operates pig farms and trades pigs. The Company exports pigs to Hong Kong and Macau as well as sells them domestically.

ARIAKE JAPAN Co., Ltd. produces natural seasonings and flavorings from meat products.  The Company sells the products to major food makers such as Ajinomoto Co., Ltd. and Myojo Foods Co., Ltd.  Ariake also has a plant in the United States.

Shree Renuka Sugars Limited is an integrated manufacturing company with a focus on sugar, distillery products and ethanol. The Company also generates power which is used for captive consumption besides being sold externally.

Del Monte Pacific Limited produces and markets packaged vegetable and fruit, beverage and culinary products. The Group has the exclusive right to use the Del Monte brand for packaged products in the USA, South America, Philippines, the Indian subcontinent and Myanmar, and the S&W brand for both packaged and fresh products globally except Australia and New Zealand.

Great Wall Enterprise Co., Ltd. produces and markets livestock feeds, cooking oils, and meat products.

Jiangsu Hengshun Vinegar Industry Co., Ltd. manufactures and markets vinegar, preserved vegetables, soy sauce, and other seasoning products. The Company also produces optical electronic products.

Jiangsu Hengshun Vinegar Ind Co, Ltd. (600305 CH)

LOTTE Corporation is a pure holding company of Lotte Group Korea. It was established in 2017. Lotte Group Korea develops various high quality products and services in the five main business areas: food production/sales, distribution, sightseeing service, heavy chemical/construction and finance/investment.

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LOTTE Corporation (004990 KS)

Lotte Chilsung Beverage: Block Deal Sale by Hotel Lotte

After the market close today, Lotte Chilsung Beverage Co announced that there will be a block deal sale of the company (200,000 shares),...

Douglas Kim

A Merger Between Lotte Confectionery and Lotte Food: An Alpha Generating Event

The merger between Lotte Confectionery and Lotte Food is an alpha generating event. There are numerous opportunities to streamline their operations...

Douglas Kim

IMM PE Has Reportedly Decided to Cancel Hanssem's 26.7% Treasury Shares

IMM PE has reportedly decided to cancel Hanssem's treasury shares (26.7%). This post examines two reasons behind this decision and the dynamic we...

Sanghyun Park

Initial Thoughts on the Lotte Rental IPO

Lotte Rental is getting ready to complete its IPO in Korea in 2H 2021. It has been reported in the media that the company may be seeking a...

Douglas Kim

Korea Top Conglomerates Synthetic Pair Trading

This post explores pair trading opportunities on Korea's top conglomerates using their major subsidiaries as a synthetic target for a hedge.

Sanghyun Park

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