Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<a target="_blank"></a>Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.<h2>Highlights</h2>Coupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.HighlightsCoupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from Softbank Group (9984 JP)  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. Coupang (CPNG US)  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

It was announced after the market close yesterday that the minimum wage for 2021 has been determined at 8,720 won, up 1.5% YoY, which would be the lowest increase ever. From 2013 to 2021, the average annual increase in the minimum wage in Korea was 7.7% so this low increase in minimum wage rates is much lower than the historical average.There are several sectors that are clear beneficiaries of this low growth in minimum wages in 2021. One of them is the convenience stores sector, which includes <a href="https://www.smartkarma.com/entities/gs-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:3867:1" rel="noopener">GS Retail (007070 KS)</a> and <a href="https://www.smartkarma.com/entities/bgf-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:26731:1" rel="noopener">BGF Retail (282330 KS)</a>.In addition to the CVS sector, the following companies should also benefit from the low minimum wage growth:<ul>
<li><a href="https://www.smartkarma.com/entities/6993" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS)</a></li>
<li><a href="https://www.smartkarma.com/entities/2338" target="_blank" data-smartkarma-citation="entities:2338:1" rel="noopener">Lotte Shopping Co (023530 KS)</a></li>
<li><a href="https://www.smartkarma.com/entities/cj-korea-express-corp" target="_blank" data-smartkarma-citation="entities:11557:1" rel="noopener">Cj Logistics (000120 KS)</a></li>
<li><a href="https://www.smartkarma.com/entities/20987" target="_blank" data-smartkarma-citation="entities:20987:1" rel="noopener">Shinsegae Co Ltd (004170 KS).</a></li>
<li>
<a href="https://www.smartkarma.com/entities/cj-cheiljedang-corp" target="_blank" data-smartkarma-citation="entities:1970:1" rel="noopener">CJ Cheiljedang (097950 KS)</a> </li>
</ul>

It was announced after the market close yesterday that the minimum wage for 2021 has been determined at 8,720 won, up 1.5% YoY, which would be the lowest increase ever. From 2013 to 2021, the average annual increase in the minimum wage in Korea was 7.7% so this low increase in minimum wage rates is much lower than the historical average.There are several sectors that are clear beneficiaries of this low growth in minimum wages in 2021. One of them is the convenience stores sector, which includes GS Retail (007070 KS) and BGF Retail (282330 KS).In addition to the CVS sector, the following companies should also benefit from the low minimum wage growth:
E Mart Inc (139480 KS)
Lotte Shopping Co (023530 KS)
Cj Logistics (000120 KS)
Shinsegae Co Ltd (004170 KS).

CJ Cheiljedang (097950 KS) 


A Surprising Low Increase of Minimum Wages in Korea in 2021

Cross Asset Strategy

Review of Top 10 Issues Related to Korean stock market, economy, &amp; politics in June 2020:
<ul>
<li>SK Biopharm IPO</li>
<li>SK Holdings downgrade</li>
<li>Capital gains tax on stocks and funds in Korea</li>
<li>China scraps "Han Han Ryung" (Law that Banned Korean culture-related products/services)</li>
<li>A Surge in Value of Nikola Corp</li>
<li>North Korea suspends all communication with South Korea</li>
<li>Positioning ahead of KOSPI 200 &amp; KOSDAQ 150 Rebalance in December</li>
<li>IGIS Value Plus REIT &amp; IGIS Residence REIT IPOs</li>
<li>Korean preferred shares: Bamboo trees of Korean stock market</li>
<li>Korea Small Cap Gem #3: New Tree Co</li>
</ul>

Review of Top 10 Issues Related to Korean stock market, economy, &amp; politics in June 2020:

SK Biopharm IPO
SK Holdings downgrade
Capital gains tax on stocks and funds in Korea
China scraps "Han Han Ryung" (Law that Banned Korean culture-related products/services)
A Surge in Value of Nikola Corp
North Korea suspends all communication with South Korea
Positioning ahead of KOSPI 200 &amp; KOSDAQ 150 Rebalance in December
IGIS Value Plus REIT &amp; IGIS Residence REIT IPOs
Korean preferred shares: Bamboo trees of Korean stock market
Korea Small Cap Gem #3: New Tree Co


Korea Stock Market Monthly Recap #49 (June 2020)

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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

We now have a fresh round of Lotte's family feud. The elder brother, Shin Dong-ju, made a shareholder proposal to remove his brother, Shin Dong-bin, from his post at Lotte Holdings Japan.<a href="https://biz.chosun.com/site/data/html_dir/2020/04/28/2020042802253.html" target="_blank" rel="noopener">Here is the link to the news report about SDJ making a shareholder proposal.</a>Unsurprisingly, it immediately created a spark in the market. <a href="https://www.smartkarma.com/entities/lotte-corporation" target="_blank" data-smartkarma-citation="entities:16050:1" rel="noopener">Lotte Corporation (004990 KS)</a> eventually hit the daily ceiling today (+30%) on the expectation that we may see a Hanjin Kal-like price movement.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/219/original/2.png?1588072107" class="editor-image img-responsive" data-smartkarma-image-id="130219"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/220/original/chart%20%281%29.png?1588072252" class="editor-image img-responsive" data-smartkarma-image-id="130220"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/221/original/chart.png?1588072262" class="editor-image img-responsive" data-smartkarma-image-id="130221"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/222/original/3.png?1588072269" class="editor-image img-responsive" data-smartkarma-image-id="130222"></figure><a href="https://biz.chosun.com/site/data/html_dir/2020/04/28/2020042802253.html" target="_blank" rel="noopener"></a>

We now have a fresh round of Lotte's family feud. The elder brother, Shin Dong-ju, made a shareholder proposal to remove his brother, Shin Dong-bin, from his post at Lotte Holdings Japan.Here is the link to the news report about SDJ making a shareholder proposal.Unsurprisingly, it immediately created a spark in the market. Lotte Corporation (004990 KS) eventually hit the daily ceiling today (+30%) on the expectation that we may see a Hanjin Kal-like price movement.

Lotte Holdings: Another Hanjin Kal Story?

<div class="content-highlight">
Three months have elapsed since the founder of the Lotte Group Shin Kyuk-Ho passed away in January 2020. Even after his death, his two sons Shin Dong-Bin (second son and the current Chairman of the Lotte Group) and Shin Dong-Ju (first son and chairman of the SDJ Corp) are still fighting over the control of the Lotte Group.
As such, the shares of <a href="https://www.smartkarma.com/entities/lotte-corporation" target="_blank" data-smartkarma-citation="entities:16050:1" rel="noopener">Lotte Corporation (004990 KS)</a> jumped limit up (30%) today to reach 37,300 won on a very strong volume (6.1 million), which is more than 20x daily volume of the past one week.
</div>Today (April 28th), Shin Dong-Ju announced that he had submitted a proposal for the shareholders including the dismissal of Shing Dong-Bin as the Chairman of the Lotte Holdings Japan ahead of the AGM of Lotte Holdings Japan in June. At this point, it appears that despite Shin Dong-Ju's attempt to oust his brother once again, Chairman Shin-Dong-Bin is likely to maintain his position as the Chairman of the Lotte Group.


Three months have elapsed since the founder of the Lotte Group Shin Kyuk-Ho passed away in January 2020. Even after his death, his two sons Shin Dong-Bin (second son and the current Chairman of the Lotte Group) and Shin Dong-Ju (first son and chairman of the SDJ Corp) are still fighting over the control of the Lotte Group.
As such, the shares of Lotte Corporation (004990 KS) jumped limit up (30%) today to reach 37,300 won on a very strong volume (6.1 million), which is more than 20x daily volume of the past one week.
Today (April 28th), Shin Dong-Ju announced that he had submitted a proposal for the shareholders including the dismissal of Shing Dong-Bin as the Chairman of the Lotte Holdings Japan ahead of the AGM of Lotte Holdings Japan in June. At this point, it appears that despite Shin Dong-Ju's attempt to oust his brother once again, Chairman Shin-Dong-Bin is likely to maintain his position as the Chairman of the Lotte Group.

Fight for the Lotte Group Between the Shin Brothers Again?

South Korea

Lotte Shopping Co., Ltd. operates department stores and discount stores in South Korea.  The Company retails clothing, household goods, foods and other items through several branches.  Lotte Shopping also operates supermarkets and movie theaters.

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Lotte Shopping Co (023530 KS)

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

Coupang's IPO is a win for the company and its largest holder Softbank but the max offer price of $30 is too pricey - we think it is worth closer...

Kirk Boodry

A Surprising Low Increase of Minimum Wages in Korea in 2021

It was announced after the market close yesterday that the minimum wage for 2021 has been determined at 8,720 won, up 1.5% YoY, which would be the...

Douglas Kim

Korea Stock Market Monthly Recap #49 (June 2020)

Review of Top 10 Issues Related to Korean stock market, economy, & politics in June 2020: SK Biopharm IPO SK Holdings downgrade Capital gains...

Douglas Kim

Lotte Holdings: Another Hanjin Kal Story?

We now have a fresh round of Lotte's family feud. The elder brother, Shin Dong-ju, made a shareholder proposal to remove his brother, Shin...

Sanghyun Park

Fight for the Lotte Group Between the Shin Brothers Again?

Three months have elapsed since the founder of the Lotte Group Shin Kyuk-Ho passed away in January 2020. Even after his death, his two sons Shin...

Douglas Kim

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