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.

Event-Driven

<ul>
<li>The local street hears KRX has bumped it up to 14.68%. With the 1% rounding applied, it becomes 15%.</li>
<li>It is extremely rare for a Fast Entry to come in with a float market cap of +₩10T. So, we will see significant weight adjustments for the other constituents.</li>
<li>As we move towards the implementation date, we can consider basket-shorting those high-impact names for LG Energy's long hedge.</li>
</ul>


The local street hears KRX has bumped it up to 14.68%. With the 1% rounding applied, it becomes 15%.
It is extremely rare for a Fast Entry to come in with a float market cap of +₩10T. So, we will see significant weight adjustments for the other constituents.
As we move towards the implementation date, we can consider basket-shorting those high-impact names for LG Energy's long hedge.


LG Energy's KOSPI 200 Float Is 15%: Weight Adjustment Trading for Other Constituents

<p>It is now clear that Netmarble sold part of its stake in Kakao Bank yesterday in the market to finance the acquisition of SpinX, a social casino company.</p><p>In other words, Netmarble sold its Kakao Bank stake because it needed immediate cash. <span>Earlier this month, Netmarble announced that it would purchase a 100% stake in Leonardo Interactive Holdings Limited, the parent company of SpinX.</span></p><div class="content-highlight"><p><strong>The 100% stake acquisition price is ₩2.513T.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/219/original/Screen+Shot+2021-08-11+at+1.48.24+AM.png?1628661029" class="editor-image img-responsive" data-smartkarma-image-id="223219"></figure></section><p>Netmarble said in a regulatory filing that it would pay 80% of the acquisition price at the time of contract termination and the remaining 20% ​​over the next four years.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/225/original/Screen+Shot+2021-08-11+at+1.51.07+AM.png?1628661602" class="editor-image img-responsive" data-smartkarma-image-id="223225"></figure></section><p><strong>It means that the total money Netmarble needs right now is ₩2.104T, which is 80% of the acquisition amount. Netmarble revealed that ₩1.779T of this ₩2.104T was covered by short-term borrowing. In other words, the immediate cash needed right now is ₩232B.</strong></p><p>However, Netmarble's cash assets at the end of this first quarter stood at ₩260B. Even ₩232B is a size that needs to use up all of its cash holdings, so it places a significant financial burden on Netmarble.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/228/original/Screen+Shot+2021-08-11+at+2.05.56+AM.png?1628662449" class="editor-image img-responsive" data-smartkarma-image-id="223228"></figure></section>

It is now clear that Netmarble sold part of its stake in Kakao Bank yesterday in the market to finance the acquisition of SpinX, a social casino company.In other words, Netmarble sold its Kakao Bank stake because it needed immediate cash. Earlier this month, Netmarble announced that it would purchase a 100% stake in Leonardo Interactive Holdings Limited, the parent company of SpinX.The 100% stake acquisition price is ₩2.513T.Netmarble said in a regulatory filing that it would pay 80% of the acquisition price at the time of contract termination and the remaining 20% ​​over the next four years.It means that the total money Netmarble needs right now is ₩2.104T, which is 80% of the acquisition amount. Netmarble revealed that ₩1.779T of this ₩2.104T was covered by short-term borrowing. In other words, the immediate cash needed right now is ₩232B.However, Netmarble's cash assets at the end of this first quarter stood at ₩260B. Even ₩232B is a size that needs to use up all of its cash holdings, so it places a significant financial burden on Netmarble.

Three Local Stocks Exposed to Netmarble's Stake Sale Risk: NCsoft, HYBE, & Kakao Games

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p><a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS) </a>announced today after the market close that it has agreed to purchase a 100% stake of a Hong-Kong based game company <a href="https://financialpost.com/pmn/business-pmn/s-koreans-netmarble-buys-hong-kong-based-casino-game-app-co-spinx-for-2-19-bln" target="_blank" rel="noopener">SpinX for $2.19 billion</a> (2.5 trillion won). This is the biggest ever overseas M&amp;A deal by a Korean game company. According to Netmarble, it has agreed purchased SpinX in order to diversify its game portfolios and strengthen its global business competitiveness. </p><p data-dvp_reel_position="top" data-dvp_title_trim="90" data-dvp_desc_trim="40" data-dvp_zindex_base="1" data-dvp_reel_thumbs="4" data-dvp_reel_clickout="1" data-dvp_dockspec="br/400/225" data-dvp_docktrigger="oov" data-dvp_closescope="pageview" data-dvp_closedelay="15">We believe that the acquisition of SpinX is an excellent deal for Netmarble and this deal is likely to have a positive impact on Netmarble's share price in the coming weeks. Netmarble is leveraging up to acquire SpinX, which is experiencing very fast sales growth with solid profit margins. Netmarble is raising 1.8 trillion won in debt.</p><div class="content-highlight"><p><strong>SpinX's ROE in 2020 was super high at about 90%. So if the company can raise debt at 3-4% and acquire a company that has 90% ROE would be spending capital wisely.</strong></p></div>

Netmarble Corporation (251270 KS) announced today after the market close that it has agreed to purchase a 100% stake of a Hong-Kong based game company SpinX for $2.19 billion (2.5 trillion won). This is the biggest ever overseas M&amp;A deal by a Korean game company. According to Netmarble, it has agreed purchased SpinX in order to diversify its game portfolios and strengthen its global business competitiveness. We believe that the acquisition of SpinX is an excellent deal for Netmarble and this deal is likely to have a positive impact on Netmarble's share price in the coming weeks. Netmarble is leveraging up to acquire SpinX, which is experiencing very fast sales growth with solid profit margins. Netmarble is raising 1.8 trillion won in debt.SpinX's ROE in 2020 was super high at about 90%. So if the company can raise debt at 3-4% and acquire a company that has 90% ROE would be spending capital wisely.

Netmarble Buys SpinX for $2.2 Billion: Biggest Ever Overseas M&A Deal by a Korean Game Company

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.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/coway-co-ltd" target="_blank" data-smartkarma-citation="entities:3022:1" rel="noopener">Coway Co Ltd (021240 KS)</a>, the leading water- and air purifier rental company in South Korea was traditionally an attractive dividend yield play until early 2020 when ownership, and strategy, changed from upstreaming cash to private equity towards investing for longer-term sustainable growth. </p><p>Since mid-2020 its share price has been under pressure given doubts on management’s ability to execute on reigniting growth, as well as perceptions around domestic market share losses. Even after its recent positive share price move, post 1Q21 results, Coway is still trading on just 12.3x NTM PE which is more than one standard deviation below its 5-year historical average trading range. This implies a PEG ratio of just over 1.5x, which is certainly not demanding for a company that delivers ROEs of well above 20%, is highly cash generative, and commands leading market share in its domestic and key overseas markets. </p><p>In this insight I look at recent results, and catch up with management, to look for evidence that the strategy could be working and assess whether the potential for longer-term value unlock exists.</p>

Coway Co Ltd (021240 KS), the leading water- and air purifier rental company in South Korea was traditionally an attractive dividend yield play until early 2020 when ownership, and strategy, changed from upstreaming cash to private equity towards investing for longer-term sustainable growth. Since mid-2020 its share price has been under pressure given doubts on management’s ability to execute on reigniting growth, as well as perceptions around domestic market share losses. Even after its recent positive share price move, post 1Q21 results, Coway is still trading on just 12.3x NTM PE which is more than one standard deviation below its 5-year historical average trading range. This implies a PEG ratio of just over 1.5x, which is certainly not demanding for a company that delivers ROEs of well above 20%, is highly cash generative, and commands leading market share in its domestic and key overseas markets. In this insight I look at recent results, and catch up with management, to look for evidence that the strategy could be working and assess whether the potential for longer-term value unlock exists.

Coway: Transitioning from Dividend Play to Growth Stock

Equity Capital Markets

<div class="content-highlight">
<p>Everybot is getting ready to complete its IPO in Korea in the next few weeks. Everybot is the number one player producer of cleaning robots in Korea. Jung Woo-Chul, the founder and CEO, is the controlling shareholder with a 46.5% stake in the company.</p>
<p>The IPO price range is from 32,600 won to 36,700 won. The IPO base deal size is from $33 million to $34 million. According to the bankers' valuation, the expected market cap after the IPO is from 201 billion won to 226 billion won. </p>
</div>
<table class="table table-striped">
<colgroup> <col> <col> </colgroup>
<tbody>
<tr>
<td style="width: 168pt;">Deal Specifics of the Everybot Co IPO:</td>
<td style="width: 238pt;"> </td>
</tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 238pt;">NH Investment Securities</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 238pt;">32,600 won (low)/36,700 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 238pt;">1.12m shares (0.84m new shares; 0.28m old shares)</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 238pt;">US$33m (low);  US$34m (high)</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 238pt;">6.16m shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 238pt;">201 billion won (low)/226 billion won (high)</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 238pt;">24-Jun-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 238pt;">25-Jun-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 238pt;">TBD</td>
</tr>
<tr>
<td>Source: Company data</td>
<td style="width: 238pt;"> </td>
</tr>
</tbody>
</table>


Everybot is getting ready to complete its IPO in Korea in the next few weeks. Everybot is the number one player producer of cleaning robots in Korea. Jung Woo-Chul, the founder and CEO, is the controlling shareholder with a 46.5% stake in the company.
The IPO price range is from 32,600 won to 36,700 won. The IPO base deal size is from $33 million to $34 million. According to the bankers' valuation, the expected market cap after the IPO is from 201 billion won to 226 billion won. 


   


Deal Specifics of the Everybot Co IPO:
 


Lead underwriters of the IPO: 
NH Investment Securities


Expected IPO price per share: 
32,600 won (low)/36,700 won (high)


Number of Shares for IPO:
1.12m shares (0.84m new shares; 0.28m old shares)


IPO base deal size: 
US$33m (low);  US$34m (high)


Expected common shares outstanding, fully diluted (post-IPO):  
6.16m shares


Expected market cap after IPO:
201 billion won (low)/226 billion won (high)


Book open: 
24-Jun-21


Book closed:
25-Jun-21


Listing date: 
TBD


Source: Company data
 




Everybot Co IPO Preview - Number One Player in Cleaning Robots in Korea

South Korea

Hanssem Co., Ltd. manufactures kitchen furniture.  The Company's products include kitchen sinks, kitchen cabinets, dining tables and chairs, and kitchen accessories.  Hanssem also designs and manufactures interior products, such as sofas, bedsteads, closets, drawers, lamps, bathroom and office furniture.

Cuckoo Holdings Co.,Ltd manufactures and distributes electric home appliances. The Company produces electronic pressure cookers, humidifiers, vacuum cleaners, and air purifiers. Cuckoo Holdings markets its products throughout South Korea.

Topfield Co., Ltd. manufactures digital set top boxes.  The Company's products include free to air receivers, personal video recorders, and common interface receivers.  Topfield provides its products mainly to overseas market.

Zinus Inc. wholesales and distributes household furniture. The Company wholesales and distributes bed frames, sofas, platform beds, mattresses, and other related products. Zinus markets its products worldwide.

Ace Bed Co., Ltd. manufactures and markets bed mattresses, bed frames, and other wooden furniture.  The Company exports some of its products to Indonesia and China.

Iriver Ltd. develops, designs, manufactures, and markets audio equipment, such as MP3 players.  The Company's products include CD type, flash memory type, and hard disk type MP3 players.  In addition, Iriver produces and sells accessories for mobile communication devices.

Paseco Co., Ltd. manufactures and markets household appliances, such as oil stoves, electric heaters, dishwashers, dish dryers, and refrigerators.

Hyundai Livart Co Ltd designs and manufactures furniture.  The Company produces a variety of furniture, such as bed, chair, desk, and closet used in bedroom, living room, and office.

Thinkware Systems Corp. designs, manufactures, and markets navigational devices. The Company' products include portable navigation devices, hand-held navigation, and navigation software.  Thinkware Systems also provides location based services (LBS) through mobile networks which enables users to identify location of other users and obtain live traffic information, etc.

Winix Inc. develops, manufactures, and markets heat exchangers, evaporators, condensers, and air conditioner parts.  The Company also produces water heaters, coolers, purifiers, and dehumidifiers.  Winix supplies its products mainly to appliance manufacturers.

HASEKO Corporation builds residential, commercial, and institutional buildings such as condominiums and office buildings.  The Company also operates real estate brokerage, leasing, and management businesses.  Additionally, Haseko provides construction consulting services.  The Company, through its subsidiaries, operates hotel and financial businesses.

RINNAI CORPORATION manufactures and sells a variety of gas appliances.  The products include cooking equipment for household and commercial use, room and water heating equipment, and laundry dryers.  The Company has subsidiaries in South-eastern Asia, Australia, and the United States.

Tatung Co., Ltd. manufactures and markets computer and communication products, electronics and industrial equipment, as well as home appliances.  The Company's products include computers, motherboards, monitors, computer peripherals, rice cookers, refrigerators, air conditioners, microwave ovens, transformers, switch gears, wires, and cables.  Tatung sells its products worldwide.

Hang Zhou Great Star Industrial Company Ltd. develops, manufactures and sells hand tools hardware products. The Company's products are hand tools and electric hand-held tools.

Hangzhou Great Star Industrial Co., (002444 CH)

Breville Group Ltd. designs and markets electrical consumer appliances.  The Company markets espresso machines, citrus presses, grills, juicers, toasters, kettles, vacuum cleaners, sandwich makers, rice cookers, heating and cooling products, electric shavers, irons, cookware, and cutlery.

Iida Group Holdings Co., Ltd. is a holding company established by the merger between Hajime Construction, Iida Home Max, Touei Housing, Tact Home, Arnest One and ID Home. Its subsidiaries engage in design, construction and sales of residential properties such as single-family houses and condominiums and construction related works.

TRI Pointe Group, Inc. provides construction services. The Company designs, builds, develops, and constructs residential homes. TRI Pointe Homes serves customers throughout the United States.

NIKON CORPORATION manufactures and sells cameras, lenses, semiconductor-related equipment, eyeglasses, microscopes, and measuring instruments.

Whirlpool of India Ltd. manufactures appliances.  The Company produces refrigerators, washing machines, air conditioners, microwave ovens, water purifiers, built-in appliances and other products.

Newell Rubbermaid Inc. manufactures and markets branded consumer products which are sold through a variety of retail and wholesale distribution channels.  The Company's products include housewares, juvenile products, home furnishings, office products, tools and hardware, and hair accessories.

Coway Co Ltd develops, manufactures, maintains, and markets environment-related products, such as water purifiers, air cleaners, and water softeners.The Company also provides water testing service.

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Coway Co Ltd (021240 KS)

LG Energy's KOSPI 200 Float Is 15%: Weight Adjustment Trading for Other Constituents

KRX has bumped up LG Energy's float to 15%. As a result, we will see a more substantial passive impact on LG Energy. Also, we should see...

Sanghyun Park

Three Local Stocks Exposed to Netmarble's Stake Sale Risk: NCsoft, HYBE, & Kakao Games

Netmarble will continue to need short-term cash. Perhaps, for this reason, the stock prices of all three stocks exposed to this risk have undergone...

Sanghyun Park

Netmarble Buys SpinX for $2.2 Billion: Biggest Ever Overseas M&A Deal by a Korean Game Company

Netmarble Corporation (251270 KS) announced today after the market close that it has agreed to purchase a 100% stake of a Hong-Kong based game...

Douglas Kim

Coway: Transitioning from Dividend Play to Growth Stock

In this insight I look at Coway’s recent results, and catch up with management, to look for evidence that the new strategy is working and whether...

Wium Malan, CFA

Everybot Co IPO Preview - Number One Player in Cleaning Robots in Korea

Everybot is getting ready to complete its IPO in Korea in the next few weeks. Everybot is the number one player producer of cleaning robots in Korea.

Douglas Kim

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