Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>Lee Kun-Hee's value of Samsung related shares is estimated to be <a href="https://newsis.com/view/?id=NISX20201025_0001209736&amp;cID=13001&amp;pID=13000" target="_blank" rel="noopener">18.2 trillion won</a> (US$16.2 billion) as of 23 October 2020. It is estimated that there will be about 10.6 trillion won in inheritance taxes associated with Lee Kun-Hee's holdings in public equities. This would represent 58.2% in the inheritance tax rate. </p><p>Samsung C&amp;T had a really good day today (up 13.5%). Our SoTP analysis of Samsung C&amp;T suggests that it remains highly undervalued right now. <strong>Our SoTP analysis suggests an implied price per share of 186,00 won, which is 57% higher than the current price of 118,000 won.</strong> Samsung C&amp;T's investment stakes in affiliates are worth 43 trillion won.</p>

Lee Kun-Hee's value of Samsung related shares is estimated to be 18.2 trillion won (US$16.2 billion) as of 23 October 2020. It is estimated that there will be about 10.6 trillion won in inheritance taxes associated with Lee Kun-Hee's holdings in public equities. This would represent 58.2% in the inheritance tax rate. Samsung C&amp;T had a really good day today (up 13.5%). Our SoTP analysis of Samsung C&amp;T suggests that it remains highly undervalued right now. Our SoTP analysis suggests an implied price per share of 186,00 won, which is 57% higher than the current price of 118,000 won. Samsung C&amp;T's investment stakes in affiliates are worth 43 trillion won.

Details on Inheritance Taxes & Impact on the Samsung Group Post Death of Chairman Lee

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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

<p>What's clear at this point is that the Lee family has to address immense inheritance tax (at least ₩9T).</p><p>Which family member gets how much is a secondary question. What's important now is the amount of the tax that the entire family has to bear.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Wealth owned by Lee Kun-hee (₩B)"}'>Lee Kun-hee's shareholding (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shareholding"}'>Shareholding</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Value"}'>60D avg. value</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung Electronics Co Ltd"}' data-sheets-formula='=googlefinance(R[0]C[3], "name")'>Samsung Electronics Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.04175582576286636}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Shareholding!R[7]C[2]">4.18%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15006.24664}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula='=googlefinance(R[0]C[1], "price")*googlefinance(R[0]C[1], "shares")*R[0]C[-1]/1000000000'>15,006.2</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung Life Insurance co., Ltd"}' data-sheets-formula='=googlefinance(R[0]C[3], "name")'>Samsung Life Insurance co., Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2075959}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Shareholding!R[99]C[2]">20.76%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2619.860258}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula='=googlefinance(R[0]C[1], "price")*googlefinance(R[0]C[1], "shares")*R[0]C[-1]/1000000000'>2,619.9</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung C&amp;T Corp"}' data-sheets-formula='=googlefinance(R[0]C[3], "name")'>Samsung C&amp;T Corp</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.029032145887066426}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Shareholding!R[-19]C[2]">2.90%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":564.276232}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula='=googlefinance(R[0]C[1], "price")*googlefinance(R[0]C[1], "shares")*R[0]C[-1]/1000000000'>564.3</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total"}'><strong>Total</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":17626.106898}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=sum(R[-3]C[0]:R[-2]C[0])"><strong>17,626.1</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table><section class="figure"><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Wealth owned by Lee Kun-hee (₩B)"}'>Inheritance tax (₩B)</td></tr>
<tr>
<td><p>Total shareholding value</p></td>
<td style="text-align: right;">17,626.1</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Taxable after various deductibles (70%)"}'>Taxable after various deductibles (70%)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12432.1}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>12,432.1</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"20% extra charge (management premium)"}'>20% extra charge (management premium)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":14918.6}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>14,918.6</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Inheritance tax at a 60% tax rate"}'><strong>Inheritance tax at a 60% tax rate</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8951.1}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>8,951.1</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/167/324/original/2.png?1603665274" class="editor-image img-responsive" data-smartkarma-image-id="167324"></figure><div class="content-highlight"><p><strong>The first question that will likely hit the market must be how the family would approach this tax situation.</strong></p></div></section>

What's clear at this point is that the Lee family has to address immense inheritance tax (at least ₩9T).Which family member gets how much is a secondary question. What's important now is the amount of the tax that the entire family has to bear.







Lee Kun-hee's shareholding (₩B)
Shareholding
60D avg. value


Samsung Electronics Co Ltd
4.18%
15,006.2


Samsung Life Insurance co., Ltd
20.76%
2,619.9


Samsung C&amp;T Corp
2.90%
564.3


Total
-
17,626.1

Source: KRX FIND







Inheritance tax (₩B)

Total shareholding value
17,626.1


Taxable after various deductibles (70%)
12,432.1


20% extra charge (management premium)
14,918.6


Inheritance tax at a 60% tax rate
8,951.1

Source: KRX FIND

The first question that will likely hit the market must be how the family would approach this tax situation.

LJY's New Samsung May Begin with Sale of Financial Arm (Life)

<div class="content-highlight"><p><strong>Samsung Group Group Chairman Lee Kun-Hee (born in 1942) passed away on October 25th. This is a major event, which is likely to accelerate the reorganization of the entire Samsung Group, the biggest chaebol in Korea. </strong></p></div><p>A big problem among the chaebols is that the Korean government charges one of the highest inheritance taxes among OECD countries, ranging about 50-65%. Inheritance taxes for Lee Kun-Hee will likely be at the high end of this range. The government takes away so much of the hard-earned business ownership in the form of taxes that it is near-mindboggling. </p><div class="content-highlight"><p>Among the Samsung Group companies, we would focus on three major companies where there could be some major shakeups which include <strong>Samsung C&amp;T, Samsung Electronics,</strong> and<strong> Samsung SDS</strong>. Among these three companies, Samsung C&amp;T could see the nearest short-term pop in our view, as it is a central company to the reorganization of the entire Samsung Group. <strong> </strong></p></div>

Samsung Group Group Chairman Lee Kun-Hee (born in 1942) passed away on October 25th. This is a major event, which is likely to accelerate the reorganization of the entire Samsung Group, the biggest chaebol in Korea. A big problem among the chaebols is that the Korean government charges one of the highest inheritance taxes among OECD countries, ranging about 50-65%. Inheritance taxes for Lee Kun-Hee will likely be at the high end of this range. The government takes away so much of the hard-earned business ownership in the form of taxes that it is near-mindboggling. Among the Samsung Group companies, we would focus on three major companies where there could be some major shakeups which include Samsung C&amp;T, Samsung Electronics, and Samsung SDS. Among these three companies, Samsung C&amp;T could see the nearest short-term pop in our view, as it is a central company to the reorganization of the entire Samsung Group.  

Samsung Group Chairman Lee Kun-Hee Passes Away

Samsung Electronics Pref Shares / Event-Driven

<p>Samsung Group officially announced that Samsung Electronics Chairman Lee Kun-hee had passed away early today (October 25) after being hospitalized due to AMI for more than six years since May 2014.</p><p>Now, let's take a look at potential immediate impacts on Samsung companies and the Lee family.</p><p><a href="https://www.koreatimes.co.kr/www/nation/2020/10/121_298148.html" target="_blank" rel="noopener">Here is the link to the Korea Times obituary.</a></p>

Samsung Group officially announced that Samsung Electronics Chairman Lee Kun-hee had passed away early today (October 25) after being hospitalized due to AMI for more than six years since May 2014.Now, let's take a look at potential immediate impacts on Samsung companies and the Lee family.Here is the link to the Korea Times obituary.

The Passing of Samsung Lee Kun-Hee: Checking Immediate Issues

<p>In this insight, we discuss the increasing probability that Samsung Life Insurance may be<a href="https://zdnet.co.kr/view/?no=20200804170420" target="_blank" rel="noopener"> finally forced to sell</a> its 8.5% stake in Samsung Electronics by a change in government regulations. This has been discussed for more than a decade but there has been no major change until now.</p><p>However, with the completion of the National Assembly Election on April 15th and the ruling party gaining 176 out of 300 seats in the National Assembly, there has been an increasing possibility that the regulators may finally be able to change laws that will require Samsung Life Insurance to sell its big stake in Samsung Electronics. </p><p>All in all, the two companies most likely to step up to buy additional stakes in Samsung Electronics to be sold by Samsung Life Insurance and Samsung F&amp;M Insurance include Samsung C&amp;T and Samsung SDS. It also appears that Samsung C&amp;T and Samsung SDS have the financial capacity to purchase at least 10 trillion won worth of Samsung Electronics. In addition, this share purchase could be made over a five year period, rather than all at once which provides more time for them to increase their stakes. </p><p>What's unsure is that although 10 trillion won is a lot of money, that covers only about half of the total amount of Samsung Electronics that need to be sold. Therefore, it appears that this uncertainty regarding the potential passage of the Insurance Business Act could put further negative pressures on Samsung Electronics in the coming months. </p>

In this insight, we discuss the increasing probability that Samsung Life Insurance may be finally forced to sell its 8.5% stake in Samsung Electronics by a change in government regulations. This has been discussed for more than a decade but there has been no major change until now.However, with the completion of the National Assembly Election on April 15th and the ruling party gaining 176 out of 300 seats in the National Assembly, there has been an increasing possibility that the regulators may finally be able to change laws that will require Samsung Life Insurance to sell its big stake in Samsung Electronics. All in all, the two companies most likely to step up to buy additional stakes in Samsung Electronics to be sold by Samsung Life Insurance and Samsung F&amp;M Insurance include Samsung C&amp;T and Samsung SDS. It also appears that Samsung C&amp;T and Samsung SDS have the financial capacity to purchase at least 10 trillion won worth of Samsung Electronics. In addition, this share purchase could be made over a five year period, rather than all at once which provides more time for them to increase their stakes. What's unsure is that although 10 trillion won is a lot of money, that covers only about half of the total amount of Samsung Electronics that need to be sold. Therefore, it appears that this uncertainty regarding the potential passage of the Insurance Business Act could put further negative pressures on Samsung Electronics in the coming months. 

Will Samsung Life Insurance Finally Be Forced to Sell Its Big Stake of Samsung Electronics?

South Korea

Samsung SDS Co., Ltd. provides information technology services, such as consulting and technical services. The Company also offers outsourcing services including application outsourcing, IT infrastructure outsourcing, and cloud computing.

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Samsung Sds (018260 KS)

Details on Inheritance Taxes & Impact on the Samsung Group Post Death of Chairman Lee

Our SoTP analysis of Samsung C&T suggests that it remains highly undervalued right now with an implied price per share of 186,00 won, which is 57%...

Douglas Kim

LJY's New Samsung May Begin with Sale of Financial Arm (Life)

LJY's new Samsung may begin by selling the financial arm. The family needs to liquidate the Life shareholding for inheritance tax, but also...

Sanghyun Park

Samsung Group Chairman Lee Kun-Hee Passes Away

Samsung Group Group Chairman Lee Kun-Hee (born in 1942) passed away on October 25th. This is a major event, which is likely to accelerate the...

Douglas Kim

The Passing of Samsung Lee Kun-Hee: Checking Immediate Issues

This post checks the immediate issues resulting from the passing of Lee Kun-hee: 1. inheritance tax calculations, 2. immediate-term market...

Sanghyun Park

Will Samsung Life Insurance Finally Be Forced to Sell Its Big Stake of Samsung Electronics?

In this insight, we discuss the increasing probability that Samsung Life Insurance may be finally forced to sell its 8.5% stake in Samsung...

Douglas Kim

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