Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight"><p>While Amorepacfic spent time building one of the most beautiful headquarters building in Korea in the past several years, LG H&amp;H has become the number one cosmetics company in Korea, bypassing Amorepacific. In this insight, we discuss the key investment merits of LG H&amp;H. Regardless of the market conditions over the next 6-12 months, we believe LG H&amp;H can outperform the overall market. </p></div><h2>Key Catalysts</h2><ul>
<li><strong>Excellent performance of the cosmetics business despite worst-ever global environment for cosmetics </strong></li>
<li>
<strong>Improving overseas online sales of luxury cosmetics</strong> </li>
<li><strong>Improving operating margins of the HDB (Home Care &amp; Daily Beauty) &amp; beverages business units</strong></li>
</ul><div class="content-highlight"><p><strong>We believe that LG H&amp;H has a 30%+ upside from current levels using the relative historical P/E and P/B valuation methods. LG H&amp;H's current price is 1,600,000 won, so a 30% upside would represent 2,080,000 won over a one year period.  </strong></p></div>

While Amorepacfic spent time building one of the most beautiful headquarters building in Korea in the past several years, LG H&amp;H has become the number one cosmetics company in Korea, bypassing Amorepacific. In this insight, we discuss the key investment merits of LG H&amp;H. Regardless of the market conditions over the next 6-12 months, we believe LG H&amp;H can outperform the overall market. Key Catalysts
Excellent performance of the cosmetics business despite worst-ever global environment for cosmetics 

Improving overseas online sales of luxury cosmetics 
Improving operating margins of the HDB (Home Care &amp; Daily Beauty) &amp; beverages business units
We believe that LG H&amp;H has a 30%+ upside from current levels using the relative historical P/E and P/B valuation methods. LG H&amp;H's current price is 1,600,000 won, so a 30% upside would represent 2,080,000 won over a one year period.  

Lg H&H - Will The "Magic" Of the CEO Cha Continue?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

<p>Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight. We continue to attribute much of EM’s outperformance to the intact downtrend in the US dollar (DXY). As long as weakness in the DXY persists we believe EM’s outperformance is likely to continue.</p>

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight. We continue to attribute much of EM’s outperformance to the intact downtrend in the US dollar (DXY). As long as weakness in the DXY persists we believe EM’s outperformance is likely to continue.

EM Remains Global Leadership -- Remain Overweight

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<div>
<p>In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.</p>
</div>
<div>
<div>
<div class="content-highlight">
<p><strong>What's Original?</strong></p>
<ul style="list-style-type: disc;">
<li>We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.</li>
<li>Our back test results are very encouraging with &gt;85% hit rate for our Buyback Raise model and &gt;94% hit rate for our Buyback Cut model.</li>
<li>For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the "Long-term Revenue CAGR" parameter. </li>
</ul>
</div>
</div>
</div>
<div>
<h3>Insight Flow</h3>
</div>
<div>
<ul style="list-style-type: disc;">
<li>Live Dashboard</li>
<li> Methodology
<ul style="list-style-type: circle;">
<li>Buyback Raise Model</li>
<li>Buyback Cut Model</li>
</ul>
</li>
<li>Universe</li>
<li>Back Test Results
<ul style="list-style-type: circle;">
<li>Buyback Raise Model</li>
<li>Buyback Cut Model</li>
</ul>
</li>
<li>Model Results
<ul style="list-style-type: circle;">
<li>Summary Statistics</li>
<li>Companies with High Probability of Buyback Raise</li>
<li>Companies with High Probability of Buyback Cut</li>
</ul>
</li>
<li>Buyback Timing</li>
<li>Model Risks &amp; Limitations</li>
<li>Conclusion</li>
</ul>
</div>


In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.




What's Original?

We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.
Our back test results are very encouraging with &gt;85% hit rate for our Buyback Raise model and &gt;94% hit rate for our Buyback Cut model.
For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the "Long-term Revenue CAGR" parameter. 





Insight Flow



Live Dashboard
 Methodology

Buyback Raise Model
Buyback Cut Model


Universe
Back Test Results

Buyback Raise Model
Buyback Cut Model


Model Results

Summary Statistics
Companies with High Probability of Buyback Raise
Companies with High Probability of Buyback Cut


Buyback Timing
Model Risks &amp; Limitations
Conclusion



Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>This week in StubWorld ...</p>
<div class="content-highlight">
<p><a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> plumbs a new discount to NAV low after <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a>'s meteoric post-placement gain; <a href="https://www.smartkarma.com/entities/pccw-ltd" target="_blank" data-smartkarma-citation="entities:873:1" rel="noopener">PCCW Ltd (8 HK)</a> discount to NAV retraces, as expected; and <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> still look cheap versus its sum of parts.</p>
</div>
</div>
<hr>
<div>
<p>Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
</div>
<div>
<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
</div>


This week in StubWorld ...

Evergrande Real Estate Group (3333 HK) plumbs a new discount to NAV low after Evergrande Auto (708 HK)'s meteoric post-placement gain; PCCW Ltd (8 HK) discount to NAV retraces, as expected; and LG Corp (003550 KS) still look cheap versus its sum of parts.




Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: Evergrande Auto, PCCW, LG Corp

Event-Driven

<p>Shares of <a href="https://www.smartkarma.com/entities/lg-electronics-inc" target="_blank" data-smartkarma-citation="entities:8814:1" rel="noopener">LG Electronics (066570 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> increased by 12.8% and 5.3% respectively today. The CEO of LG Elctronics Kwon Bong-Seok announced today that the company is open to all possibilities regarding the MC (mobile communications) business unit which has been a consistently generated big losses for the company in the past decade.</p><p>Basically, although the CEO Kwon has not directly mentioned that the company will sell the MC business unit, he provided indirect clues that the company is now very serious about selling the the money losing MC business unit to boost the overall value of the company. Despite the MC unit coming out with some innovative products, this business unit had 23 consecutive quarters of losses until the end of last year. </p><div class="content-highlight"><p><strong>Our base case assumes that if the MC business unit is discontinued, the additional value accretion to LG Electronics would be 7.8 trillion won (dividing the annual operating loss of 777 billion won by the 10% perpetuity discount rate). This 7.8 trillion won in value would be 28% of LG Electronics' current market cap of 27.4 trillion won. </strong></p></div>

Shares of LG Electronics (066570 KS) and LG Corp (003550 KS) increased by 12.8% and 5.3% respectively today. The CEO of LG Elctronics Kwon Bong-Seok announced today that the company is open to all possibilities regarding the MC (mobile communications) business unit which has been a consistently generated big losses for the company in the past decade.Basically, although the CEO Kwon has not directly mentioned that the company will sell the MC business unit, he provided indirect clues that the company is now very serious about selling the the money losing MC business unit to boost the overall value of the company. Despite the MC unit coming out with some innovative products, this business unit had 23 consecutive quarters of losses until the end of last year. Our base case assumes that if the MC business unit is discontinued, the additional value accretion to LG Electronics would be 7.8 trillion won (dividing the annual operating loss of 777 billion won by the 10% perpetuity discount rate). This 7.8 trillion won in value would be 28% of LG Electronics' current market cap of 27.4 trillion won. 

Will LG Electronics Finally Sell or Discontinue the MC Business & Fix Its Achilles Heel?

South Korea

LG Corp. is a holding company, which operates subsidiaries including LG Electronics, LG Household & Health Care, LG Chem Ltd., and Dacom Corp. The Company's main business areas are electronics, chemicals, and household products manufacturing and telecommunications services.

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LG Corp (003550 KS)

Lg H&H - Will The "Magic" Of the CEO Cha Continue?

In this insight, we discuss the key investment merits of LG H&H. Regardless of the market conditions over the next 6-12 months, we believe LG H&H...

Douglas Kim

EM Remains Global Leadership -- Remain Overweight

Price and RS uptrends for the MSCI EM index continues to underpin our bullish outlook for emerging market equities -- remain overweight.

Vermilion Research

Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?

A predictive quantitative model for Asian companies to help determine which companies are likely to raise/cut buybacks in future.

Ankit Agrawal, CFA

StubWorld: Evergrande Auto, PCCW, LG Corp

Chine Evergrande (3333 HK) looks "cheap" and Evergrande Auto (708 HK) frothy, suggesting a set-up here. Personally, I would avoid both.

David Blennerhassett

Will LG Electronics Finally Sell or Discontinue the MC Business & Fix Its Achilles Heel?

Our base case assumes that if the MC business unit of LG Electronics is discontinued, the additional value accretion to LG Electronics would be 7.8...

Douglas Kim

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