Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>On 26 November, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> officially announced it would be splitting itself into two - the core electronics, chemicals, and telecoms business will stay in LG Corp, with the remaining non-core holdings transferred to NewCo, a new holding company, and subsequently spin-off to LG Corp shareholders.</p>
<p><a href="https://www.smartkarma.com/profiles/douglas-kim" target="_blank" data-smartkarma-citation="accounts:342" rel="noopener">Douglas Kim</a> discussed this transaction beginning with <em><a href="https://skr.ma/BZgGp" target="_blank" rel="noopener">LG Group Announces the Formation of LG NewCo &amp; Split of 4 Companies from LG Corp</a></em>, and I added my thoughts in <em><a href="https://skr.ma/Tdpxs" target="_blank" rel="noopener">2021 High Conviction: LG Corp's Decade-Low Stub</a></em>.</p>
<p>The benefits of the demerger are projected to be two-fold. The NewCo is expected to improve the competitiveness and efficiency of the business (potentially re-rating the company); but also as an interim step to facilitate share swaps with the family with the two holding companies. This has been speculated since Koo Kwang-mo was inaugurated as chairman in 2018. NewCo's board of directors will be headed by Koo Bon-joon, the uncle of Kwang-Mo. </p>
<p>The remaining Holdco will focus on steady earnings from its core operations (electronics, chemicals, and telecom), and via new opportunities. LG provided further rationale for the spin-off in its 4Q20 results - that is attached at the bottom of this insight.</p>
<p>It was noted, however, that LG Corp would maintain 91.5% of the group's assets - ₩9,779.8bn - as at 3Q20. This raises the question: just how much value can be unlocked by via spinning off ~8%?</p>
<p>The NAV and implied stub <em>widened</em> after the demerger announcement, and following a tepid reversal, narrowed around the time <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> announced a US$1bn JV with Magna on the 22 December to make electric car gears.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/369/original/image_5243749941614909471522.png?1614909471" class="editor-image img-responsive" data-smartkarma-image-id="192369"></figure>
<p style="text-align: left;">Source: my calcs, CapIQ</p>
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<p>On the 15 December, US-headquartered Whitebox said:</p>
<blockquote>
<p>The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.</p>
<p>Despite clearly favorable alternatives, the board (of LG) has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.</p>
</blockquote>
</div>
<div>
<p>Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read.</p>
</div>
<p>More below the fold.</p>
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<p></p>
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On 26 November, LG Corp (003550 KS) officially announced it would be splitting itself into two - the core electronics, chemicals, and telecoms business will stay in LG Corp, with the remaining non-core holdings transferred to NewCo, a new holding company, and subsequently spin-off to LG Corp shareholders.
Douglas Kim discussed this transaction beginning with LG Group Announces the Formation of LG NewCo &amp; Split of 4 Companies from LG Corp, and I added my thoughts in 2021 High Conviction: LG Corp's Decade-Low Stub.
The benefits of the demerger are projected to be two-fold. The NewCo is expected to improve the competitiveness and efficiency of the business (potentially re-rating the company); but also as an interim step to facilitate share swaps with the family with the two holding companies. This has been speculated since Koo Kwang-mo was inaugurated as chairman in 2018. NewCo's board of directors will be headed by Koo Bon-joon, the uncle of Kwang-Mo. 
The remaining Holdco will focus on steady earnings from its core operations (electronics, chemicals, and telecom), and via new opportunities. LG provided further rationale for the spin-off in its 4Q20 results - that is attached at the bottom of this insight.
It was noted, however, that LG Corp would maintain 91.5% of the group's assets - ₩9,779.8bn - as at 3Q20. This raises the question: just how much value can be unlocked by via spinning off ~8%?
The NAV and implied stub widened after the demerger announcement, and following a tepid reversal, narrowed around the time LG Electronics (066570 KS) announced a US$1bn JV with Magna on the 22 December to make electric car gears.



Source: my calcs, CapIQ


On the 15 December, US-headquartered Whitebox said:

The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.
Despite clearly favorable alternatives, the board (of LG) has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.



Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read.

More below the fold.




LG Corp (003550 KS): Whitebox States Its Case

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<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?

<div class="content-highlight"><p><strong>In this insight, we provide an updated SoTP (Sum-of-the Parts) valuation analysis of <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a>. We first highlighted a deep valuation gap of this stock in our insight <a href="https://www.smartkarma.com/insights/lg-corp-deep-value-4-key-catalysts" target="_blank" data-smartkarma-citation="insights:45512" rel="noopener">LG Corp: Deep Value + 4 Key Catalysts</a> on 19 November 2020. Since then, LG Corp's shares are up 29%. Although LG Corp's shares have performed really well in the past several weeks, we believe there is further significant upside to current share price.</strong></p></div>

In this insight, we provide an updated SoTP (Sum-of-the Parts) valuation analysis of LG Corp (003550 KS). We first highlighted a deep valuation gap of this stock in our insight LG Corp: Deep Value + 4 Key Catalysts on 19 November 2020. Since then, LG Corp's shares are up 29%. Although LG Corp's shares have performed really well in the past several weeks, we believe there is further significant upside to current share price.

LG Corp: Updated SoTP Valuation Analysis & Timing of Key Upcoming Catalyst Events

<p>On 23 December, <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> announced that it will spin off its electric vehicles components business and form a <a href="https://www.ft.com/content/c3c711a6-d5dd-4343-a9c3-7744fb71091f" target="_blank" rel="noopener">major joint venture</a> with <a href="https://www.smartkarma.com/entities/magna-international-inc" target="_blank" data-smartkarma-citation="entities:25498:1" rel="noopener">Magna International (MG CN)</a> (Canada). The name of this JV newco is <strong>LG Magna e-Powertrain</strong>. LG Electronics has provided EV components such as motors and battery packs for GM's Bolt and Jaguar's I-Pace electric vehicles.  Magna makes EV gear for Volkswagen and other carmakers. The JV will employ about 1,000 people in North America, Korea, and China. The initial value of the newly formed JV will be $925 million.</p><div class="content-highlight"><p>There has been a lot of local speculation that this new JV (<strong>LG Magna e-Powertrain) could potentially become a leading supplier to Apple's new EVs. </strong>This has been a major reason why LG Electronics' share price has been so strong post this announcement of the JV creation.</p></div><p>The formation of the JV LG Magna E-Powertrain certainly appears to have a positive impact on the shares of LG Electronics (common), LG Electronics (pref), and LG Corp. Among these these LG Electronics (pref) appears to have the strongest momentum as investors attempt to reduce the price gap between the common and preferred shares.</p>

On 23 December, LG Electronics (066570 KS) announced that it will spin off its electric vehicles components business and form a major joint venture with Magna International (MG CN) (Canada). The name of this JV newco is LG Magna e-Powertrain. LG Electronics has provided EV components such as motors and battery packs for GM's Bolt and Jaguar's I-Pace electric vehicles.  Magna makes EV gear for Volkswagen and other carmakers. The JV will employ about 1,000 people in North America, Korea, and China. The initial value of the newly formed JV will be $925 million.There has been a lot of local speculation that this new JV (LG Magna e-Powertrain) could potentially become a leading supplier to Apple's new EVs. This has been a major reason why LG Electronics' share price has been so strong post this announcement of the JV creation.The formation of the JV LG Magna E-Powertrain certainly appears to have a positive impact on the shares of LG Electronics (common), LG Electronics (pref), and LG Corp. Among these these LG Electronics (pref) appears to have the strongest momentum as investors attempt to reduce the price gap between the common and preferred shares.

LG Electronics' New JV (LG Magna E-Powertrain): A Strategy to Become a Supplier to Apple's EVs?

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<p><a href="https://www.smartkarma.com/entities/cowell-e-holdings-inc" target="_blank" data-smartkarma-citation="entities:336:1" rel="noopener">Cowell E Holdings (1415 HK)</a> is a major supplier of camera modules for mobile devices to leading mobile device manufacturers such as <a href="https://www.smartkarma.com/entities/apple-inc" target="_blank" data-smartkarma-citation="entities:666:1" rel="noopener">Apple Inc (AAPL US)</a>. On Thursday after market close, Cowell announced a sale and purchase agreement (SPA) and a possible mandatory conditional cash offer. As the offeror will acquire more than 30% of the voting rights because of the SPA, the Takeovers Code requires the offeror to make a mandatory conditional cash offer for all the issued shares. The offer price of HK$5.87 per share, which is in line to SPA price, is a 2.98% premium to the last trading price of HK$5.70 per share (9 December prior to the trading halt). </p><div class="content-highlight"><p>The offer is conditional on the offeror and concert parties holding more than 50% of the voting rights. Post the SPA completion, the offeror will hold 44.87% of the outstanding shares and voting rights. In combination with a reasonable price, we think that offer will fulfil the completion condition and become unconditional. </p></div>

Cowell E Holdings (1415 HK) is a major supplier of camera modules for mobile devices to leading mobile device manufacturers such as Apple Inc (AAPL US). On Thursday after market close, Cowell announced a sale and purchase agreement (SPA) and a possible mandatory conditional cash offer. As the offeror will acquire more than 30% of the voting rights because of the SPA, the Takeovers Code requires the offeror to make a mandatory conditional cash offer for all the issued shares. The offer price of HK$5.87 per share, which is in line to SPA price, is a 2.98% premium to the last trading price of HK$5.70 per share (9 December prior to the trading halt). The offer is conditional on the offeror and concert parties holding more than 50% of the voting rights. Post the SPA completion, the offeror will hold 44.87% of the outstanding shares and voting rights. In combination with a reasonable price, we think that offer will fulfil the completion condition and become unconditional. 

Cowell E Holdings’ Possible Mandatory Conditional Cash Offer

South Korea

LG Electronics Inc. manufactures and markets digital display equipment and home appliances. The Company produces and markets flat panel televisions, A/V products, washing machines, air conditioners and refrigerators as well as telecommunications equipment such as smart phones and tablets.

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LG Electronics (066570 KS)

LG Corp (003550 KS): Whitebox States Its Case

A ~64% discount to NAV - or 66% if using Whitebox's calcs - is non-sensical, and provides a good risk-adjusted return. The downside appears limited...

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

LG Corp: Updated SoTP Valuation Analysis & Timing of Key Upcoming Catalyst Events

In this insight, we provide an updated SoTP (Sum-of-the Parts) valuation analysis of LG Corp. Our revised NAV of LG Corp is 152,080 won,...

Douglas Kim

LG Electronics' New JV (LG Magna E-Powertrain): A Strategy to Become a Supplier to Apple's EVs?

On 23 December, LG Electronics (066570 KS) announced that it will spin off its electric vehicles components business and form a major joint venture...

Douglas Kim

Cowell E Holdings’ Possible Mandatory Conditional Cash Offer

Cowell announced a possible mandatory conditional cash offer at HK$5.87 per share. In combination with a reasonable price, we think that offer will...

Arun George

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