Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

South Korea recorded the highest daily cases (1,378) of COVID-19 on 9 July in the past 18 months. Despite enormous efforts to control COVID-19 through massive mask wearing, social distancing measures, and use of smartphone based tracing system, they have not prevented <a href="https://www.theguardian.com/world/2021/jul/10/seoul-heads-for-lockdown-as-infections-spiral-in-south-korea" target="_blank" rel="noopener">COVID-19</a> cases reaching new highs in South Korea. The chief culprit has been the Delta variant.

South Korea recorded the highest daily cases (1,378) of COVID-19 on 9 July in the past 18 months. Despite enormous efforts to control COVID-19 through massive mask wearing, social distancing measures, and use of smartphone based tracing system, they have not prevented COVID-19 cases reaching new highs in South Korea. The chief culprit has been the Delta variant. 

Highest Daily Cases of COVID-19 in Korea Driven by the Delta Variant - Impact on the Stock Market

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Thematic (Sector/Industry)

Does holding company ("holdco") discount in Korea apply to the likes of <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a> , <a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Holdings (034730 KS)</a> (now Inc), <a href="https://www.smartkarma.com/entities/osstem-implant-co-ltd" target="_blank" data-smartkarma-citation="entities:1450:1" rel="noopener">Osstem Implant (048260 KS)</a> , <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> , <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a> , <a href="https://www.smartkarma.com/entities/fila-holdings-corp" target="_blank" data-smartkarma-citation="entities:10699:1" rel="noopener">Fila Holdings (081660 KS)</a> and others? To answer that question I think we need to know the history of the holdco in Korea.

Does holding company ("holdco") discount in Korea apply to the likes of SK Telecom (017670 KS) , SK Holdings (034730 KS) (now Inc), Osstem Implant (048260 KS) , LG Chem Ltd (051910 KS) , Kakao Corp (035720 KS) , Fila Holdings (081660 KS) and others? To answer that question I think we need to know the history of the holdco in Korea.

The Holding Company Dilemma in Korea -  What's the Right Discount?

Event-Driven

<div class="content-highlight">
Trading Opportunity for the Rights Offering - For the short term investors, we think that there could be an attractive trading opportunity regarding Cosmax. Given the relatively high upside (current price vs expected rights offering price), we would participate in the rights offering.
We also think that there is a relatively solid probability of the COVID-19 cases declining in Korea in the next several weeks and that Xi Jinping could come to South Korea sometime in August/September. As a result, we believe that there is a good chance that the Korean cosmetics stocks continue to outperform in the 2-3 months. 
</div>In this insight, we discuss the details of the <a href="https://www.smartkarma.com/entities/cosmax-inc" target="_blank" data-smartkarma-citation="entities:4491:1" rel="noopener">Cosmax Inc (192820 KS)</a> rights offering details and potential trading opportunities. Cosmax is one of the top five listed cosmetics companies in Korea. It currently has a market cap of 1.3 trillion won ($1.2 billion).On 26 April 2021 (after market close), Cosmax announced that it will issue 1.3 million shares to raise 144.3 billion won. After this announcement, the stock fell 11.5% on the following day. Since then, the stock price has recovered nicely. From 26 April to 8 June 2021, Cosmax's share price is down 3%. The expected rights offering price is 103,000 won and based on the current price of 130,000 won, it represents a 26.2% upside. Given this solid upside and the recent recovery of the stock price, there is likely to be relatively solid demand for this rights offering. The rights offering subscription dates for the existing shareholders are from 17 to 18 June 2021. The new shares listing date is on 8 July. There is a 11.5% shares dilution associated with this rights offering. Currently, Cosmax BTI is the largest controlling shareholder with a 26.2% in <a href="https://www.smartkarma.com/entities/cosmax-inc" target="_blank" data-smartkarma-citation="entities:4491:1" rel="noopener">Cosmax Inc (192820 KS)</a>.


Trading Opportunity for the Rights Offering - For the short term investors, we think that there could be an attractive trading opportunity regarding Cosmax. Given the relatively high upside (current price vs expected rights offering price), we would participate in the rights offering.
We also think that there is a relatively solid probability of the COVID-19 cases declining in Korea in the next several weeks and that Xi Jinping could come to South Korea sometime in August/September. As a result, we believe that there is a good chance that the Korean cosmetics stocks continue to outperform in the 2-3 months. 
In this insight, we discuss the details of the Cosmax Inc (192820 KS) rights offering details and potential trading opportunities. Cosmax is one of the top five listed cosmetics companies in Korea. It currently has a market cap of 1.3 trillion won ($1.2 billion).On 26 April 2021 (after market close), Cosmax announced that it will issue 1.3 million shares to raise 144.3 billion won. After this announcement, the stock fell 11.5% on the following day. Since then, the stock price has recovered nicely. From 26 April to 8 June 2021, Cosmax's share price is down 3%. The expected rights offering price is 103,000 won and based on the current price of 130,000 won, it represents a 26.2% upside. Given this solid upside and the recent recovery of the stock price, there is likely to be relatively solid demand for this rights offering. The rights offering subscription dates for the existing shareholders are from 17 to 18 June 2021. The new shares listing date is on 8 July. There is a 11.5% shares dilution associated with this rights offering. Currently, Cosmax BTI is the largest controlling shareholder with a 26.2% in Cosmax Inc (192820 KS). 

Cosmax Rights Offering Details & Trading Opportunities

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.

I added three new single-subsidiary holding companies to my Korea stub list. They are Green Cross Holdings, Hitejinro Holdings, and Seah Holdings.







Korea stubs (single-subsidiary)

Holdco
Ticker
Subsidiary
Ticker


Amorepacific Group
002790
Amorepacific Corp
090430


BGF Co Ltd
027410
BGF Retail Co Ltd
282330


Halla Holdings Corp
060980
Mando Corp
204320


Hanjin Kal
180640
Korean Air Lines Co Ltd
003490


Hankook &amp; Company Co Ltd
000240
Hankook Tire &amp; Technology Co Ltd
161390


HANSAE YES24 HOLDINGS CO., LTD.
016450
Hansae Co., Ltd.
105630


HDC Holdings Co Ltd
012630
HDC Hyundai Development Co
294870


Nexen Corporation
005720
Nexen Tire Corp
002350


Nongshim Holdings Co Ltd
072710
Nongshim Co Ltd
004370


ORION Holdings Corp
001800
Orion Corp
271560


Poongsan Holdings Corporation
005810
POONGSAN CORPORATION
103140


Youngone Holdings Co Ltd
009970
Youngone Corporation
111770


* Green Cross Holdings
005250
* Green Cross Corp
006280


* Hitejinro Holdings Co Ltd
000140
* HiteJinro Co Ltd
000080


* Seah Holdings Corp
058650
* Seah Besteel Corporation
001430

Source: KRX

Halla Holdings and Seah Holdings have the widest discount to their respective NAV, 66.50% and 63.26%, respectively. Nongshim Holdings and BGF closely follow. Hanjin Kal








Korea stubs (single-subsidiary)
NAV discount
Single subsidiary weight in NAV
Single subsidiary weight in GAV


Amorepacific Group
15.23%
95.10%
92.71%


BGF Co Ltd
58.33%
71.57%
84.19%


Halla Holdings Corp
66.50%
70.10%
50.91%


Hanjin Kal
-10.55%
83.08%
83.96%


Hankook &amp; Company Co Ltd
15.04%
89.41%
97.86%


HANSAE YES24 HOLDINGS CO., LTD.
41.51%
75.59%
67.16%


HDC Holdings Co Ltd
37.19%
63.29%
55.47%


Nexen Corporation
46.91%
73.79%
73.89%


Nongshim Holdings Co Ltd
58.79%
69.97%
70.45%


ORION Holdings Corp
45.25%
96.61%
87.61%


Poongsan Holdings Corporation
53.23%
82.21%
86.59%


Youngone Holdings Co Ltd
51.42%
81.28%
86.72%


Green Cross Holdings
48.90%
174.03%
91.25%


Hitejinro Holdings Co Ltd
16.99%
104.18%
82.30%


Seah Holdings Corp
63.26%
57.92%
52.84%

Source: KRX



Korea Stubs Status Check: 15 in Total Incl. 3 New Ones

With short-selling in full action now, the attention is growing on the local single-subsidiary holding company stocks. I track the following 12 pairs. Currently, three holding companies are at a negative sigma on a 20-day moving average.







Holdco
Subsidiary
Sigma (σ) on a 20-day moving average


Amorepacific Group
Amorepacific Corp
1.04


BGF Co Ltd
BGF Retail Co Ltd
0.24


Halla Holdings Corp
Mando Corp
0.62


Hanjin Kal
Korean Air Lines Co Ltd
-1.64


Hankook &amp; Company Co Ltd
Hankook Tire &amp; Technology Co Ltd
0.69


HANSAE YES24 HOLDINGS CO., LTD.
Hansae Co., Ltd.
-1.57


HDC Holdings Co Ltd
HDC Hyundai Development Co
1.52


Nexen Corporation
Nexen Tire Corp
-0.71


Nongshim Holdings Co Ltd
Nongshim Co Ltd
1.16


ORION Holdings Corp
Orion Corp
1.24


Poongsan Holdings Corporation
POONGSAN CORPORATION
1.07


Youngone Holdings Co Ltd
Youngone Corporation
1.16

Source: KRX

In a longer horizon (180-days), Hanjin Kal (again), Hankook &amp; Co, and Nexen appear to be in an undervalued territory relative to their respective counterpart.








Holdco
%Δ to 180-day mean
%Δ to 180-day high
%Δ to 180-day low


Amorepacific Group
-3.76%
-16.86%
9.99%


BGF Co Ltd
24.29%
-5.08%
47.30%


Halla Holdings Corp
-8.97%
-32.41%
22.01%


Hanjin Kal
-42.64%
-65.21%
2.65%


Hankook &amp; Company Co Ltd
-12.17%
-32.20%
9.18%


HANSAE YES24 HOLDINGS CO., LTD.
-1.84%
-30.55%
38.10%


HDC Holdings Co Ltd
-1.41%
-15.67%
18.40%


Nexen Corporation
-15.93%
-25.30%
3.63%


Nongshim Holdings Co Ltd
11.01%
-0.72%
32.78%


ORION Holdings Corp
38.24%
-1.97%
72.32%


Poongsan Holdings Corporation
3.45%
-24.96%
14.58%


Youngone Holdings Co Ltd
-1.02%
-15.07%
20.33%

Source: KRX

Unfortunately, their NAV discount tells a different story. High-NAV discount holdco stocks are BGF, Halla Holdings, Nongshim Holdings, and Youngone Holdings. In contrast, Hanjin Kal and Hankook &amp; Co still have substantial room for further deflation relative to their local peers in NAV discount.* FYI, only Halla Holdings has significant operating operations. 









Holdco
Subsidiary
NAV discount
Single subsidiary weight in NAV
Single subsidiary weight in GAV


Amorepacific Group
Amorepacific Corp
11.39%
94.87%
92.47%


BGF Co Ltd
BGF Retail Co Ltd
53.56%
68.45%
82.11%


Halla Holdings Corp
Mando Corp
67.04%
68.92%
49.55%


Hanjin Kal
Korean Air Lines Co Ltd
-1.76%
81.57%
82.50%


Hankook &amp; Company Co Ltd
Hankook Tire &amp; Technology Co Ltd
17.91%
89.46%
97.87%


HANSAE YES24 HOLDINGS CO., LTD.
Hansae Co., Ltd.
34.88%
74.72%
64.86%


HDC Holdings Co Ltd
HDC Hyundai Development Co
43.85%
62.61%
55.20%


Nexen Corporation
Nexen Tire Corp
48.07%
73.44%
73.67%


Nongshim Holdings Co Ltd
Nongshim Co Ltd
61.52%
68.01%
68.49%


ORION Holdings Corp
Orion Corp
45.33%
95.84%
87.02%


Poongsan Holdings Corporation
POONGSAN CORPORATION
49.59%
80.11%
84.91%


Youngone Holdings Co Ltd
Youngone Corporation
52.20%
79.12%
85.07%

Source: KRX



Korea Single-Subsidiary Holdcos NAV Discount & Short Interest: Quick Thoughts on Trade

South Korea

Amorepacific Corp. develops, manufactures, and exports skin care, make-up, and fragrance products. The Company also produces and markets personal care and health-related products, such as shampoos, soaps, toothpastes, and health teas.

Amorepacific Corp (Preferred) (090435 KS)

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Amorepacific Corp (Preferred) (090435 KS)

Highest Daily Cases of COVID-19 in Korea Driven by the Delta Variant - Impact on the Stock Market

South Korea recorded the highest daily cases (1,378) of COVID-19 on 9 July in the past 18 months. The chief culprit has been the Delta variant.

Douglas Kim

The Holding Company Dilemma in Korea - What's the Right Discount?

The discount rate to NAV that is rule of thumb in Korea is 30% but does not make sense across the board? We discuss if there is a better way to...

Ken S. Kim

Cosmax Rights Offering Details & Trading Opportunities

In this insight, we discuss the details of the Cosmax Inc (192820 KS) rights offering details and potential trading opportunities.

Douglas Kim

Korea Stubs Status Check: 15 in Total Incl. 3 New Ones

This post examines the current status of Korea's 15 stubs (3 new ones added to the list), having a single subsidiary accounting for at least 60% of...

Sanghyun Park

Korea Single-Subsidiary Holdcos NAV Discount & Short Interest: Quick Thoughts on Trade

This post tracks the NAV discount of all 12 Korean single-subsidiary holding companies and check their short interest at this point. Also, this...

Sanghyun Park

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)