Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

<ul>
<li>There is an interesting long-short trade that is setting up nicely amidst the Osstem Implant (048260 KS) employee embezzlement disaster.</li>
<li>Osstem Implant is currently included in the KOSDAQ150. Going forward, there is a strong possibility that Osstem Implant is excluded in KOSDAQ150 index.</li>
<li>Osstem Implant is currently involved in an employee embezzlement case worth 221 billion won. This employee stole the company's money and traded more than $1 billion in stocks. </li>
</ul>


There is an interesting long-short trade that is setting up nicely amidst the Osstem Implant (048260 KS) employee embezzlement disaster.
Osstem Implant is currently included in the KOSDAQ150. Going forward, there is a strong possibility that Osstem Implant is excluded in KOSDAQ150 index.
Osstem Implant is currently involved in an employee embezzlement case worth 221 billion won. This employee stole the company's money and traded more than $1 billion in stocks. 


Long-Short Trade of KOSPI200 & KOSDAQ150 Amid Osstem Implant Employee Embezzlement Disaster

Event-Driven

<ul>
<li>There was a major news flow regarding the Celltrion Group companies today regarding the FSC finally reviewing the potential accounting fraud allegations at the Celltrion Group of companies. </li>
<li>As a result of this investigation by the FSC, the proposed merger of the three Celltrion companies will now be delayed further.</li>
<li>The FSC may announce a final ruling on this topic sometime in 1H 2022. Until then, there could be further negative pressures on the Celltrion companies. </li>
</ul>


There was a major news flow regarding the Celltrion Group companies today regarding the FSC finally reviewing the potential accounting fraud allegations at the Celltrion Group of companies. 
As a result of this investigation by the FSC, the proposed merger of the three Celltrion companies will now be delayed further.
The FSC may announce a final ruling on this topic sometime in 1H 2022. Until then, there could be further negative pressures on the Celltrion companies. 


FSC Finally Reviews Accounting Fraud Allegations of Celltrion Group After 3 Years of Investigation

<p>In this insight, we explain the recent minority shareholders upheaval of <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS). </a>We also discuss the following important issues:</p><ul>
<li>Increasing concerns about the excessive inheritance taxes and the transition of the major shareholding from the former Chairman of Celltrion Group Seo Jung-Jin to his sons</li>
<li>The timing of the merger of the three major Celltrion companies (Celltrion Inc, <a href="https://www.smartkarma.com/entities/celltrion-healthcare" target="_blank" data-smartkarma-citation="entities:23641:1" rel="noopener">Celltrion Healthcare (091990 KS)</a>, and <a href="https://www.smartkarma.com/entities/celltrion-pharm-inc" target="_blank" data-smartkarma-citation="entities:992:1" rel="noopener">Celltrion Pharm (068760 KS))</a>
</li>
<li>Rising inventory at Celltrion Healthcare &amp; tax Issue for Founder Seo Jung-Jin</li>
</ul><p>It was reported in the<a href="http://www.sisaweek.com/news/articleView.html?idxno=147919" target="_blank" rel="noopener"> local media</a> that some of the local minority shareholders of Celltrion have formed an <em>"emergency response committee"</em> in order to prepare for an official activist stance to urge the company to improve its corporate governance. In recent months, share price of <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> has declined significantly and this has made many minority shareholders very upset. Celltrion's share price has declined 44% since its highs in December 2020. </p><p><strong>Conclusion - </strong>There are numerous uncertainties facing Celltrion Inc right now. The two biggest uncertainties include the transfer of the controlling ownership stake from the founder Seo Jung-Jin to his two sons along with the merger of the three public Celltrion companies. A few retail minority shareholders formed an <em>emergency response committee</em> in order to raise more voice to improve corporate governance. </p><p>In the midst of these uncertainties, we believe that there could be further weakness in Celltrion Inc. Although a merger of the three public Celltrion companies could boost the share price in the short term, there remain concerns about the excessive inventory at Celltrion Healthcare/Celltrion Inc and until the financials of the three companies on a merged basis become available, there could be continued negative sentiment on the company.</p>

In this insight, we explain the recent minority shareholders upheaval of Celltrion Inc (068270 KS). We also discuss the following important issues:
Increasing concerns about the excessive inheritance taxes and the transition of the major shareholding from the former Chairman of Celltrion Group Seo Jung-Jin to his sons
The timing of the merger of the three major Celltrion companies (Celltrion Inc, Celltrion Healthcare (091990 KS), and Celltrion Pharm (068760 KS))

Rising inventory at Celltrion Healthcare &amp; tax Issue for Founder Seo Jung-Jin
It was reported in the local media that some of the local minority shareholders of Celltrion have formed an "emergency response committee" in order to prepare for an official activist stance to urge the company to improve its corporate governance. In recent months, share price of Celltrion Inc (068270 KS) has declined significantly and this has made many minority shareholders very upset. Celltrion's share price has declined 44% since its highs in December 2020. Conclusion - There are numerous uncertainties facing Celltrion Inc right now. The two biggest uncertainties include the transfer of the controlling ownership stake from the founder Seo Jung-Jin to his two sons along with the merger of the three public Celltrion companies. A few retail minority shareholders formed an emergency response committee in order to raise more voice to improve corporate governance. In the midst of these uncertainties, we believe that there could be further weakness in Celltrion Inc. Although a merger of the three public Celltrion companies could boost the share price in the short term, there remain concerns about the excessive inventory at Celltrion Healthcare/Celltrion Inc and until the financials of the three companies on a merged basis become available, there could be continued negative sentiment on the company.

Celltrion Inc - The Minority Shareholders Upheaval & Concerns About Potential Inheritance Tax Issue

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.

<p>The 3-way merger between Celltrion Holdings has been completed. Now, the market's attention is shifting to the merger of Celltrion, Celltrion Healthcare, and Celltrion Pharm.</p><div class="content-highlight"><p><strong>Perhaps the most crucial investment point in this second 3-way merger is short covering.</strong></p></div><hr><h2>What short covering?</h2><p>The prominent institutional investors that lend stocks for short selling in Korea are local ETF/index fund operators and pension funds. And among them, pension funds often recall shares to exercise shareholder rights in the event of a merger.</p><p>It then leads to an increase in demand for short coverings. We have often witnessed stock price overshooting immediately after the merger announcement. The most salient example was the Samsung Engineering &amp; Samsung Heavy Industries merger back in 2016. Samsung Engineering soared 12% right after the merger announcement, presumably due to the recall of pension funds.</p><p>However, it is essential to note that the recall is not compulsory even for stocks of an extinct entity in a merger between listed companies. <span>Stocks borrowed for short-selling are automatically transferred to newly issued stocks with only the title of an underlying share changed.</span></p><div class="content-highlight"><ul>
<li><strong>Nevertheless, the possibility of a short-term stock overshooting due to a recall cannot be ruled out in the event of a merger between companies with high stakes held by pension funds and high short interest.</strong></li>
<li><strong>Although the short interest of the three Celltrion companies has decreased a lot compared to the past, they are still maintaining a considerable level. In the case of Celltrion, short interest is 2.89% of the SO, nearly 4M shares which are 6~7x days to cover. </strong></li>
<li><strong>In addition, the proportion of investment in Celltrion and Celltrion Healthcare by local pension funds is relatively large.</strong></li>
</ul></div><p>Of course, we also have to note that the National Pension Service, the largest pension fund, has not yet resumed lending of domestic stocks, so the short-covering impact of the recall is bound to be less than in the past.</p>

The 3-way merger between Celltrion Holdings has been completed. Now, the market's attention is shifting to the merger of Celltrion, Celltrion Healthcare, and Celltrion Pharm.Perhaps the most crucial investment point in this second 3-way merger is short covering.What short covering?The prominent institutional investors that lend stocks for short selling in Korea are local ETF/index fund operators and pension funds. And among them, pension funds often recall shares to exercise shareholder rights in the event of a merger.It then leads to an increase in demand for short coverings. We have often witnessed stock price overshooting immediately after the merger announcement. The most salient example was the Samsung Engineering &amp; Samsung Heavy Industries merger back in 2016. Samsung Engineering soared 12% right after the merger announcement, presumably due to the recall of pension funds.However, it is essential to note that the recall is not compulsory even for stocks of an extinct entity in a merger between listed companies. Stocks borrowed for short-selling are automatically transferred to newly issued stocks with only the title of an underlying share changed.
Nevertheless, the possibility of a short-term stock overshooting due to a recall cannot be ruled out in the event of a merger between companies with high stakes held by pension funds and high short interest.
Although the short interest of the three Celltrion companies has decreased a lot compared to the past, they are still maintaining a considerable level. In the case of Celltrion, short interest is 2.89% of the SO, nearly 4M shares which are 6~7x days to cover. 
In addition, the proportion of investment in Celltrion and Celltrion Healthcare by local pension funds is relatively large.
Of course, we also have to note that the National Pension Service, the largest pension fund, has not yet resumed lending of domestic stocks, so the short-covering impact of the recall is bound to be less than in the past.

Celltrion 3-Way Merger Timing & Trading Approach Aiming for Immediate Short Covering

<p>Celltrion and Celltrion Healthcare, which have been moving quite tightly recently, experienced a significant level of divergence last Friday.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/646/original/1.png?1632020309" class="editor-image img-responsive" data-smartkarma-image-id="230646"></figure></section><p>Celltrion vs. Celltrion Healthcare is at -1.72σ on a 20-day moving average as of last Friday's close. This level of price divergence is the largest since early June.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/647/original/image_95913332721632020426124.png?1632020428" class="editor-image img-responsive" data-smartkarma-image-id="230647"></figure><p>For the past month, Celltrion Healthcare's earnings estimates have been adjusted more significantly than those of Celltrion. On a local street consensus basis, Celltrion's 2022 net profit was revised down by 3.16%, while Celltrion Healthcare's was downgraded by 6.75%. Nevertheless, Celltrion Healthcare's 12M forward PER rose 3.69%p higher than that of Celltrion.</p><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"FY2022E"}'>FY2022E</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Celltrion, T"}'>Celltrion, T</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Celltrion, T-1M"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Celltrion, T-1M</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MoM Δ"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>MoM Δ</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Celltrion H, T"}'>Celltrion H, T</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Celltrion H, T-1M"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Celltrion H, T-1M</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MoM Δ"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>MoM Δ</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NP to controlling stake"}' data-sheets-numberformat='[null,3,"0.00%",1]'>Consensus net profit to controlling stake</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":830}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=R[0]C[6]/10">₩830.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":857.1}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=R[0]C[6]/10">₩857.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.03161824757904565}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]"><strong>-3.16%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":370}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩370.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":396.8}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩396.8B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.06754032258064518}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]"><strong>-6.75%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"12M PER "}'>12M forward PER</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":47.67}' data-sheets-numberformat='[null,2,"0.00x"]' data-sheets-formula="=R[0]C[6]">47.67x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":46.68}' data-sheets-numberformat='[null,2,"0.00x"]' data-sheets-formula="=R[0]C[6]">46.68x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.021208226221079735}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]"><strong>+2.12%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":52.29}' data-sheets-numberformat='[null,2,"0.00x"]'>52.29x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":49.42}' data-sheets-numberformat='[null,2,"0.00x"]'>49.42x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.058073654390934794}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]"><strong>+5.81%</strong></td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: FnGuide"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Source: FnGuide</td></tr>
</tbody>
</table>

Celltrion and Celltrion Healthcare, which have been moving quite tightly recently, experienced a significant level of divergence last Friday.Celltrion vs. Celltrion Healthcare is at -1.72σ on a 20-day moving average as of last Friday's close. This level of price divergence is the largest since early June.For the past month, Celltrion Healthcare's earnings estimates have been adjusted more significantly than those of Celltrion. On a local street consensus basis, Celltrion's 2022 net profit was revised down by 3.16%, while Celltrion Healthcare's was downgraded by 6.75%. Nevertheless, Celltrion Healthcare's 12M forward PER rose 3.69%p higher than that of Celltrion.











FY2022E
Celltrion, T
Celltrion, T-1M
MoM Δ
Celltrion H, T
Celltrion H, T-1M
MoM Δ


Consensus net profit to controlling stake
₩830.0B
₩857.1B
-3.16%
₩370.0B
₩396.8B
-6.75%


12M forward PER
47.67x
46.68x
+2.12%
52.29x
49.42x
+5.81%

Source: FnGuide



Last Friday's Price Divergence in Celltrion Vs. Celltrion Healthcare

South Korea

Celltrion Healthcare Co.,Ltd develops and manufactures pharmaceutical biologics and chemically synthesized drugs. The Company specializes in the development of drugs for breast cancer, arthritis, leukemia, psoriasis, human rabies prevention, and influenza. Celltrion Healthcare markets its products to customers internationally.

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52-week Range	0.00 - 0.00
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Celltrion Healthcare (091990 KS)

Long-Short Trade of KOSPI200 & KOSDAQ150 Amid Osstem Implant Employee Embezzlement Disaster

There is a long-short trade that is setting up nicely amidst the Osstem Implant employee embezzlement disaster. Osstem Implant is involved in an...

Douglas Kim

FSC Finally Reviews Accounting Fraud Allegations of Celltrion Group After 3 Years of Investigation

There was a major news flow regarding the Celltrion Group companies today regarding the FSC finally reviewing the potential accounting fraud...

Douglas Kim

Celltrion Inc - The Minority Shareholders Upheaval & Concerns About Potential Inheritance Tax Issue

In this insight, we explain the recent minority shareholders upheaval of Celltrion Inc (068270 KS) and the potential timing of the merger of the...

Douglas Kim

Celltrion 3-Way Merger Timing & Trading Approach Aiming for Immediate Short Covering

This post examines the timing of the upcoming 3-way merger between Celltrion's three listed companies, along with trading approaches aiming for...

Sanghyun Park

Last Friday's Price Divergence in Celltrion Vs. Celltrion Healthcare

This post investigates what may have caused last Friday's price divergence in Celltrion vs. Celltrion Healthcare and discusses why it may get...

Sanghyun Park

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