Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The KRX will announce the results of the September review of the BBIG indices in August and the changes will become effective after the close of trading on 9 September.</p><p>The BBIG (secondary <strong>B</strong>attery, <strong>B</strong>io, <strong>I</strong>nternet and <strong>G</strong>aming sectors) indices were launched late last year. ETFs were subsequently launched on the 5 indices and the BBIG ETF and the Secondary Battery ETF have gathered a significant amount of assets since then.</p><p>At the September rebalance we expect the following changes:</p><ul>
<li>Secondary Battery ETF: <a href="https://www.smartkarma.com/entities/sk-ie-technology" target="_blank" data-smartkarma-citation="entities:29207:1" rel="noopener">SK IE Technology (361610 KS)</a> replaces <a href="https://www.smartkarma.com/entities/chunbo-co-ltd" target="_blank" data-smartkarma-citation="entities:27848:1" rel="noopener">Chunbo Co Ltd (278280 KS)</a>
</li>
<li>Bio ETF: <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> joins the index and the top 3 stocks. This moves <a href="https://www.smartkarma.com/entities/sk-biopharmaceuticals-co-ltd" target="_blank" data-smartkarma-citation="entities:28966:1" rel="noopener">SK Biopharmaceuticals Co Ltd (326030 KS)</a> to the plus group; <a href="https://www.smartkarma.com/entities/hanmi-pharm-co-ltd" target="_blank" data-smartkarma-citation="entities:12476:1" rel="noopener">Hanmi Pharm (128940 KS)</a> joins the index and <a href="https://www.smartkarma.com/entities/seegene-inc" target="_blank" data-smartkarma-citation="entities:11483:1" rel="noopener">Seegene Inc (096530 KS)</a> and <a href="https://www.smartkarma.com/entities/green-cross-corp" target="_blank" data-smartkarma-citation="entities:2969:1" rel="noopener">Green Cross (006280 KS)</a> are deleted.</li>
<li>Internet ETF: <a href="https://www.smartkarma.com/entities/kg-inicis-co-ltd" target="_blank" data-smartkarma-citation="entities:5234:1" rel="noopener">KG Inicis Co Ltd (035600 KS)</a> replaces <a href="https://www.smartkarma.com/entities/rsupport-co-ltd" target="_blank" data-smartkarma-citation="entities:14783:1" rel="noopener">Rsupport Co Ltd (131370 KS)</a> </li>
<li>Game ETF: <a href="https://www.smartkarma.com/entities/devsisters-co-ltd" target="_blank" data-smartkarma-citation="entities:14096:1" rel="noopener">Devsisters (194480 KS)</a> replaces <a href="https://www.smartkarma.com/entities/neptune-company" target="_blank" data-smartkarma-citation="entities:28826:1" rel="noopener">Neptune Company (217270 KS)</a>.</li>
<li>BBIG ETF: <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> replaces <a href="https://www.smartkarma.com/entities/sk-biopharmaceuticals-co-ltd" target="_blank" data-smartkarma-citation="entities:28966:1" rel="noopener">SK Biopharmaceuticals Co Ltd (326030 KS)</a> </li>
</ul><p>There could be more interesting changes if <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (1486402D KS)</a> lists before end July as expected.</p><p>The first rebalance of the index took place in February this year and the inclusions outperformed the exclusions by nearly 8% between announcement of the changes and implementation. So this rebalance is something worth looking at.</p>

The KRX will announce the results of the September review of the BBIG indices in August and the changes will become effective after the close of trading on 9 September.The BBIG (secondary Battery, Bio, Internet and Gaming sectors) indices were launched late last year. ETFs were subsequently launched on the 5 indices and the BBIG ETF and the Secondary Battery ETF have gathered a significant amount of assets since then.At the September rebalance we expect the following changes:
Secondary Battery ETF: SK IE Technology (361610 KS) replaces Chunbo Co Ltd (278280 KS)

Bio ETF: SK Bioscience (302440 KS) joins the index and the top 3 stocks. This moves SK Biopharmaceuticals Co Ltd (326030 KS) to the plus group; Hanmi Pharm (128940 KS) joins the index and Seegene Inc (096530 KS) and Green Cross (006280 KS) are deleted.
Internet ETF: KG Inicis Co Ltd (035600 KS) replaces Rsupport Co Ltd (131370 KS) 
Game ETF: Devsisters (194480 KS) replaces Neptune Company (217270 KS).
BBIG ETF: SK Bioscience (302440 KS) replaces SK Biopharmaceuticals Co Ltd (326030 KS) 
There could be more interesting changes if  Krafton Inc (1486402D KS) lists before end July as expected.The first rebalance of the index took place in February this year and the inclusions outperformed the exclusions by nearly 8% between announcement of the changes and implementation. So this rebalance is something worth looking at.

KRX BBIG Index Rebalance Preview: Worth a Look

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

SK IE Technology   / Equity Capital Markets

<div class="content-highlight">
<p>Our base case valuation of SK IET is 143,413 won, which represents a 37% upside from the high end of the IPO price range of 105,000 won. Our sensitivity analysis suggests a valuation range of 95,590 won to 201,864 won. To value SK IET, we used EV/EBITDA valuation method, using our base case 2021 EBITDA estimate of 242 billion won and applied a 39.1x EV/EBITDA multiple.</p>
<p>This valuation multiple is 20% premium to the the average EV/EBITDA multiple of the comps in 2021. We believe this 20% premium multiple to the peers is reasonable for SK IET mainly due to the company's higher EBITDA margins and ROE than the comps. </p>
</div><p>We forecast <a href="https://www.smartkarma.com/entities/sk-ie-technology" target="_blank" data-smartkarma-citation="entities:29207:1" rel="noopener">SK IE Technology (SKIET KS)</a> to generate sales of 617.1 billion won (up 31.5% YoY) an operating profit of 163.6 billion won (up 30.7% YoY) in 2021. From 2020 to 2025, we estimate the company's sales to increase at a CAGR of 28%.</p><p>The book building for the SK IET starts on 22 April and it will start trading on 11 May. </p><p>Overall, we have a positive view of the SK IET IPO. However, we would caution investors on having too high of expectations for the IPO similar to SK Bioscience, Kakao Games, or SK Biopharm as we believe that the overall upside for the SK IET is likely to be much lower than these other major Korean IPOs in the past year. </p>


Our base case valuation of SK IET is 143,413 won, which represents a 37% upside from the high end of the IPO price range of 105,000 won. Our sensitivity analysis suggests a valuation range of 95,590 won to 201,864 won. To value SK IET, we used EV/EBITDA valuation method, using our base case 2021 EBITDA estimate of 242 billion won and applied a 39.1x EV/EBITDA multiple.
This valuation multiple is 20% premium to the the average EV/EBITDA multiple of the comps in 2021. We believe this 20% premium multiple to the peers is reasonable for SK IET mainly due to the company's higher EBITDA margins and ROE than the comps. 
We forecast SK IE Technology (SKIET KS) to generate sales of 617.1 billion won (up 31.5% YoY) an operating profit of 163.6 billion won (up 30.7% YoY) in 2021. From 2020 to 2025, we estimate the company's sales to increase at a CAGR of 28%.The book building for the SK IET starts on 22 April and it will start trading on 11 May. Overall, we have a positive view of the SK IET IPO. However, we would caution investors on having too high of expectations for the IPO similar to SK Bioscience, Kakao Games, or SK Biopharm as we believe that the overall upside for the SK IET is likely to be much lower than these other major Korean IPOs in the past year. 

<div class="content-highlight"><ul>
<li>SK IET plans to complete its IPO in May.  The IPO price range is from 78,000 won to 105,000 won. The IPO base deal size is from $1.5 billion to $2.0 billion. According to the bankers' valuation, the expected market cap of SK IET is from 5.6 trillion won to 7.5 trillion won. SK IET IPO will be the biggest IPO in Korea so far this year, beating <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> which recently raised $1.3 billion in its IPO in March. </li>
<li>The company will offer 21.39 million shares in the IPO (8.56 million new shares and 12.83 million old shares). The offered shares of 21.39 million represents nearly 30% of the outstanding shares (post IPO), which is large relative to its total outstanding shares. SK Innovation, which has a 90% stake in SK IET, plans to sell a 22.7% stake in the company in this IPO. In September 2020, SK Innovation sold a 10% stake in <a href="https://www.kedglobal.com/newsView/ked202009220004" target="_blank" rel="noopener">SK IET</a> for 300 billion won to Premier Partners, a local fund management company. </li>
<li>SK IET generated 197 billion won in EBITDA in 2020. Applying a 48.1x EV/EBITDA multiple (average valuation multiple of the company's comps), this results in an EV of 9,458 billion won and implied market cap of 9,309 billion won (130,572 won per share). After applying IPO discount 19.6% - 40.3%, this results in an IPO price range of 78,000 - 105,000 won. </li>
</ul></div>


SK IET plans to complete its IPO in May.  The IPO price range is from 78,000 won to 105,000 won. The IPO base deal size is from $1.5 billion to $2.0 billion. According to the bankers' valuation, the expected market cap of SK IET is from 5.6 trillion won to 7.5 trillion won. SK IET IPO will be the biggest IPO in Korea so far this year, beating SK Bioscience (302440 KS) which recently raised $1.3 billion in its IPO in March. 
The company will offer 21.39 million shares in the IPO (8.56 million new shares and 12.83 million old shares). The offered shares of 21.39 million represents nearly 30% of the outstanding shares (post IPO), which is large relative to its total outstanding shares. SK Innovation, which has a 90% stake in SK IET, plans to sell a 22.7% stake in the company in this IPO. In September 2020, SK Innovation sold a 10% stake in SK IET for 300 billion won to Premier Partners, a local fund management company. 
SK IET generated 197 billion won in EBITDA in 2020. Applying a 48.1x EV/EBITDA multiple (average valuation multiple of the company's comps), this results in an EV of 9,458 billion won and implied market cap of 9,309 billion won (130,572 won per share). After applying IPO discount 19.6% - 40.3%, this results in an IPO price range of 78,000 - 105,000 won. 


Cross Asset Strategy

<div class="content-highlight"><p><strong>It has been reported in the past few days that <a href="http://www.koreaninvestors.com/?p=12175" target="_blank" rel="noopener">NPS</a> is likely to put a greater emphasis on ESG (environmental, social, &amp; governance) based investing for Korean stocks and bonds starting 2021. </strong>NPS has currently given a mandate to a company to help NPS to apply ESG based investment system. The ESG evaluations are expected to aid NPS to actively exercise shareholder rights and also to carry out negative screening of stocks.</p></div><h3>Implications of NPS Incorporating More ESG Criteria on Domestic Investments (Bonds &amp; Stocks)</h3><ul>
<li>Negative Impact on VICE industries </li>
<li>Positive Impact on Renewable Energy Industries</li>
<li>Negative Impact on Coal &amp; Oil Industries</li>
<li>Greater Representation of Women in Senior Management Team/BOD</li>
</ul>

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, &amp; governance) based investing for Korean stocks and bonds starting 2021. NPS has currently given a mandate to a company to help NPS to apply ESG based investment system. The ESG evaluations are expected to aid NPS to actively exercise shareholder rights and also to carry out negative screening of stocks.Implications of NPS Incorporating More ESG Criteria on Domestic Investments (Bonds &amp; Stocks)
Negative Impact on VICE industries 
Positive Impact on Renewable Energy Industries
Negative Impact on Coal &amp; Oil Industries
Greater Representation of Women in Senior Management Team/BOD


NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

Equity Bottom-Up

<p><strong>One of the biggest stories in the auto sector in Korea in 2020 has been a big jump in sales of <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> vehicles. </strong>According to the Korea Automobile Manufacturers Association and Korea Automobile Importers &amp; Distributors Association, there was a <a href="http://koreabizwire.com/tesla-leads-imported-ev-sales-in-s-korea/160824" target="_blank" rel="noopener">40.1% YoY increase</a> in EV sales in January to April 2020 in Korea (excluding low-speed EVs and large-sized commercial vehicles) for total EV sales of<a href="https://www.yna.co.kr/view/AKR20200523039900003?input=1195m" target="_blank" rel="noopener"> 14,425 vehicles</a> during this period. The strong growth of EV sales in Korea has been led by Tesla. </p><div class="content-highlight"><p><strong>From January to April 2020, Tesla sold 4,075 cars in Korea, a big jump from 236 vehicle sales in Korea in January to April 2019. Tesla Model 3's combination of solid global brand awareness, advanced design, and affordable prices (about 32 million won, including attractive government incentives of nearly<a href="https://electrek.co/2019/08/14/tesla-model-3-south-korea-incentives/" target="_blank" rel="noopener"> 26 million won)</a> have resulted in the MOST POPULAR EV in Korea in 2020.</strong></p></div><p><strong>The EV related stocks have been some of the best-performing ones in the Korean stock market this year. In this insight, we highlighted 17 EV related stocks in the Korean stock market. These 17 stocks are up on average 26.3% YTD, pouncing the KOSPI which is down 6% during the same period. </strong></p>

One of the biggest stories in the auto sector in Korea in 2020 has been a big jump in sales of Tesla Motors (TSLA US) vehicles. According to the Korea Automobile Manufacturers Association and Korea Automobile Importers &amp; Distributors Association, there was a 40.1% YoY increase in EV sales in January to April 2020 in Korea (excluding low-speed EVs and large-sized commercial vehicles) for total EV sales of 14,425 vehicles during this period. The strong growth of EV sales in Korea has been led by Tesla. From January to April 2020, Tesla sold 4,075 cars in Korea, a big jump from 236 vehicle sales in Korea in January to April 2019. Tesla Model 3's combination of solid global brand awareness, advanced design, and affordable prices (about 32 million won, including attractive government incentives of nearly 26 million won) have resulted in the MOST POPULAR EV in Korea in 2020.The EV related stocks have been some of the best-performing ones in the Korean stock market this year. In this insight, we highlighted 17 EV related stocks in the Korean stock market. These 17 stocks are up on average 26.3% YTD, pouncing the KOSPI which is down 6% during the same period. 

Why Is Tesla Selling So Well in South Korea? + Top 17 EV Related Stocks in Korea

South Korea

Chunbo Co.,Ltd manufactures and sells chemical materials. The Company produces and sells display, semiconductor, and secondary battery application materials, as well as pharmaceutical intermediates and specialty chemicals. Chunbo markets its products worldwide.

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Chunbo (278280 KS)

KRX BBIG Index Rebalance Preview: Worth a Look

There are lots of changes expected to the KRX BBIG indices at the September review. With a large amount of assets tracking the indices, some of the...

Brian Freitas

SK IET Valuation Analysis

Our base case valuation of SK IET is 143,413 won, which represents a 37% upside from the high end of the IPO price range of 105,000 won.

Douglas Kim

SK IET IPO Preview

SK IET plans to complete its IPO in May. The IPO price range is from 78,000 won to 105,000 won. The IPO base deal size is from $1.5 billion to...

Douglas Kim

NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, & governance) based...

Douglas Kim

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KRX BBIG Index Rebalance Preview: Worth a Look

There are lots of changes expected to the KRX BBIG indices at the September review. With a large amount of assets tracking the indices, some of the...

Brian Freitas

SK IET Valuation Analysis

Our base case valuation of SK IET is 143,413 won, which represents a 37% upside from the high end of the IPO price range of 105,000 won.

Douglas Kim

SK IET IPO Preview

SK IET plans to complete its IPO in May. The IPO price range is from 78,000 won to 105,000 won. The IPO base deal size is from $1.5 billion to...

Douglas Kim

NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, & governance) based...

Douglas Kim

Why Is Tesla Selling So Well in South Korea? + Top 17 EV Related Stocks in Korea

One of the biggest stories in the auto sector in Korea in 2020 has been a big jump in sales of Tesla Motors (TSLA US) vehicles. According to the...

Douglas Kim