Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight">
<a href="https://www.smartkarma.com/entities/korea-kolmar-co-ltd" target="_blank" data-smartkarma-citation="entities:7985:1" rel="noopener">Korea Kolmar (161890 KS)</a> is the seventh company we introduce in our 'Korea Small Cap Gem' series. We define small cap as companies with market cap of less than US$1 billion. Korea Kolmar has a market cap of $0.9 billion (1 trillion won). Korea Kolmar is one of the leading cosmetics ODM companies in Korea. It was the first company in Korea to introduce the ODM business for the cosmetics industry in 1993. Korea Kolmar currently owns a 50.7% stake in a private company called HK inno.N. This company was previously called CJ HealthCare which Korea Kolmar purchased in April 2018 for 1.3 trillion won ($1.2 billion) (100% stake) from CJ Cheiljedang.
The local media have mentioned that the estimated value of HK inno.N has risen to nearly 2 trillion won. A 50.7% stake of this would be worth nearly 1 trillion won, which would represent nearly the entire market cap of Korea Kolmar.
In other words, if the assessment of the value of HK inno.N is indeed about 2 trillion won, then investors would be getting the remaining Korea Komar's core businesses for free. Over the next one year, Korea Kolmar could be a major turnaround play with improving cosmetics operations along with an increasing focus on the IPO of HK inno.N in 2021.
</div>


Korea Kolmar (161890 KS) is the seventh company we introduce in our 'Korea Small Cap Gem' series. We define small cap as companies with market cap of less than US$1 billion. Korea Kolmar has a market cap of $0.9 billion (1 trillion won). Korea Kolmar is one of the leading cosmetics ODM companies in Korea. It was the first company in Korea to introduce the ODM business for the cosmetics industry in 1993. Korea Kolmar currently owns a 50.7% stake in a private company called HK inno.N. This company was previously called CJ HealthCare which Korea Kolmar purchased in April 2018 for 1.3 trillion won ($1.2 billion) (100% stake) from CJ Cheiljedang.
The local media have mentioned that the estimated value of HK inno.N has risen to nearly 2 trillion won. A 50.7% stake of this would be worth nearly 1 trillion won, which would represent nearly the entire market cap of Korea Kolmar.
In other words, if the assessment of the value of HK inno.N is indeed about 2 trillion won, then investors would be getting the remaining Korea Komar's core businesses for free. Over the next one year, Korea Kolmar could be a major turnaround play with improving cosmetics operations along with an increasing focus on the IPO of HK inno.N in 2021.


Korea Small Cap Gem #7: Korea Kolmar - Get the Core Cosmetics Business for Free (Ex HK Inno.N)

Julie Lee

The street has been focusing on the leading e-commerce players in 2020 due to surge in demand since the pandemic. E-commerce companies have spent huge efforts especially on online grocery shopping  due to its importance for customers, rapid growth on under-penetration, and high frequency of visits.  Strong growth of e-commerce has been well highlighted by the street, while  positive impact on FMCG has been less appreciated. FMCG companies such as <a href="https://www.smartkarma.com/entities/cj-cheiljedang-corp" target="_blank" data-smartkarma-citation="entities:1970:1" rel="noopener">CJ Cheiljedang (097950 KS)</a> will continue to benefit from reduced sales and marketing costs and can increase customer reach in other countries along with rising online grocery penetration.  We will assess if Korean F&amp;B companies can repeat the success story of Korean cosmetic companies had shown in 2014 and 2015 supported by rising e-commerce in China.

The street has been focusing on the leading e-commerce players in 2020 due to surge in demand since the pandemic. E-commerce companies have spent huge efforts especially on online grocery shopping  due to its importance for customers, rapid growth on under-penetration, and high frequency of visits.  Strong growth of e-commerce has been well highlighted by the street, while  positive impact on FMCG has been less appreciated. FMCG companies such as CJ Cheiljedang (097950 KS) will continue to benefit from reduced sales and marketing costs and can increase customer reach in other countries along with rising online grocery penetration.  We will assess if Korean F&amp;B companies can repeat the success story of Korean cosmetic companies had shown in 2014 and 2015 supported by rising e-commerce in China.   

Positive Impact of Increasing Global Online Grocery: CJ Cheiljedang (097950 KS)

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

Q3 delivered marked underperformanceOur Q3-2020 Small-Mid Cap High-Risk list of stocks produced an average price increase of 0.3%. In comparison, the MSCI Asia Pacific Index posted an increase of 6.3% over the same period. 15 stocks appear in our Q4 2020 screen, versus 21 in Q3 2020. As we highlighted in the previous three quarters, we are specifically on the watch for the risk of deteriorating credit metrics during 2020. This screen presents names which are worthy of investigation as they present with fundamentals which are at risk.

Q3 delivered marked underperformanceOur Q3-2020 Small-Mid Cap High-Risk list of stocks produced an average price increase of 0.3%. In comparison, the MSCI Asia Pacific Index posted an increase of 6.3% over the same period. 15 stocks appear in our Q4 2020 screen, versus 21 in Q3 2020. As we highlighted in the previous three quarters, we are specifically on the watch for the risk of deteriorating credit metrics during 2020. This screen presents names which are worthy of investigation as they present with fundamentals which are at risk.

Screening the Silk Road: Q4 2020 High Risk Names to Avoid

Thematic (Sector/Industry)

Korea exports in September increased by 7.7% YoY.  Average daily exports in September was still down 4.1% YoY but daily exports has recovered to over US$2bil, for the first time since January, and narrowed its losses compared to those in July and August (-7.1% and -4.3%). 
Exports of Auto and Semiconductor sectors had led the improvement showing solid increase MoM in September. The sectors which had shown positive YoY growth in 3Q include Computers, Healthcare, Cosmetics, Consumer Electronics, Foods, and Auto, which implies positive near term trend for <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/cosmax-inc" target="_blank" data-smartkarma-citation="entities:4491:1" rel="noopener">Cosmax Inc (192820 KS)</a> .  As suggested in the recent exports trend, Korean F&amp;B companies such as <a href="https://www.smartkarma.com/entities/cj-cheiljedang-corp" target="_blank" data-smartkarma-citation="entities:1970:1" rel="noopener">CJ Cheiljedang (097950 KS)</a> may have a good opportunity to expand their overseas businesses in the long term given increasing penetration of global online grocery shopping during the pandemic. We will discuss more details in the next report.

Korea exports in September increased by 7.7% YoY.  Average daily exports in September was still down 4.1% YoY but daily exports has recovered to over US$2bil, for the first time since January, and narrowed its losses compared to those in July and August (-7.1% and -4.3%). 
Exports of Auto and Semiconductor sectors had led the improvement showing solid increase MoM in September. The sectors which had shown positive YoY growth in 3Q include Computers, Healthcare, Cosmetics, Consumer Electronics, Foods, and Auto, which implies positive near term trend for LG Electronics (066570 KS) and Cosmax Inc (192820 KS) .  As suggested in the recent exports trend, Korean F&amp;B companies such as CJ Cheiljedang (097950 KS) may have a good opportunity to expand their overseas businesses in the long term given increasing penetration of global online grocery shopping during the pandemic. We will discuss more details in the next report.  

Solid Korea Export (+7.7%yoy) In Sep and Positive Implications

Event-Driven

<div class="content-highlight">After the market close today, <a href="https://www.smartkarma.com/entities/cj-korea-express-corp" target="_blank" data-smartkarma-citation="entities:11557:1" rel="noopener">Cj Logistics (000120 KS)</a> announced that it plans to sell its stake in <a href="https://finance.naver.com/item/news_read.nhn?article_id=0004753670&amp;office_id=018&amp;code=000120&amp;sm=title_entity_id.basic" target="_blank" rel="noopener">CJ Rokin Logistics</a> (China), which is among the top 50 logistics companies in China. In September 2015, CJ Logistics (along with Korea National Pension Fund) purchased a 71.4% stake in CJ Rokin Logistics for 455 billion won. This would suggest a value of 637 billion won for a 100% stake in CJ Rokin Logistics which specializes in cold storage distribution and logistics. It is estimated that CJ Rokin Logistics' value has increased to about 1.0 trillion won to1.2 trillion won right now. CJ Logistics currently has a 52.3% stake in CJ Rokin Logistics.</div>

After the market close today, Cj Logistics (000120 KS) announced that it plans to sell its stake in CJ Rokin Logistics (China), which is among the top 50 logistics companies in China. In September 2015, CJ Logistics (along with Korea National Pension Fund) purchased a 71.4% stake in CJ Rokin Logistics for 455 billion won. This would suggest a value of 637 billion won for a 100% stake in CJ Rokin Logistics which specializes in cold storage distribution and logistics. It is estimated that CJ Rokin Logistics' value has increased to about 1.0 trillion won to1.2 trillion won right now. CJ Logistics currently has a 52.3% stake in CJ Rokin Logistics.

Korea M&A Spotlight: CJ Logistics Announces It Will Sell CJ Rokin Logistics (China)

South Korea

CJ CheilJedang Corp. manufactures processed food products.  The Company's products include refined sugar, monosodium glutamate (MSG), condiment, wheat powder, flour, cooking oil, processed meats, and animal feed.  CJ CheilJedang also manufactures pharmaceutical and household products.

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

CJ Cheiljedang (097950 KS)

Korea Small Cap Gem #7: Korea Kolmar - Get the Core Cosmetics Business for Free (Ex HK Inno.N)

Over the next one year, Korea Kolmar could be a major turnaround play with improving cosmetics operations along with an increasing focus on the IPO...

Douglas Kim

Positive Impact of Increasing Global Online Grocery: CJ Cheiljedang (097950 KS)

Korean F&B companies such as CJCJ may repeat the success stories of Korean cosmetic companies in overseas markets backed by increasing online...

Julie Lee

Screening the Silk Road: Q4 2020 High Risk Names to Avoid

Our Q3 screen delivered 600bps of under performance. With volatility is set to increase as we head into H1 2020, which stocks are most at risk in...

David Lepper

Solid Korea Export (+7.7%yoy) In Sep and Positive Implications

Korea export in September increased by 7.7% yoy.

Julie Lee

Korea M&A Spotlight: CJ Logistics Announces It Will Sell CJ Rokin Logistics (China)

After the market close today, Cj Logistics (000120 KS) announced that it plans to sell its stake in CJ Rokin Logistics (China). In September 2015,...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)