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

<p><strong>Q3 delivered marked underperformance</strong></p><p>Our 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.</p>

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

Julie Lee

Thematic (Sector/Industry)

<p>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%). </p>
<p>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.  </p>

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

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight"><p>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<strong> 637 billion won for a 100% stake in CJ Rokin Logistics</strong> which specializes in cold storage distribution and logistics. It is estimated that CJ Rokin Logistics' value has increased to about <strong>1.0 trillion won to</strong><strong>1.2 trillion won</strong> right now. CJ Logistics currently has a 52.3% stake in CJ Rokin Logistics.</p></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)

Equity Capital Markets

<div class="content-highlight">
<p>The fried chicken business is big in Korea. Established in 1991, Kyochon F&amp;B ("Kyochon Chicken") is the top fried chicken franchise in Korea and it is getting ready to complete its IPO in November. In the world of F&amp;B, you have Coke vs. Pepsi, Shake Shack vs. Five Guys, and McDonalds vs. Burger King. In the Korean fried chicken business, you have Kyochon vs. other major players including BBQ, BHC, and Pelicana. </p>
<p>The IPO price range of Kychon F&amp;B is from 10,600 won to 12,300 won. The IPO base deal size is from $53 million to $61 million. The expected market cap after the IPO is from 267 billion won to 310 billion won, according to bankers' valuation. The book-building for the institutional investors starts on 28 October 2020.</p>
<p>Kyochon F&amp;B is much smaller in size than the top three IPOs in Korea this year (SK Biopharm, Kakao Games, and Big Hit Entertainment). However, we believe that the Kyochon F&amp;B will draw a lot of interest among many institutional investors, especially that have long-term investment horizons. </p>
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The fried chicken business is big in Korea. Established in 1991, Kyochon F&amp;B ("Kyochon Chicken") is the top fried chicken franchise in Korea and it is getting ready to complete its IPO in November. In the world of F&amp;B, you have Coke vs. Pepsi, Shake Shack vs. Five Guys, and McDonalds vs. Burger King. In the Korean fried chicken business, you have Kyochon vs. other major players including BBQ, BHC, and Pelicana. 
The IPO price range of Kychon F&amp;B is from 10,600 won to 12,300 won. The IPO base deal size is from $53 million to $61 million. The expected market cap after the IPO is from 267 billion won to 310 billion won, according to bankers' valuation. The book-building for the institutional investors starts on 28 October 2020.
Kyochon F&amp;B is much smaller in size than the top three IPOs in Korea this year (SK Biopharm, Kakao Games, and Big Hit Entertainment). However, we believe that the Kyochon F&amp;B will draw a lot of interest among many institutional investors, especially that have long-term investment horizons. 


Kyochon F&B IPO Preview - Korean Fried Chicken At Its Best

<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

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.

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CJ Cheiljedang (097950 KS)

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

Kyochon F&B IPO Preview - Korean Fried Chicken At Its Best

The fried chicken business is big in Korea. Kyochon F&B ("Kyochon Chicken") is the top fried chicken franchise in Korea and it is getting...

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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