Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called <a href="https://www.smartkarma.com/entities/kmw-co-ltd" target="_blank" data-smartkarma-citation="entities:2834:1" rel="noopener">Kmw Co Ltd (032500 KS)</a> whose share price has surged 213% YTD. KMW currently has a market cap of 2.7 trillion won ($2.3 billion). The company has never generated positive operating profit from 2015 to 2018. However, the consensus expects the company to generate sales of 809 billion won (up 173% YoY) and an operating profit of 161 billion won in 2019 (from operating loss of 31 billion won in 2018). The key driver of the company's sales and profits has been the explosive demand for its 5G equipment products.<div class="content-highlight">The average product prices of the company's RF System products soared by 200% from 2.4 million won in 2018 to 7.2 million won in 1H19 and we do not believe this kind of pricing leverage is sustainable in a highly cut-throat global telecom equipment industry. In addition, the global telcos (including the ones in Korea) are notorious for cutting telecom equipment prices as much as possible and they make a lot of effort at diversifying their supplier base. </div>So we think that the 25%+ operating margin assumption for KMW in 2020 and 2021 are probably too high and the sell-side analysts may be too optimistic in their earnings forecasts. In our view, about a 15% average operating margin assumption for the company is more reasonable in 2020 and 2021 for KMW, which means that the consensus operating profit estimates in 2020 and 2021 are probably overstated by about 40% in our view. All in all, we believe that shares of KMW are overvalued by about 40% and we believe the company's intrinsic value is closer to 1.6 trillion won (market cap) or 41,000 won per share (versus the current price of 69,000 won) over a one year view.

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called Kmw Co Ltd (032500 KS) whose share price has surged 213% YTD. KMW currently has a market cap of 2.7 trillion won ($2.3 billion). The company has never generated positive operating profit from 2015 to 2018. However, the consensus expects the company to generate sales of 809 billion won (up 173% YoY) and an operating profit of 161 billion won in 2019 (from operating loss of 31 billion won in 2018). The key driver of the company's sales and profits has been the explosive demand for its 5G equipment products.The average product prices of the company's RF System products soared by 200% from 2.4 million won in 2018 to 7.2 million won in 1H19 and we do not believe this kind of pricing leverage is sustainable in a highly cut-throat global telecom equipment industry. In addition, the global telcos (including the ones in Korea) are notorious for cutting telecom equipment prices as much as possible and they make a lot of effort at diversifying their supplier base. So we think that the 25%+ operating margin assumption for KMW in 2020 and 2021 are probably too high and the sell-side analysts may be too optimistic in their earnings forecasts. In our view, about a 15% average operating margin assumption for the company is more reasonable in 2020 and 2021 for KMW, which means that the consensus operating profit estimates in 2020 and 2021 are probably overstated by about 40% in our view. All in all, we believe that shares of KMW are overvalued by about 40% and we believe the company's intrinsic value is closer to 1.6 trillion won (market cap) or 41,000 won per share (versus the current price of 69,000 won) over a one year view. 

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Dasan Networks (039560), Korea's telecom equipment maker, publicly announced yesterday that it will merge with U.S.-based Zhone Technologies Inc., a leading maker of fiber access transformation. Dasan Networks will obtain 58 percent of common shares of the merged entity for KRW89b.Specifically, Dasan agreed with Zhone to merge its U.S. operation Dasan Network Solutions Inc. (DNS) with DA Corp. - Zhone Technolgies’ subsidiary. Dasan will control 58 percent of the merged entity that will be named…

Dasan Networks (039560), Korea's telecom equipment maker, publicly announced yesterday that it will merge with U.S.-based Zhone Technologies Inc., a leading maker of fiber access transformation. Dasan Networks will obtain 58 percent of common shares of the merged entity for KRW89b.Specifically, Dasan agreed with Zhone to merge its U.S. operation Dasan Network Solutions Inc. (DNS) with DA Corp. - Zhone Technolgies’ subsidiary. Dasan will control 58 percent of the merged entity that will be named…

Dasan Merges with US Based Zhone Tech: Softbank-Owned Sprint's 5G Upgrade Is a Key to This Deal

South Korea

Dasan Networks Inc. manufactures network equipment such as routers, Ethernet switches, X digital subscriber lines (XDSL), and remote access systems (RASs). The Company also sells hardware and software for telecommunications software development.

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Dasan Networks (039560 KS)

KMW - A Shorting Opportunity

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called Kmw Co Ltd (032500 KS) whose share price has surged...

Douglas Kim

Dasan Merges with US Based Zhone Tech: Softbank-Owned Sprint's 5G Upgrade Is a Key to This Deal

Dasan Networks (039560), Korea's telecom equipment maker, publicly announced yesterday that it will merge with U.S.-based Zhone Technologies Inc.,...

Sanghyun Park

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