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.

Event-Driven

<ul>
<li>There are six local sector indexes in total, which have a meaningful level of AUM and will be rebalanced in December.</li>
<li>In KOSPI200 IT, LG Corp and Samsung SDS will face a positive flow, while SDI will have an outflow on December 9. KB Financial will replace POSCO in FnGuide TOP10.</li>
<li>Samsung SDI, Enchem, and Dear U deserve the most attention the next day (the 10th). Besides Dear U, RBW is another likely addition to both K-Metaverse and Metaverse Theme.</li>
</ul>


There are six local sector indexes in total, which have a meaningful level of AUM and will be rebalanced in December.
In KOSPI200 IT, LG Corp and Samsung SDS will face a positive flow, while SDI will have an outflow on December 9. KB Financial will replace POSCO in FnGuide TOP10.
Samsung SDI, Enchem, and Dear U deserve the most attention the next day (the 10th). Besides Dear U, RBW is another likely addition to both K-Metaverse and Metaverse Theme.


Korea Sector Indexes with December Rebalancing: Passive Impact by Date

<ul>
<li>The rebalancing implementation of the FnGuide Secondary Battery Index will be on December 13. So, the ETF operator's rebalancing trading will take place at the close on December 10.</li>
<li>Among the stocks to which the ceiling is applied, the stocks with a relatively sizeable passive impact (at the current prices) are <strong>SK Innovation, Ecopro BM, and Posco Chemical</strong>.</li>
<li>Among the companies that have been listed since June, the companies that directly operate the rechargeable battery business are the following three: <strong>Enchem</strong>, GI Tech, and Onejoon.</li>
</ul>


The rebalancing implementation of the FnGuide Secondary Battery Index will be on December 13. So, the ETF operator's rebalancing trading will take place at the close on December 10.
Among the stocks to which the ceiling is applied, the stocks with a relatively sizeable passive impact (at the current prices) are SK Innovation, Ecopro BM, and Posco Chemical.
Among the companies that have been listed since June, the companies that directly operate the rechargeable battery business are the following three: Enchem, GI Tech, and Onejoon.


FnGuide Secondary Battery Index Rebalancing Preview in December: Watch Enchem

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/enchem-co-ltd" target="_blank" data-smartkarma-citation="entities:34297:1" rel="noopener">Enchem (348370 KS)</a> reported strong book building results and the IPO price has been finalized at 42,000 won per share, which was 20% higher than the high end of the IPO price range of 35,000 won. The IPO of Enchem will start trading on 1 November.</p><p>Enchem's<a href="http://www.ipo38.co.kr/ipo/index.htm?o=v&amp;key=6&amp;no=1714&amp;l=&amp;page=1" target="_blank" rel="noopener"> gray market price</a> is trading at around 71,000 won per share, which is 69% higher than the IPO price of 42,000 won. There were 1,721 institutions that participated in this IPO survey and the demand ratio for the IPO shares were 1,647 to 1.</p><p>The company had some excellent book building data points. For example, a 73.9% of the institutional investors thought that the intrinsic value of Enchem should be more than 42,000 won. In addition, a very high ratio (64.4%) of the institutional investors' subscribed shares are under various lock-up periods.</p><div class="content-highlight"><p>Our base case valuation of Enchem remains implied market cap of 904 billion won or 55,777 won per share, which is 33% higher than the IPO price range of 42,000 won per share. Given the strong upside, we have a POSITIVE view of the Enchem IPO. Our base case valuation is based on a P/E of 45.7x our estimated net profit of 20 billion won in 2022.</p></div>

Enchem (348370 KS) reported strong book building results and the IPO price has been finalized at 42,000 won per share, which was 20% higher than the high end of the IPO price range of 35,000 won. The IPO of Enchem will start trading on 1 November.Enchem's gray market price is trading at around 71,000 won per share, which is 69% higher than the IPO price of 42,000 won. There were 1,721 institutions that participated in this IPO survey and the demand ratio for the IPO shares were 1,647 to 1.The company had some excellent book building data points. For example, a 73.9% of the institutional investors thought that the intrinsic value of Enchem should be more than 42,000 won. In addition, a very high ratio (64.4%) of the institutional investors' subscribed shares are under various lock-up periods.Our base case valuation of Enchem remains implied market cap of 904 billion won or 55,777 won per share, which is 33% higher than the IPO price range of 42,000 won per share. Given the strong upside, we have a POSITIVE view of the Enchem IPO. Our base case valuation is based on a P/E of 45.7x our estimated net profit of 20 billion won in 2022.

Enchem IPO - Excellent Book Building Results

<p>KRX officially announced today that it would not apply the volatility interruption on the first day of listing for newly listed stocks from <strong>October 18th</strong>.</p><p><strong>Both dynamic VI and static VI do not apply on the listing date.</strong> However, in the case of a transfer listing from the KOSDAQ to the KOSPI or a transfer listing from the KOSPI to the KOSDAQ, the current VI continues to apply. However, it won't apply for a transfer from KONEX to KOSDAQ.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/793/original/1.png?1632975345" class="editor-image img-responsive" data-smartkarma-image-id="232793"></figure></section><div class="content-caption">(Source: KRX)</div><div class="content-highlight"><p>Attached below is the full version of the press release by the KRX.</p></div><p>KRX cited as the reason for this rule change that, although it is a natural phenomenon that price fluctuations accompany the process of finding a fair price on the listing date, the VI was excessively triggered in the recent listings, which undermines transaction continuity.</p><p>In particular, there has been frequent VI activation immediately after the opening, where many investors participated, caused many problems by stopping trading and delaying the discovery of a fair price. Therefore, through this measure, KRX expects to improve the process of finding a fair price for newly listed stocks by increasing transaction continuity on the listing date.</p>

KRX officially announced today that it would not apply the volatility interruption on the first day of listing for newly listed stocks from October 18th.Both dynamic VI and static VI do not apply on the listing date. However, in the case of a transfer listing from the KOSDAQ to the KOSPI or a transfer listing from the KOSPI to the KOSDAQ, the current VI continues to apply. However, it won't apply for a transfer from KONEX to KOSDAQ.(Source: KRX)Attached below is the full version of the press release by the KRX.KRX cited as the reason for this rule change that, although it is a natural phenomenon that price fluctuations accompany the process of finding a fair price on the listing date, the VI was excessively triggered in the recent listings, which undermines transaction continuity.In particular, there has been frequent VI activation immediately after the opening, where many investors participated, caused many problems by stopping trading and delaying the discovery of a fair price. Therefore, through this measure, KRX expects to improve the process of finding a fair price for newly listed stocks by increasing transaction continuity on the listing date.

No VI (Volatility Interruption) Applies to Korean IPO Stocks on the Listing Date After October 18

<div class="content-highlight">
<p>Our base case valuation of Enchem is implied market cap of 904 billion won or 55,777 won per share, which is 59% higher than the high end of the IPO price range of 35,000 won per share. Given the strong upside, we have a POSITIVE view of the Enchem IPO and we would subscribe to the IPO deal. Our valuation sensitivity analysis suggests a low-how value of 45,179 won to 67,490 won per share. </p>
<p>Our base case valuation is based on a P/E of 45.7x our estimated net profit of 20 billion won in 2022. Our valuation multiple of 45.7x P/E is based on a 10% discount to the average P/E valuation multiple of the peers in 2022. We have used a 10% discount mainly due to lower operating margin of the company versus its peers as well as due to size factor of lower market cap of the company as compared to its comps. </p>
<p><em>Enchem's<a href="http://www.ipo38.co.kr/ipo/index.htm?o=v&amp;key=6&amp;no=1714&amp;l=&amp;page=1" target="_blank" rel="noopener"> gray market price</a> is trading at around 71,000 won per share, which is more than 100% higher than the high end of the IPO price of 35,000 won per share. </em></p>
</div>


Our base case valuation of Enchem is implied market cap of 904 billion won or 55,777 won per share, which is 59% higher than the high end of the IPO price range of 35,000 won per share. Given the strong upside, we have a POSITIVE view of the Enchem IPO and we would subscribe to the IPO deal. Our valuation sensitivity analysis suggests a low-how value of 45,179 won to 67,490 won per share. 
Our base case valuation is based on a P/E of 45.7x our estimated net profit of 20 billion won in 2022. Our valuation multiple of 45.7x P/E is based on a 10% discount to the average P/E valuation multiple of the peers in 2022. We have used a 10% discount mainly due to lower operating margin of the company versus its peers as well as due to size factor of lower market cap of the company as compared to its comps. 
Enchem's gray market price is trading at around 71,000 won per share, which is more than 100% higher than the high end of the IPO price of 35,000 won per share. 


South Korea

Kumho Petrochemical Co., Ltd. manufactures synthetic rubbers, synthetic resins, and rubber chemicals.  The Company's products include styrene butadiene, acrylonitrile butadiene, polystyrene, expandable polystyrene, and antioxidant.  Kumho Petrochemical provides construction, transportation, and financial services through its subsidiaries.

Capro Corporation manufactures and exports caprolactam, a key raw material for nylon.  The Company's customers include nylon manufacturers such as Hyosung Corporation, Kolon Industries, and  Taekwang Industrial.  In addition, Capro also produces ammonia sulfate fertilizer for industrial and agricultural uses.

Hanwha Solution Corporation is a chemical manufacturer.  The Company's products include a line of chlorine alkali chemicals, such as caustic soda, chlorine, and hydrochloric acid.  Hanwha also produces resins including low density polyethylene (LDPE) and polyvinyl chloride (PVC).

Lotte Chemical Corporation manufactures a wide range of petrochemical products such as high density polyethylene, polypropylene, and ethylene glycol. The Company's products are used in manufacturing general housewares, pipes, films, fabrics, bottles, containers, and automotive parts.

Kum Yang Co., Ltd. specializes in manufacturing blowing agents to foam rubber products and polymers.  The Company also produces other basic fine chemicals, such as sulphur products.

SKC Co., Ltd. manufactures a variety of films, including polyester films, silicon coated films, and inkjet films.  The Company also produces chemical products, such as propylene oxide, propylene glycol, and styrene monomer. In addition, SKC provides materials for photovoltaic.

OCI Holdings Company Ltd. operates chemical business. The Company manufactures inorganic chemicals, petroleum and coal chemicals, fine chemicals, renewable energy and insulation materials. OCI Holdings markets its products primarily throughout Korea with limited overseas.

Hansol Chemical Co., Ltd. manufactures chemical products such as hydrogen peroxide, benzol peroxide, urea resin, polyacrylamide, trimethylolpropane, and latex.  The Company supplies its products to the paper, textile, and food industries.

Dongjin Semichem Co., Ltd. produces fine chemicals for semiconductor and liquid crystal display (LCD) manufacturing.  The Company's products include photoresist materials and epoxy molding compounds.  In addition, Dongjin Semichem also produces chemical foaming agents for plastic and rubber applications.

LOTTE Fine Chemical Co., Ltd. produces general and fine chemicals. The Company produces ammonia, epichlorohydrin, caustic soda, and dimethylformamide. LOTTE Fine Chemical also manufactures chemicals used in pharmaceutical and paint manufacturing areas.

NOF CORPORATION is a diversified chemical producer whose products include processed oil/fats, explosives and other chemical products. The Company has manufacturing/sales subsidiaries in US, Indonesia and China.

K+S AG manufactures and markets within the fertilizer division standard and speciality fertilizers to the agricultural and industrial industries worldwide. In its salt business, the company produces de-icing salt, food grade salt, industrial salt and salt for chemical use.

Hangzhou Oxygen Plant Group Co.,Ltd. manufactures industrial gas machinery products. The Company produces air separation equipment, small-scale air separation equipment, liquefied nitrogen wash cold boxes, liquefied natural gas separation equipment, and other products. Hangzhou Oxygen Plant Group markets its products worldwide.

Finolex Industries Limited manufactures PVC pipes and fittings, which are sold primarily to businesses in the agricultural sector.  The Company also manufactures PVC resins, which are used as raw materials for PVC pipes and fittings.

Castrol (India) Limited manufactures and markets automotive and industrial lubricants and specialty products. The Company's products include lubricating oils, greases and brake fluids. The Company also manufactures cable filling compounds, jellies, waxes and other items.

Quaker Chemical Corporation produces, develops, and markets custom-formulated chemical specialty products.  The Company also provides fluid management services for manufacturers around the world, primarily in the steel, automotive, and can industries.

Kingfa Sci. & Tech. Co., Ltd. manufactures and markets modified plastic products, including fire resistant resin, reinforced resin, plastic alloy, and other related products.

ADEKA CORPORATION manufactures basic chemicals and foodstuffs.  The Company's products include resin products, insulators, and processed fat/oil products.

Navin Fluorine International Limited manufactures fluorochemicals. The Company produces benzotrifuoride derivatives, fluoro benzene derivatives, fluoro toluene derivatives, and aliphatic fluoro compounds.

Hengyi Petrochemical Co., Ltd. manufactures polyester and other petrochemical products.

ENCHEM Co.,Ltd. produces and sells electrolyte and functional additives. The Company develops, manufactures and markets lithium rechargeable batteries electrolytes, polymer batteries electrolytes, high functionality additives, and other products. ENCHEM markets its products primarily throughout Korea with limited overseas.

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Enchem (348370 KS)

Korea Sector Indexes with December Rebalancing: Passive Impact by Date

There are six local sector indexes in total, which have a meaningful level of AUM and will be rebalanced in December. This post tracks the passive...

Sanghyun Park

FnGuide Secondary Battery Index Rebalancing Preview in December: Watch Enchem

The FnGuide Secondary Battery Index (KODEX ETF) rebalancing in December is expected to see several names with a sizeable passive impact.

Sanghyun Park

Enchem IPO - Excellent Book Building Results

Enchem (348370 KS) reported strong book building results and the IPO price has been finalized at 42,000 won per share, which was 20% higher than...

Douglas Kim

No VI (Volatility Interruption) Applies to Korean IPO Stocks on the Listing Date After October 18

The KRX made it official that no VI (volatility interruption) applies to IPO stocks on the listing date after October 18. This post details the...

Sanghyun Park

Enchem IPO Valuation Analysis

Our base case valuation of Enchem is implied market cap of 904 billion won or 55,777 won per share, which is 59% higher than the high end of the...

Douglas Kim

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