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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

It seems to be spin-off season in Korea.Three <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> and <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituents will be suspended from trading from 29 April - <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a>, <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> and <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> due to a spin-off of its businesses.<a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> will resume trading on 21 May, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> will resume trading on 27 May, and <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> will resume trading on 28 May.<a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> will remain in the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> and its spinoff will be added to the index, <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> will remain in the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> but the spinoff will not be added to the index, <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> will continue to be a <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> constituent though its spinoff will not be included in the index.In this Insight, we look at the index treatment, the impact of passive flow on the stocks, and the impact of the changes on the June rebalance of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a>.

It seems to be spin-off season in Korea.Three Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) constituents will be suspended from trading from 29 April - LG Corp (003550 KS), F&amp;F Co Ltd (007700 KS) and Ecopro Co Ltd (086520 KS) due to a spin-off of its businesses.F&amp;F Co Ltd (007700 KS) will resume trading on 21 May, LG Corp (003550 KS) will resume trading on 27 May, and Ecopro Co Ltd (086520 KS) will resume trading on 28 May.LG Corp (003550 KS) will remain in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and its spinoff will be added to the index, F&amp;F Co Ltd (007700 KS) will remain in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) but the spinoff will not be added to the index, Ecopro Co Ltd (086520 KS) will continue to be a KOSDAQ 150 Index (KOSDQ150 INDEX) constituent though its spinoff will not be included in the index.In this Insight, we look at the index treatment, the impact of passive flow on the stocks, and the impact of the changes on the June rebalance of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX). 

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">On 20 November, a leading Korean apparel maker <a href="https://www.smartkarma.com/entities/f-f-co-ltd" target="_blank" data-smartkarma-citation="entities:15983:1" rel="noopener">F&amp;F Co Ltd (007700 KS)</a> announced that it will form a holding company structure. F&amp;F Holdings will become the surviving holding company. F&amp;F (Newco) will become a new company that will be spun off and it will focus on the fashion business. F&amp;F Holdings will manage the subsidiaries of the holding company and invest in new businesses. Following this announcement, F&amp;F's share price declined by 5.7% on Monday, November 23rd. This formation of the holding company by F&amp;F does not seem to make much sense and it reminds me of a similar holding company structure formation by the BGF Group in 2017 (which has not really benefited the BGF Retail and BGF Holdings minority shareholders) since then. </div>

On 20 November, a leading Korean apparel maker F&amp;F Co Ltd (007700 KS) announced that it will form a holding company structure. F&amp;F Holdings will become the surviving holding company. F&amp;F (Newco) will become a new company that will be spun off and it will focus on the fashion business. F&amp;F Holdings will manage the subsidiaries of the holding company and invest in new businesses. Following this announcement, F&amp;F's share price declined by 5.7% on Monday, November 23rd. This formation of the holding company by F&amp;F does not seem to make much sense and it reminds me of a similar holding company structure formation by the BGF Group in 2017 (which has not really benefited the BGF Retail and BGF Holdings minority shareholders) since then. 

F&F: The Formation of a Holding Company - Bad for Minority Shareholders

Equity Capital Markets

We have chosen to use EV/EBIT to value BrandX Corp mainly because this negates the differences in the capital structure of the different companies. Echo Marketing is currently trading at 14.7x EV/EBIT using 2020 EBIT estimates. We have applied a 20% premium valuation multiple on BrandX Corp (17.6x EV/EBIT 2020E), mainly due to much higher sales growth and returns on equity as compared to Echo Marketing.Applying a 17.6x EV/EBIT multiple to our estimated EBIT of 18.5 billion won in 2020 results in an EV of 327 billion won and an implied market cap of 363 billion won. This results in an implied price of 17,912 won, which is 29% above the mid-point of the IPO range (12,400 won to 15,300 won). Given the solid upside, we have a positive view of this IPO and we would take this deal. As we mentioned in our previous note, <a href="https://www.smartkarma.com/insights/brandx-corporation-ipo-preview" target="_blank" data-smartkarma-citation="insights:41084" rel="noopener">BrandX Corporation IPO Preview</a>,  a key risk that the company faces is whether it can become more than a "one-hit-wonder." The company's most successful brand Xexymix has been the major driver of its sales and profits in the past two years and for now, it is uncertain whether it can continue its success in other products such as cosmetics, men's apparel, and HMR F&amp;B product categories.

We have chosen to use EV/EBIT to value BrandX Corp mainly because this negates the differences in the capital structure of the different companies. Echo Marketing is currently trading at 14.7x EV/EBIT using 2020 EBIT estimates. We have applied a 20% premium valuation multiple on BrandX Corp (17.6x EV/EBIT 2020E), mainly due to much higher sales growth and returns on equity as compared to Echo Marketing.Applying a 17.6x EV/EBIT multiple to our estimated EBIT of 18.5 billion won in 2020 results in an EV of 327 billion won and an implied market cap of 363 billion won. This results in an implied price of 17,912 won, which is 29% above the mid-point of the IPO range (12,400 won to 15,300 won). Given the solid upside, we have a positive view of this IPO and we would take this deal. As we mentioned in our previous note, BrandX Corporation IPO Preview,  a key risk that the company faces is whether it can become more than a "one-hit-wonder." The company's most successful brand Xexymix has been the major driver of its sales and profits in the past two years and for now, it is uncertain whether it can continue its success in other products such as cosmetics, men's apparel, and HMR F&amp;B product categories. 

BrandX Corporation IPO Valuation Analysis

Nature Holdings  / / Equity Capital Markets

The Nature Holdings is getting ready for an IPO in the Korean stock market in July. Established in 2004, The Nature Holdings has been one of the most impressive rising stars in the Korean apparel sector in the past two years. This is the biggest IPO in the Korean apparel sector this year. The company has the rights to sell the National Geographic brand name apparel products in Korea. The National Geographic branded apparel products have been one of the best selling brands in Korea in the past two years.The IPO price range is from 45,000 won to 50,000 won. The company expects to raise between 54 billion won to 60 billion won. The book-building for the institutional investors starts on July 8th. The lead underwriter on this deal is Korea Investment &amp; Securities. According to the bankers' valuation, this IPO is expected to have a market cap of 364 billion won (at the high end of the IPO price range). The company's revenue surged from 40.1 billion won in 2016 to 235.3 billion won in 2019, a CAGR of 80.3% during this period. Its operating profit also surged nearly 14x from 2.8 billion won in 2016 to 39.8 billion won in 2019. The company's revenue and operating profit increased by 66.7% and 96.7% YoY in 2019.

The Nature Holdings is getting ready for an IPO in the Korean stock market in July. Established in 2004, The Nature Holdings has been one of the most impressive rising stars in the Korean apparel sector in the past two years. This is the biggest IPO in the Korean apparel sector this year. The company has the rights to sell the National Geographic brand name apparel products in Korea. The National Geographic branded apparel products have been one of the best selling brands in Korea in the past two years.The IPO price range is from 45,000 won to 50,000 won. The company expects to raise between 54 billion won to 60 billion won. The book-building for the institutional investors starts on July 8th. The lead underwriter on this deal is Korea Investment &amp; Securities. According to the bankers' valuation, this IPO is expected to have a market cap of 364 billion won (at the high end of the IPO price range). The company's revenue surged from 40.1 billion won in 2016 to 235.3 billion won in 2019, a CAGR of 80.3% during this period. Its operating profit also surged nearly 14x from 2.8 billion won in 2016 to 39.8 billion won in 2019. The company's revenue and operating profit increased by 66.7% and 96.7% YoY in 2019.

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

Growth as an investment style has remained prominent over the COVID-19 period, reinforcing its decade long dominance over the value. The key question remains:  with earnings and value set to be a key theme over H2 2020 when exactly is the value style expected to reverse its underperformance trend? Our data suggest a greater than 66% chance of reversal shortly. As the value style reversal looks increasingly assured, exposure to GARP style investing and the underlying stocks are set to become even more important as we move into the second half of 2020. We highlight 17 stocks who fit the criteria in Q2 2020.

Growth as an investment style has remained prominent over the COVID-19 period, reinforcing its decade long dominance over the value. The key question remains:  with earnings and value set to be a key theme over H2 2020 when exactly is the value style expected to reverse its underperformance trend? Our data suggest a greater than 66% chance of reversal shortly. As the value style reversal looks increasingly assured, exposure to GARP style investing and the underlying stocks are set to become even more important as we move into the second half of 2020. We highlight 17 stocks who fit the criteria in Q2 2020.

Screening the Silk Road: Q2-2020 Small-Mid Cap GARP (Zulu Warrior Screening)

South Korea

F&F Holdings Co., Ltd. manufactures and markets apparel products. The Company produces and markets sports casual clothing, bags, hats, and other accessories. F&F Holdings markets its products primarily throughout Korea with limited overseas.

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

F&F Holdings Co (007700 KS)

Korea Spin-Offs: Index Treatment

LG Corp, F&F and Ecopro will be suspended from trading on 29 April due to their spin offs. Passive funds will sell stock at the close on 28 April...

Brian Freitas

F&F: The Formation of a Holding Company - Bad for Minority Shareholders

On 20 November, a leading Korean apparel maker F&F Co Ltd (007700 KS) announced that it will form a holding company structure. We believe this is...

Douglas Kim

BrandX Corporation IPO Valuation Analysis

We have chosen to use EV/EBIT to value BrandX Corp mainly because this negates the differences in the capital structure of the different companies....

Douglas Kim

The Nature Holdings IPO Preview

The Nature Holdings is getting ready for an IPO in the Korean stock market in July. Established in 2004, The Nature Holdings has been one of the...

Douglas Kim

Screening the Silk Road: Q2-2020 Small-Mid Cap GARP (Zulu Warrior Screening)

Growth as an investment style has remained prominent over the COVID-19 period, reinforcing its decade long dominance over the value. The key...

David Lepper

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)