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

I added 3 more single subsidiary holding companies: Doosan Corp, Hwaseung Industries, and Hanil Holdings. I now track a total of 18 local holding companies for a single subsidiary stub trade.Out of these 18 names, 6 holding companies are currently below -0.5σ on a 20-day moving average. Hanil Holdings, one of the three newbies, is in the harshest diversion at -1.44σ relative to its subsidiary, Hanil Cement. Younghone Holdings and Green Cross Holdings follow at -0.99σ and -0.86σ, respectively.







Holdco
Subsidiary
Sigma (σ) on a 20-day moving average


Amorepacific Group
Amorepacific Corp
-0.69


BGF Co Ltd
BGF Retail Co Ltd
-0.84


Halla Holdings Corp
Mando Corp
1.35


Hanjin Kal
Korean Air Lines Co Ltd
1.18


Hankook &amp; Company Co Ltd
Hankook Tire &amp; Technology Co Ltd
1.46


HANSAE YES24 HOLDINGS CO., LTD.
Hansae Co., Ltd.
-0.23


HDC Holdings Co Ltd
HDC Hyundai Development Co
0.92


Nexen Corporation
Nexen Tire Corp
2.33


Nongshim Holdings Co Ltd
Nongshim Co Ltd
0.44


ORION Holdings Corp
Orion Corp
-0.49


Poongsan Holdings Corporation
POONGSAN CORPORATION
0.18


Youngone Holdings Co Ltd
Youngone Corporation
-0.99


Green Cross Holdings
Green Cross Corp
-0.86


Hitejinro Holdings Co Ltd
HiteJinro Co Ltd
0.29


Seah Holdings Corp
Seah Besteel Corporation
-1.45


* Doosan Corp
* Doosan Heavy Industries Constrctn Co Ltd
0.63


* HWASEUNG Industries Co Ltd
* Hwaseung Enterprise Co Ltd
-0.81


* Hanil Holdings Co Ltd
* Hanil Cement Co Ltd
-1.44

Source: KRX

Starting with this insight, I made some changes in my calculation of NAV. I estimated each holding company's operating operation based on their latest de-consolidated operating profit. It is mostly brand royalty and office rental income. I used operating profit to exclude dividend income.So, here is the revised NAV discount of each holding company in my monitoring list. Seah Holdings and Halla Holdings have the highest discount to the NAV at 76.65% and 73.29%, respectively. In contrast, Hanjin Kal continues to trade at a premium (11.75%) to the NAV. Amorepacific Group and Hankook &amp; Co are also trading at a relatively low discount to the NAV. 








Discount &amp; weight
NAV discount
Single subsidiary weight in NAV
Single subsidiary weight in GAV


Amorepacific Group
20.18%
88.64%
88.53%


BGF Co Ltd
65.06%
59.17%
67.74%


Halla Holdings Corp
73.29%
53.98%
41.33%


Hanjin Kal
-11.75%
79.03%
79.81%


Hankook &amp; Company Co Ltd
26.04%
75.52%
81.38%


HANSAE YES24 HOLDINGS CO., LTD.
49.69%
58.92%
53.06%


HDC Holdings Co Ltd
50.47%
49.76%
44.85%


Nexen Corporation
62.60%
48.57%
48.66%


Nongshim Holdings Co Ltd
65.63%
60.30%
60.68%


ORION Holdings Corp
50.42%
89.56%
81.83%


Poongsan Holdings Corporation
53.62%
77.10%
81.20%


Youngone Holdings Co Ltd
60.75%
70.04%
74.12%


Green Cross Holdings
65.62%
121.52%
74.74%


Hitejinro Holdings Co Ltd
32.92%
86.35%
71.58%


Seah Holdings Corp
76.65%
40.07%
37.64%


* Doosan Corp
71.00%
70.92%
50.32%


* HWASEUNG Industries Co Ltd
59.62%
78.05%
72.68%


* Hanil Holdings Co Ltd
53.40%
77.85%
67.20%

Source: KRX



Korea Single Subsidiary Stub Trade: 18 in Total with 3 New Ones

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight"><p>In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</p></div><p>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. </p><p>Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. </p><div class="content-highlight">
<p>In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).</p>
<p>In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  </p>
</div><p>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. </p>

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Capital Markets

JD Health International  / Equity Capital Markets

<p>Healthcare’s presence in Asian capital markets has increased substantially over the last four years on the heels of substantial investments in private markets (VC/PE). Policy reforms and changes in listing rules, most notably in China, have led to an explosion of market cap creation for the sector as the universe of companies has expanded to include innovative companies, most notably pre-revenue biopharmaceutical companies. At the same time, substantial investments in digital healthcare, fueled by the COVID-19 pandemic, adds a new source of listed companies. This Insight focuses on leading unlisted healthcare companies in China, India, and ASEAN that have raised substantial amounts of capital and appear to be candidates for listing.   </p>

Healthcare’s presence in Asian capital markets has increased substantially over the last four years on the heels of substantial investments in private markets (VC/PE). Policy reforms and changes in listing rules, most notably in China, have led to an explosion of market cap creation for the sector as the universe of companies has expanded to include innovative companies, most notably pre-revenue biopharmaceutical companies. At the same time, substantial investments in digital healthcare, fueled by the COVID-19 pandemic, adds a new source of listed companies. This Insight focuses on leading unlisted healthcare companies in China, India, and ASEAN that have raised substantial amounts of capital and appear to be candidates for listing.   

<div class="content-highlight"><p><strong>We would take the Carelabs IPO deal, even at the high end of the IPO price range (18,000 won). Our one-year fair value of the company is 27,700 won, representing a 54% upside from the high end of the IPO price range. Our fair value is based on 20x P/E, using an estimated net profit of 9 billion won in 2019. Our fair value price of 27,700 won would represent a market cap of 179 billion won. We are including <a href="https://www.smartkarma.com/entities/26754" target="_blank" data-smartkarma-citation="entities:26754:1">Carelabs Co Ltd (263700 KS)</a> in our top picks model portfolio. The bookbuilding of Carelab</strong>…</p></div>

We would take the Carelabs IPO deal, even at the high end of the IPO price range (18,000 won). Our one-year fair value of the company is 27,700 won, representing a 54% upside from the high end of the IPO price range. Our fair value is based on 20x P/E, using an estimated net profit of 9 billion won in 2019. Our fair value price of 27,700 won would represent a market cap of 179 billion won. We are including Carelabs Co Ltd (263700 KS) in our top picks model portfolio. The bookbuilding of Carelab…

Carelabs IPO Preview (Part 2) - Appealing Valuations

<p><strong>Established in 2012, <a href="https://www.smartkarma.com/entities/26754" target="_blank" data-smartkarma-citation="entities:26754:1">Carelabs Co Ltd (263700 KS)</a> operates leading healthcare, beauty care, and cosmetics surgery O2O (online-to-offline) platforms (goodoc and babitalk). In addition, Carelabs provides digital marketing services and CRM software for the healthcare industry. </strong><a href="https://www.smartkarma.com/entities/26754" target="_blank" data-smartkarma-citation="entities:26754:1">Carelabs Co Ltd (263700 KS)</a> is getting ready for an IPO in March. The IPO price range is 15,000 won to 18,000 won and the initial market cap is expected to be between 97 billion won and 116 billion won. The company is expected…</p>

Established in 2012, Carelabs Co Ltd (263700 KS) operates leading healthcare, beauty care, and cosmetics surgery O2O (online-to-offline) platforms (goodoc and babitalk). In addition, Carelabs provides digital marketing services and CRM software for the healthcare industry. Carelabs Co Ltd (263700 KS) is getting ready for an IPO in March. The IPO price range is 15,000 won to 18,000 won and the initial market cap is expected to be between 97 billion won and 116 billion won. The company is expected…

Carelabs IPO Preview (Part 1) - Leading Provider of Healthcare and Cosmetics Surgery O2O Platforms

South Korea

Green Cross Holdings Corporation is a holding company, which operates pharmaceutical, biotechnology, distribution system, life insurance, and healthcare entities.  The Company also invests in biotechnology venture capital and markets medical research information.

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Green Cross Holdings (005250 KS)

Korea Single Subsidiary Stub Trade: 18 in Total with 3 New Ones

This insight tracks a total of 18 single subsidiary holding companies in Korea for stub trade. I revised the NAV discounts.

Sanghyun Park

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

Douglas Kim

Asian Healthcare - Coming of Age

This Smartkarma Originals Insight highlights 20 leading unlisted healthcare companies in Asia, mainly in digital healthcare and biopharma, that are...

Kemp Dolliver, CFA

Carelabs IPO Preview (Part 2) - Appealing Valuations

We would take the Carelabs IPO deal, even at the high end of the IPO price range (18,000 won). Our one-year fair value of the company is 27,700...

Douglas Kim

Carelabs IPO Preview (Part 1) - Leading Provider of Healthcare and Cosmetics Surgery O2O Platforms

Established in 2012, Carelabs Co Ltd (263700 KS) operates leading healthcare, beauty care, and cosmetics surgery O2O (online-to-offline) platforms...

Douglas Kim

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