Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Event-Driven

HD Hyundai Heavy Industries  / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hyundai-heavy-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:33808:1" rel="noopener">Hyundai Heavy Industries (329180 KS)</a> (HHI) was listed on Korea Exchange on 17th September, 2021. Its three month IPO lock-up will expire on 17th December, 2021. </li>
<li>HHI is a South Korean shipbuilder. The company is wholly owned by <a href="https://www.smartkarma.com/entities/korea-shipbuilding-offshore-engineering-co-ltd" target="_blank" data-smartkarma-citation="entities:10155:1" rel="noopener">Korea Shipbuilding &amp; Offshore Engineering (009540 KS)</a> after the latter’s spin-off in 2019. </li>
<li>Locked-Up investors are still sitting on about 58% return over the three-month period, we think there will be some selling.</li>
</ul>



Hyundai Heavy Industries (329180 KS) (HHI) was listed on Korea Exchange on 17th September, 2021. Its three month IPO lock-up will expire on 17th December, 2021. 
HHI is a South Korean shipbuilder. The company is wholly owned by Korea Shipbuilding &amp; Offshore Engineering (009540 KS) after the latter’s spin-off in 2019. 
Locked-Up investors are still sitting on about 58% return over the three-month period, we think there will be some selling.


Hyundai Heavy IPO Lock-Up Expiry - Most Number of Shares Unlocked at Three-Month Mark

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>In the past week, Posco (005490 KS) announced that it will form a holding company structure through a physical spin-off (물적분할). </li>
<li>Many minority shareholders are opposing this move since they believe that this structure could result in the company eventually listing POSCO (steel company) and their stakes could be diluted.</li>
<li>Shareholders will finally vote on this new organizational structure on 28 January 2022. Many minority shareholders are opposing on this new deal. The final vote will likely remain very close. </li>
</ul>


In the past week, Posco (005490 KS) announced that it will form a holding company structure through a physical spin-off (물적분할). 
Many minority shareholders are opposing this move since they believe that this structure could result in the company eventually listing POSCO (steel company) and their stakes could be diluted.
Shareholders will finally vote on this new organizational structure on 28 January 2022. Many minority shareholders are opposing on this new deal. The final vote will likely remain very close. 


POSCO's Physical Spin-Off to Form POSCO Holdings: Opposed by Many Minority Shareholders

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.

<p>Hyundai Heavy Industries' 15-trading day review period ended last Thursday, and the KRX officially announced that it would add Hyundai Heavy to the following KRX indexes. </p><div class="content-highlight"><ul>
<li>KRX 100 (equal-weighted):  Studio Dragon (25345) will be deleted.</li>
<li>KRX Sector (Machinery &amp; Equipment). No delete</li>
<li>The effective date for both indexes is December 10.</li>
</ul></div><p>As for KOSPI 200 Fast Entry, KRX said that Hyundai Heavy Industries' KOSPI 200 Fast Entry is currently under review. Its decision will be included in the notice of the December regular rebalancing results.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/235/523/original/2.png?1634401666" class="editor-image img-responsive" data-smartkarma-image-id="235523"></figure></section><p>Below is the average daily market cap of the KOSPI large-cap ordinary stocks during the 15-trading day review period from September 17 to October 14. Hyundai Heavy Industries ranks in 42nd place, making it eligible to join KOSPI 200 through Fast Entry.</p><div class="content-highlight"><p><strong>The rule is straightforward. If Hyundai Heavy stays within the top 50 by the average daily market cap among the KOSPI ordinary stocks for 15 trading days from listing, it will join KOSPI 200 through Fast Entry. So, its Fast Entry should be seen as a done deal.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/235/524/original/1.png?1634402056" class="editor-image img-responsive" data-smartkarma-image-id="235524"></figure></section>

Hyundai Heavy Industries' 15-trading day review period ended last Thursday, and the KRX officially announced that it would add Hyundai Heavy to the following KRX indexes. 
KRX 100 (equal-weighted):  Studio Dragon (25345) will be deleted.
KRX Sector (Machinery &amp; Equipment). No delete
The effective date for both indexes is December 10.
As for KOSPI 200 Fast Entry, KRX said that Hyundai Heavy Industries' KOSPI 200 Fast Entry is currently under review. Its decision will be included in the notice of the December regular rebalancing results.Below is the average daily market cap of the KOSPI large-cap ordinary stocks during the 15-trading day review period from September 17 to October 14. Hyundai Heavy Industries ranks in 42nd place, making it eligible to join KOSPI 200 through Fast Entry.The rule is straightforward. If Hyundai Heavy stays within the top 50 by the average daily market cap among the KOSPI ordinary stocks for 15 trading days from listing, it will join KOSPI 200 through Fast Entry. So, its Fast Entry should be seen as a done deal.

KRX Made It Clear that Hyundai Heavy KOSPI 200 Fast Entry Inclusion Would Be December 10

<p>Hyundai Heavy Industries is up 14% on the previous trading day and today. Over the past five days, the share price has risen close to 19%.</p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/778/original/2.png?1632968483" class="editor-image img-responsive" data-smartkarma-image-id="232778"></figure>
</section>
<div class="content-caption">(Source: Google Finance)</div>
<p>It seems that the leading cause is a mixture of passive trading for KOSPI 200 inclusion and also the trading aimed at this expectation.</p>
<p>In fact, among the top net buying stocks by local pension funds (National Pension Service accounts for about 80%) over the past month, Hyundai Heavy Industries ranks second only after Krafton. Local pension funds have recorded more than 150 billion won in net purchases in the past six trading days since Hyundai Heavy Industries went public.</p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/779/original/1.png?1632968640" class="editor-image img-responsive" data-smartkarma-image-id="232779"></figure>
</section>
<div class="content-caption">(Source: KRX)</div>
<p>The market seems to be interpreting the purchase of Hyundai Heavy Industries by local pension funds as a preemptive response to the KOSPI 200 inclusion. Hyundai Heavy Industries' current market cap is ₩10.25T, ranking 41st among KOSPI common stocks. The KOSPI 200 Fast Entry is almost certain given the difference in market cap of about ₩2T from the 50th place.</p>

Hyundai Heavy Industries is up 14% on the previous trading day and today. Over the past five days, the share price has risen close to 19%.



(Source: Google Finance)
It seems that the leading cause is a mixture of passive trading for KOSPI 200 inclusion and also the trading aimed at this expectation.
In fact, among the top net buying stocks by local pension funds (National Pension Service accounts for about 80%) over the past month, Hyundai Heavy Industries ranks second only after Krafton. Local pension funds have recorded more than 150 billion won in net purchases in the past six trading days since Hyundai Heavy Industries went public.



(Source: KRX)
The market seems to be interpreting the purchase of Hyundai Heavy Industries by local pension funds as a preemptive response to the KOSPI 200 inclusion. Hyundai Heavy Industries' current market cap is ₩10.25T, ranking 41st among KOSPI common stocks. The KOSPI 200 Fast Entry is almost certain given the difference in market cap of about ₩2T from the 50th place.

Hyundai Heavy Industries: Passive Impact Timing Confusion

HD Korea Shipbuilding & Offshore Engineering / Event-Driven

HD Korea Shipbuilding & Offshore Engineering

<p>The listing of Hyundai Heavy Industries is due tomorrow, and the time has come to consider the timing of short-selling Korea Shipbuilding &amp; Offshore Engineering (KSOE) due to the holding company discount risk.</p><div class="content-highlight">
<p><strong>In general, we have often witnessed a trading pattern in which a holding company's stock price plummets when one of its major operating subsidiaries goes public.</strong></p>
<p><strong>The KSOE is also highly likely to be a target of this trading pattern.</strong></p>
</div><hr><p>KSOE is an intermediate holding company of Hyundai Heavy Industries Group, and its major subsidiaries include:</p><ul>
<li><strong>Hyundai Heavy Industries</strong></li>
<li><strong>Hyundai Mipo Dockyard</strong></li>
<li><strong>Hyundai Samho Heavy Industries</strong></li>
</ul><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/011/original/1.png?1631749332" class="editor-image img-responsive" data-smartkarma-image-id="230011"></figure></section><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;KSOE's major subsidiaries&quot;}">KSOE's major subsidiaries</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stake %"}'>Stake %</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stake value"}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B"}'>Stake value</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}' data-sheets-formula='=googlefinance(R[0]C[1], "name")'>Hyundai Mipo Dockyard</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"010620"}' data-sheets-formula='="010620"'>010620</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.424}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>42.40%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1298.9506391992}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B"}' data-sheets-formula='=googlefinance(R[0]C[-2], "price")*googlefinance(R[0]C[-2], "shares")/1000000000*R[0]C[-1]'><strong>₩1,298.95B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Market value"}'>Market value</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Heavy Industries"}'>Hyundai Heavy Industries</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Unlisted"}'>Unlisted</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.7972}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>79.72%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4246.20608}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B"}' data-sheets-formula="=R[0]C[2]*R[0]C[-1]"><strong>₩4,246.21B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"At the IPO price"}'>At the IPO price</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Samho Heavy Industries"}'>Hyundai Samho Heavy Industries</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Unlisted"}'>Unlisted</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8054}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>80.54%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1200.213}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00B"}'><strong>₩1,200.21B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Book value"}'>Book value</td>
</tr>
<tr><td colspan="5" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p>In fact, KSOE's biggest investment point so far is that it is the only channel through which to invest in Hyundai Heavy Industries and Hyundai Samho Heavy Industries, the world's largest shipyards.</p><div class="content-highlight"><p><strong>However, after Hyundai Heavy Industries is listed, the investment points of KSOE will inevitably fade. As KSOE is an intermediate holding company of Hyundai Heavy Industries Group, dividends and brand royalties from its subsidiaries such as Hyundai Heavy Industries will likely flow into the ultimate holding company, <a href="https://www.smartkarma.com/entities/hyundai-heavy-industries-holdings" target="_blank" data-smartkarma-citation="entities:24075:1" rel="noopener">Hyundai Heavy Industries Holdings (267250 KS)</a>, making it less attractive for investment.</strong></p></div><p>Nevertheless, its discount to NAV is 7.52% based on the current share price. This is significantly lower than the 50% level of the average discount rate of local holding companies.</p><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"NAV"}' data-sheets-note="Sang Hyun Park: Cases when a company's net cash position and the value of its publically traded interests are worth more than its market cap create the opportunity of a stub trade, in which investors can take a view that the company's core business will rise by shorting the minority stakes whilst going long the underlying. Such an opportunity has arisen in the wake of the Alibaba listing which has seen early investing company Yahoo trade at a discount to the value of its stake in Alibaba.">NAV</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of listed holdings"}'><strong>Value of listed holdings (including Hyundai Heavy Industries)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5831.62191898336}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=SUM(R[8]C[5])"><strong>₩5,831.6B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of Holdco market cap"}'>- % of Holdco market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.7012666341045598}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-1]C[0]/((R[3]C[-3]*R[0]C[-3])/1000000000)">70.13%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of unlisted holdings"}'><strong>Value of unlisted holdings (which includes Hyundai Samho Heavy Industries)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1825.212}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=SUM(R[7]C[5])"><strong>₩1,825.2B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value"}'>Stub value</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":659.0072110166407}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=(R[1]C[-3]*R[-2]C[-3]/1000000000)-R[-3]C[0]-R[-1]C[0]">₩659.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value per share"}'>Stub value per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":9311.547212597516}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]*1000000000/R[-3]C[-3]">₩9,312</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of operating assets"}'>Value of operating assets</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=SUM(R[8]C[5])">₩0.0B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV"}'>GAV</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7656.8339189833605}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=R[-6]C[0]+R[-4]C[0]+R[-1]C[0]">₩7,656.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV per share"}'>GAV per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":108277.93228902365}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]/R[4]C[-3]*1000000000">₩108,278</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to GAV (excl. treasury shares)"}'>Discount to GAV (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.08517033449031985}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-4]C[-3])/R[-1]C[0]">-8.52%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Holdco net cash/debt (de-consolidated)"}'><strong>Holdco net cash/debt (de-consolidated)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1327.7}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=R[5]C[5]"><strong>₩1,327.7B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of pref shares"}'>Value of pref shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=(R[-5]C[-3]*R[-2]C[-3]+R[-5]C[-2]*R[-2]C[-2])/1000000000">₩0.0B</td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV"}'><strong>NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8984.533918983361}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]' data-sheets-formula="=R[-5]C[0]+R[-2]C[0]-R[-1]C[0]"><strong>₩8,984.5B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV per share (excl. treasury shares)"}'><strong>NAV per share (excl. treasury shares)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":127053.3964327235}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]/R[-1]C[-3]*1000000000"><strong>₩127,053</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to NAV"}'><strong>Discount to NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.07519197991517018}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-9]C[-3])/R[-1]C[0]"><strong>7.52%</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART","6":1}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table><p>As an intermediate holding company, KSOE plans to play a role as a control tower by conducting R&amp;D, M&amp;A, and new and renewable businesses, but at this point, its own operating operation is virtually non-existent. In other words, since the value of the operating operation is zero, the current valuation is based on the cash assets held and the value of the stake in the subsidiaries.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/013/original/2.png?1631750466" class="editor-image img-responsive" data-smartkarma-image-id="230013"></figure><p>Of course, it is true that KSOE's PBR is lower than the local peers in the same sector. However, there is a question as to whether it is appropriate to apply the PBR valuation as KSOE is a pure holding company rather than a shipbuilding company.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PBR comparisons on FY2022E net assets"}'>PBR comparisons on FY2022E net assets</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PBR"}'>PBR</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}' data-sheets-formula='=googlefinance(R[0]C[1], "name")'>Hyundai Mipo Dockyard</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"010620"}' data-sheets-formula='="010620"'>010620</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1.31x"}'><strong>1.31x</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Daewoo Shipbuilding &amp; Marine Engineering"}' data-sheets-formula='=googlefinance(R[0]C[1], "name")'>Daewoo Shipbuilding &amp; Marine Engineering</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"042660"}' data-sheets-formula='="042660"'>042660</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1.25x"}'><strong>1.25x</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung Heavy Industries Co.,Ltd"}' data-sheets-formula='=googlefinance(R[0]C[1], "name")'>Samsung Heavy Industries</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"010140"}' data-sheets-formula='="010140"'>010140</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"1.05x"}'><strong>1.05x</strong></td>
</tr>
<tr><td colspan="3"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea Shipbuilding &amp;Offshore Engn Co Ltd"}' data-sheets-formula='=googlefinance(R[0]C[1], "name")'>Korea Shipbuilding &amp;Offshore Engn</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"009540"}' data-sheets-formula='="009540"'>009540</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"0.79x"}'><strong>0.79x</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: FnGuide</td></tr>
</tbody>
</table><p>Lastly, KSOE has an event to acquire Daewoo Shipbuilding &amp; Marine Engineering (DSME). Currently, the acquisition is awaiting approval from foreign countries.</p><p>If approved, KSOE will swap shares with Korea Development Bank through issuance of new shares. In other words, Korea Development Bank will hand over its stake in DSME (55.68%) to KSOE, and will receive a stake in KSOE instead. In this process, KSOE needs to issue more than 2 trillion won worthy of new shares. In other words, it is unlikely that this DSME acquisition event will lead to KSOE's valuation re-rating.</p>

The listing of Hyundai Heavy Industries is due tomorrow, and the time has come to consider the timing of short-selling Korea Shipbuilding &amp; Offshore Engineering (KSOE) due to the holding company discount risk.
In general, we have often witnessed a trading pattern in which a holding company's stock price plummets when one of its major operating subsidiaries goes public.
The KSOE is also highly likely to be a target of this trading pattern.
KSOE is an intermediate holding company of Hyundai Heavy Industries Group, and its major subsidiaries include:
Hyundai Heavy Industries
Hyundai Mipo Dockyard
Hyundai Samho Heavy Industries










KSOE's major subsidiaries
Ticker
Stake %
Stake value
Note


Hyundai Mipo Dockyard
010620
42.40%
₩1,298.95B
Market value


Hyundai Heavy Industries
Unlisted
79.72%
₩4,246.21B
At the IPO price


Hyundai Samho Heavy Industries
Unlisted
80.54%
₩1,200.21B
Book value

Source: DART &amp; KRX

In fact, KSOE's biggest investment point so far is that it is the only channel through which to invest in Hyundai Heavy Industries and Hyundai Samho Heavy Industries, the world's largest shipyards.However, after Hyundai Heavy Industries is listed, the investment points of KSOE will inevitably fade. As KSOE is an intermediate holding company of Hyundai Heavy Industries Group, dividends and brand royalties from its subsidiaries such as Hyundai Heavy Industries will likely flow into the ultimate holding company, Hyundai Heavy Industries Holdings (267250 KS), making it less attractive for investment.Nevertheless, its discount to NAV is 7.52% based on the current share price. This is significantly lower than the 50% level of the average discount rate of local holding companies.





NAV

Value of listed holdings (including Hyundai Heavy Industries)
₩5,831.6B


- % of Holdco market cap
70.13%


Value of unlisted holdings (which includes Hyundai Samho Heavy Industries)
₩1,825.2B


Stub value
₩659.0B


Stub value per share
₩9,312


Value of operating assets
₩0.0B


GAV
₩7,656.8B


GAV per share
₩108,278


Discount to GAV (excl. treasury shares)
-8.52%


Holdco net cash/debt (de-consolidated)
₩1,327.7B


Value of pref shares
₩0.0B



NAV
₩8,984.5B


NAV per share (excl. treasury shares)
₩127,053


Discount to NAV
7.52%

Source: KRX &amp; DART

As an intermediate holding company, KSOE plans to play a role as a control tower by conducting R&amp;D, M&amp;A, and new and renewable businesses, but at this point, its own operating operation is virtually non-existent. In other words, since the value of the operating operation is zero, the current valuation is based on the cash assets held and the value of the stake in the subsidiaries.Of course, it is true that KSOE's PBR is lower than the local peers in the same sector. However, there is a question as to whether it is appropriate to apply the PBR valuation as KSOE is a pure holding company rather than a shipbuilding company.







PBR comparisons on FY2022E net assets
Ticker
PBR


Hyundai Mipo Dockyard
010620
1.31x


Daewoo Shipbuilding &amp; Marine Engineering
042660
1.25x


Samsung Heavy Industries
010140
1.05x

 

Korea Shipbuilding &amp;Offshore Engn
009540
0.79x

Source: FnGuide

Lastly, KSOE has an event to acquire Daewoo Shipbuilding &amp; Marine Engineering (DSME). Currently, the acquisition is awaiting approval from foreign countries.If approved, KSOE will swap shares with Korea Development Bank through issuance of new shares. In other words, Korea Development Bank will hand over its stake in DSME (55.68%) to KSOE, and will receive a stake in KSOE instead. In this process, KSOE needs to issue more than 2 trillion won worthy of new shares. In other words, it is unlikely that this DSME acquisition event will lead to KSOE's valuation re-rating.

Outright Shorting KSOE or Long/Short Setup with HHI on a Likely Widening Holdco Discount

South Korea

HD Korea Shipbuilding & Offshore Engineering Co., Ltd. operates as a shipbuilding and offshore company. The Company provides industrial plant engineering, special and naval shipbuilding, marine engine and machinery, industrial machinery and energy services. HD Korea Shipbuilding & Offshore Engineering markets its products worldwide.

HD Korea Shipbuilding & Offshore Engineering (009540 KS)

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HD Korea Shipbuilding & Offshore Engineering (009540 KS)

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