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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/11841" target="_blank" data-smartkarma-citation="entities:11841:1">Woori Bank (000030 KS)</a>'s stock purchase period ended last Friday. We will enter trade suspension starting Jan 9 and until Feb 12. Dilution is only 0.6%. But overhang would be an issue.</li>
<li>Local hedge fund-like institutions are shorting it mainly on overhang risk. <a href="https://www.smartkarma.com/entities/2194" target="_blank" data-smartkarma-citation="entities:2194:1">Woori Investment Bank (010050 KS)</a> and Woori Card moving up will worsen this overhang risk. Stock purchase is now over. The need to boost the price must have gone as well.</li>
<li>I'd also short Woori Bank at this point. Jan 9~Feb 12 trade suspension would be too long to go without a hedge. <a href="https://www.smartkarma.com/entities/717" target="_blank" data-smartkarma-citation="entities:717:1">Industrial Bank Of Korea (024110 KS)</a> would make a good hedge. Woori and IBK have traditionally been highly correlated. They are also seen sufficiently cointegrated.</li>
</ul>



Woori Bank (000030 KS)'s stock purchase period ended last Friday. We will enter trade suspension starting Jan 9 and until Feb 12. Dilution is only 0.6%. But overhang would be an issue.
Local hedge fund-like institutions are shorting it mainly on overhang risk. Woori Investment Bank (010050 KS) and Woori Card moving up will worsen this overhang risk. Stock purchase is now over. The need to boost the price must have gone as well.
I'd also short Woori Bank at this point. Jan 9~Feb 12 trade suspension would be too long to go without a hedge. Industrial Bank Of Korea (024110 KS) would make a good hedge. Woori and IBK have traditionally been highly correlated. They are also seen sufficiently cointegrated.


Woori Bank Holdco Conversion: Current Status & Trade Approach

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Taichung Commercial Bank / Equity Bottom-Up

We are on the hunt for banking assets with poor technical momentum, strong fundamental trends, and cheap valuations.We drill into detail to find the most unfashionable and cheapest banks in the world. Using a combination of technicals, fundamental momentum, and franchise value, we rank over 500 banks from the latest reporting season and allocate a score to capture relative attractiveness or ugliness. Buying into the ugly requires courage, common sense and a necessary timeframe.For fundamental momentum, we utilise our PH Score™. In some cases, most notably Turkey, the full weight of deterioration from FX and rate mismatch, under provisioning, and under reported asset quality erosion, has yet to flow into fundamental trends and metrics. We are all grown up enough to know that things will get worse there before they get better. So what does our model say?<ul>
<li>It appears that there is a build up of risk and opportunity in Turkey, Russia, South Korea, Sri Lanka and Nigeria from EM-frontier land.</li>
<li>Austrian and Spanish lenders stand out due to EM exposures - Russia, Turkey, and Argentina especially.</li>
<li>Banks such as HSBC and Unicredit suffer a double whammy of under provisioned EM exposures and domestic tribulations.</li>
<li>MENA banks, especially Emirates NBD, reflect Turkish risk. Prior to the Deniz deal, Emirates NBD was a poster child in the MENA region.</li>
<li>UK and Italian banks reflect regional (EU) issues such as Brexit and fiscal prudence/debt sustainability. </li>
<li>From the US, Bank of New York Mellon, Synovus, and Fifth Third catch the eye.</li>
<li>In Japan, mega banks MUFJ and Mizuho make the top quintile.</li>
<li>There is Greater China representation too. Many lenders have yet to report but Taichung stands out.</li>
</ul>In short, if you think that Brexit will not be as bad as it may appear or that Turkey or Russia are oversold, then opportunity knocks. Sberbank is actually a very good bank. The key is to weigh what things will look like in say 5 years. Will these basement levels be justified? After all, it only takes a second to score a goal.

We are on the hunt for banking assets with poor technical momentum, strong fundamental trends, and cheap valuations.We drill into detail to find the most unfashionable and cheapest banks in the world. Using a combination of technicals, fundamental momentum, and franchise value, we rank over 500 banks from the latest reporting season and allocate a score to capture relative attractiveness or ugliness. Buying into the ugly requires courage, common sense and a necessary timeframe.For fundamental momentum, we utilise our PH Score™. In some cases, most notably Turkey, the full weight of deterioration from FX and rate mismatch, under provisioning, and under reported asset quality erosion, has yet to flow into fundamental trends and metrics. We are all grown up enough to know that things will get worse there before they get better. So what does our model say?
It appears that there is a build up of risk and opportunity in Turkey, Russia, South Korea, Sri Lanka and Nigeria from EM-frontier land.
Austrian and Spanish lenders stand out due to EM exposures - Russia, Turkey, and Argentina especially.
Banks such as HSBC and Unicredit suffer a double whammy of under provisioned EM exposures and domestic tribulations.
MENA banks, especially Emirates NBD, reflect Turkish risk. Prior to the Deniz deal, Emirates NBD was a poster child in the MENA region.
UK and Italian banks reflect regional (EU) issues such as Brexit and fiscal prudence/debt sustainability. 
From the US, Bank of New York Mellon, Synovus, and Fifth Third catch the eye.
In Japan, mega banks MUFJ and Mizuho make the top quintile.
There is Greater China representation too. Many lenders have yet to report but Taichung stands out.
In short, if you think that Brexit will not be as bad as it may appear or that Turkey or Russia are oversold, then opportunity knocks. Sberbank is actually a very good bank. The key is to weigh what things will look like in say 5 years. Will these basement levels be justified? After all, it only takes a second to score a goal.

Global Banks: Any Takers for the Unloved?

South Korean banks are cheap globally. They trade on average at a P/Book of 0.5x and a PER of 6x.Fundamental trends are highly positive as testified by the financial metric progression revealed by the PH Score™ at Q118. If the business improves, the stock price should follow.It is hardly as if the macro and political backdrop have deteriorated either.

South Korean banks are cheap globally. They trade on average at a P/Book of 0.5x and a PER of 6x.Fundamental trends are highly positive as testified by the financial metric progression revealed by the PH Score™ at Q118. If the business improves, the stock price should follow.It is hardly as if the macro and political backdrop have deteriorated either.

South Korean Banks: Buying into a Better Future

Industrial Bank Of Korea / Equity Bottom-Up

We buy into the <a href="https://www.smartkarma.com/entities/717" target="_blank" data-smartkarma-citation="entities:717:1">Industrial Bank Of Korea (024110 KS)</a> narrative, underpinned by an elevated PH Score™ of 9.8.  <div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental score that ranks banks according to changes in value-quality. We score bank performance on a quarterly basis with variables that reflect fundamental momentum, trend, and change in key tested variables. The Score encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning.  The scores lie between 0 and 10, with higher value-quality rankings representing more positive signs.</div>The core SME business is improving and the fundamental momentum should be matched by a higher share price. “If a business does well,  the stock will eventually follow”. The bank rather lacks star appeal and is marked by restraint which we find quite attractive. IBK represents  a relatively low-risk investment given its attractive valuation within a global context, its disciplined underwriting, a core competency SME franchise (22% share) and brand plus the explicit support of government via Article 43 of IBK Act.  The latter means that the bank carries a AA/AA- backstop in the advent of distressed/adverse conditions and benefits from steady long-term wholesale funding to alleviate any relative weakness in Capitalisation and Liquidity levels despite an extensive CASA funding infra. The enviable SME positioning and focus is an advantage in a market grappling with elevated household debt (circa 94% of GDP) and regulatory change affecting mortgage provision (DSR, LTV, Debt/Income, and Rent/Income) as well as tighter monetary policy effects on consumers. IBK is committed to digital and smart transformation, (insurance products on the mobile banking app i-ONE Bank, 40% of  total deposit accounts opened through online and smart banking, 1 million users of the Flick smart app, KRW 816.9 BN extended to fintech companies,  KRW 20.19 BN directed at 122 crowd funding projects, IBK Big Data Platform, robo advisers etc), enhanced services as an enabler to SME “partners” (“Scale Up”, “Level Up”, “Cycle-up”, support for ICT smart factories, Tech convertible bonds, KRW 100 trillion in funding to start-up companies over 2017 to 2021 etc), discrete diversification into the Indonesian market, and “preemptive” measures to bolster asset quality and capitalisation. We view the current share price as compelling in the medium term based on value-quality signals. The market pricing of the deposit franchise, earnings, and book value is also highly attractive. On a Terminal Value calculation, the shares appear some 30% undervalued. The dividend yield of around 4% is healthy.

We buy into the Industrial Bank Of Korea (024110 KS) narrative, underpinned by an elevated PH Score™ of 9.8.  The PH Score™ is a fundamental momentum-quantamental score that ranks banks according to changes in value-quality. We score bank performance on a quarterly basis with variables that reflect fundamental momentum, trend, and change in key tested variables. The Score encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning.  The scores lie between 0 and 10, with higher value-quality rankings representing more positive signs.The core SME business is improving and the fundamental momentum should be matched by a higher share price. “If a business does well,  the stock will eventually follow”. The bank rather lacks star appeal and is marked by restraint which we find quite attractive. IBK represents  a relatively low-risk investment given its attractive valuation within a global context, its disciplined underwriting, a core competency SME franchise (22% share) and brand plus the explicit support of government via Article 43 of IBK Act.  The latter means that the bank carries a AA/AA- backstop in the advent of distressed/adverse conditions and benefits from steady long-term wholesale funding to alleviate any relative weakness in Capitalisation and Liquidity levels despite an extensive CASA funding infra. The enviable SME positioning and focus is an advantage in a market grappling with elevated household debt (circa 94% of GDP) and regulatory change affecting mortgage provision (DSR, LTV, Debt/Income, and Rent/Income) as well as tighter monetary policy effects on consumers. IBK is committed to digital and smart transformation, (insurance products on the mobile banking app i-ONE Bank, 40% of  total deposit accounts opened through online and smart banking, 1 million users of the Flick smart app, KRW 816.9 BN extended to fintech companies,  KRW 20.19 BN directed at 122 crowd funding projects, IBK Big Data Platform, robo advisers etc), enhanced services as an enabler to SME “partners” (“Scale Up”, “Level Up”, “Cycle-up”, support for ICT smart factories, Tech convertible bonds, KRW 100 trillion in funding to start-up companies over 2017 to 2021 etc), discrete diversification into the Indonesian market, and “preemptive” measures to bolster asset quality and capitalisation. We view the current share price as compelling in the medium term based on value-quality signals. The market pricing of the deposit franchise, earnings, and book value is also highly attractive. On a Terminal Value calculation, the shares appear some 30% undervalued. The dividend yield of around 4% is healthy.

Industrial Bank of Korea: Value in Restraint

<a href="https://www.smartkarma.com/entities/16104" target="_blank" data-smartkarma-citation="entities:16104:1">Jb Financial Group Co Ltd (175330 KS)</a><table class="table table-striped"><tbody>
<tr>
<td>JB Financial</td>
<td style="text-align: center;">'13</td>
<td style="text-align: center;">'14</td>
<td style="text-align: center;">'15</td>
<td style="text-align: center;">'16</td>
<td style="text-align: center;">'17</td>
<td style="text-align: center;">17 v '16</td>
</tr>
<tr>
<td>CAPITAL ADEQUACY</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
</tr>
<tr>
<td>BIS Ratio</td>
<td style="text-align: center;">12.90%</td>
<td style="text-align: center;">13.12%</td>
<td style="text-align: center;">12.51%</td>
<td style="text-align: center;">12.05%</td>
<td style="text-align: center;">12.16%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>Tier1 Ratio</td>
<td style="text-align: center;">7.24%</td>
<td style="text-align: center;">8.34%</td>
<td style="text-align: center;">8.59%</td>
<td style="text-align: center;">9.20%</td>
<td style="text-align: center;">9.70%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>CET1 Ratio</td>
<td style="text-align: center;">5.88%</td>
<td style="text-align: center;">7.12%</td>
<td style="text-align: center;">7.40%</td>
<td style="text-align: center;">7.92%</td>
<td style="text-align: center;">8.57%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>ASSET QUALITY</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
</tr>
<tr>
<td>Delinquency Ratio</td>
<td style="text-align: center;">1.66%</td>
<td style="text-align: center;">1.14%</td>
<td style="text-align: center;">1.19%</td>
<td style="text-align: center;">1.04%</td>
<td style="text-align: center;">0.87%</td>
<td style="text-align: center;">↓</td>
</tr>
<tr>
<td>NPL Coverage Ratio (New)</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;">72.71%</td>
<td style="text-align: center;">67.92%</td>
<td style="text-align: center;">↓</td>
</tr>
<tr>
<td>NPL Coverage Ratio (Old)</td>
<td style="text-align: center;">82.39%</td>
<td style="text-align: center;">63.00%</td>
<td style="text-align: center;">130.52%</td>
<td style="text-align: center;">144.33%</td>
<td style="text-align: center;">154.57%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>PROFITABILITY</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
</tr>
<tr>
<td>ROA</td>
<td style="text-align: center;">0.40%</td>
<td style="text-align: center;">1.71%</td>
<td style="text-align: center;">0.40%</td>
<td style="text-align: center;">0.47%</td>
<td style="text-align: center;">0.56%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>ROE </td>
<td style="text-align: center;">6.59%</td>
<td style="text-align: center;">26.71%</td>
<td style="text-align: center;">6.28%</td>
<td style="text-align: center;">7.17%</td>
<td style="text-align: center;">8.64%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>ROE </td>
<td style="text-align: center;">3.37%</td>
<td style="text-align: center;">41.34%</td>
<td style="text-align: center;">5.72%</td>
<td style="text-align: center;">6.45%</td>
<td style="text-align: center;">7.84%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>NIM (Bank, Quarterly)</td>
<td style="text-align: center;">2.</td>
</tr>
</tbody></table>…

Jb Financial Group Co Ltd (175330 KS)

JB Financial
'13
'14
'15
'16
'17
17 v '16


CAPITAL ADEQUACY
 
 
 
 
 
 


BIS Ratio
12.90%
13.12%
12.51%
12.05%
12.16%
↑


Tier1 Ratio
7.24%
8.34%
8.59%
9.20%
9.70%
↑


CET1 Ratio
5.88%
7.12%
7.40%
7.92%
8.57%
↑


ASSET QUALITY
 
 
 
 
 
 


Delinquency Ratio
1.66%
1.14%
1.19%
1.04%
0.87%
↓


NPL Coverage Ratio (New)
 
 
 
72.71%
67.92%
↓


NPL Coverage Ratio (Old)
82.39%
63.00%
130.52%
144.33%
154.57%
↑


PROFITABILITY
 
 
 
 
 
 


ROA
0.40%
1.71%
0.40%
0.47%
0.56%
↑


ROE 
6.59%
26.71%
6.28%
7.17%
8.64%
↑


ROE 
3.37%
41.34%
5.72%
6.45%
7.84%
↑


NIM (Bank, Quarterly)
2.

…

South Korea

Industrial Bank of Korea(IBK) is a policy bank providing development finance and related banking services to support small and medium-sized enterprises in Korea. The Bank provides loans, discount bills, trade finance, deposits, foreign exchange, and payment guarantees. The company also offers services such as credit cards, insurance and smart-phone banking.

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Industrial Bank Of Korea (024110 KS)

Woori Bank Holdco Conversion: Current Status & Trade Approach

Woori Bank (000030 KS)'s stock purchase period ended last Friday. We will enter trade suspension starting Jan 9 and until Feb 12. Dilution is...

Sanghyun Park

Global Banks: Any Takers for the Unloved?

We are on the hunt for banking assets with poor technical momentum, strong fundamental trends, and cheap valuations.We drill into detail to find...

Paul Hollingworth

South Korean Banks: Buying into a Better Future

South Korean banks are cheap globally. They trade on average at a P/Book of 0.5x and a PER of 6x.Fundamental trends are highly positive as...

Paul Hollingworth

Industrial Bank of Korea: Value in Restraint

We buy into the Industrial Bank Of Korea (024110 KS) narrative, underpinned by an elevated PH Score™ of 9.8. The PH Score™ is a fundamental...

Paul Hollingworth

Top PH Scores™ in South Korea

Jb Financial Group Co Ltd (175330 KS)Kwangju Bank (192530 KS)The PH Score™ is a fundamental momentum-quantamental score that scores banks according...

Paul Hollingworth

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