Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Segyung Hitech Co Ltd / Equity Capital Markets

We have a positive view on the Segyung Hitech IPO. We are including Segyung Hitech in our model portfolio. Our base case valuation of Segyung Hitech is market cap of 631 billion won or 104,000 won per share. This represents 112% higher than the mid-point of the IPO range of 49,000 won. Our base case valuation uses our estimated net profit of 51 billion won in 2019 and P/E of 12.4x. Among the Korean IPOs, sometimes they trade in private markets prior to the IPO, especially the ones with bigger potential demand. Segyung Hitech shares have recently been trading at 62,000 won levels in private markets, which is 27% higher than the mid-point of the IPO range. If the companies' shares trade at higher levels than their initial IPO indicated range in the private markets ahead of the IPO, this is usually, but not always, a good sign. We estimate the company to generate sales of 380.5 billion won (up 48.3% YoY) and operating profit of 60.1 billion won (up 55.7% YoY) in 2019. The company had strong 1Q19 results, with sales of 102.5 billion won (40% of sales in 2018) and operating profit of 17.9 billion won (46% of operating profit in 2018).

We have a positive view on the Segyung Hitech IPO. We are including Segyung Hitech in our model portfolio. Our base case valuation of Segyung Hitech is market cap of 631 billion won or 104,000 won per share. This represents 112% higher than the mid-point of the IPO range of 49,000 won. Our base case valuation uses our estimated net profit of 51 billion won in 2019 and P/E of 12.4x. Among the Korean IPOs, sometimes they trade in private markets prior to the IPO, especially the ones with bigger potential demand. Segyung Hitech shares have recently been trading at 62,000 won levels in private markets, which is 27% higher than the mid-point of the IPO range. If the companies' shares trade at higher levels than their initial IPO indicated range in the private markets ahead of the IPO, this is usually, but not always, a good sign. We estimate the company to generate sales of 380.5 billion won (up 48.3% YoY) and operating profit of 60.1 billion won (up 55.7% YoY) in 2019. The company had strong 1Q19 results, with sales of 102.5 billion won (40% of sales in 2018) and operating profit of 17.9 billion won (46% of operating profit in 2018). 

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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Derkwoo Electronics / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/24379" target="_blank" data-smartkarma-citation="entities:24379:1">Derkwoo Electronics (263600 KS)</a>, founded in 1992, is basically an electronics components manufacturing company. The company produces and sells various electronic component products ranging from smartphone components to TV main components to automotive components. Currently, smartphone electronic components account for more than 80% of its total sales. In particular, this smartphone electronic component called "stiffener" is the main product (the highest selling product). What is a stiffener? It is mainly used to prevent foreign matters from entering smartphone camera modules. Also, it serves to block electromagnetic waves. This way, it improves smartphones’ overall durability. Other than stiffeners, it also produces other smartphone electronic components such as brackets and chassises. <div class="content-caption">(Derkwoo's three main smartphone electronic components - Courtesy Derkwoo Electronics)</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/031/234/original/4.png?1502199529" class="editor-image img-responsive" data-smartkarma-image-id="31234"></figure>It also develops and produces automotive electronic components. But these products are still several years away from becoming its main selling products. Nonetheless, the company is stressing that these automotive electronic components are its future and it aims to generate at least 50% of total sales from these automotive electronic components by 2020. Derkwoo's three main automotive component products are ABS motor, BMS and shield can, which currently account for less than 5% of total sales.<div class="content-caption">(Derkwoo's three main automotive electronic components - Courtesy Derkwoo Electronics)</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/031/236/original/5.png?1502200178" class="editor-image img-responsive" data-smartkarma-image-id="31236"></figure>Well, Derkwoo didn't actually start as a mobile device component manufacturer. When it was founded by a guy named "Lee Jae-min", the father of the current CEO named "Lee Jun-yong", its main selling products were TV components that were mainly supplied to <a href="https://www.smartkarma.com/entities/8814" target="_blank" data-smartkarma-citation="entities:8814:1">LG Electronics Inc (066570 KS)</a>. In 2010, the founder's son took over the company from his father. He then started transforming the company into a little higher value-added company. That is, Lee Jun-yong started reducing the TV component business. Instead, he decided to enter the more competitive and also more rewarding smartphone component market. Lee Jun-yong, the founder's son, is smart and well-educated. He graduated from POSTECH (Korea's top-tier engineering school) and worked as a consultant at Ernst &amp; Young Korea before joining his father's company in 2010. Now, Derkwoo is making much more money in overseas (nearly 80%), and even <a href="https://www.smartkarma.com/entities/666" target="_blank" data-smartkarma-citation="entities:666:1">Apple Inc (AAPL US)</a> became its client. It now has three overseas production sites (China, Mexico and Poland).The company's OPM is hovering at around a whopping 20% in the past two years. This is indeed a remarkable feat for an electronic component maker. How could this be possible? Well, the company is saying its "press" technology is really something to brag about. It is directly related to superior quality of its component products. Frankly, I don't know whether this "press" technology can continue to become a moat for Derkwoo in the long run. But apparently, its clients (including Apple) seem to like it very much and are willing to pay higher prices. The company estimates that its stiffeners and brackets are currently taking up nearly half of Apple's total supplies.Alright, let's find out more about this IPO company.

Derkwoo Electronics (263600 KS), founded in 1992, is basically an electronics components manufacturing company. The company produces and sells various electronic component products ranging from smartphone components to TV main components to automotive components. Currently, smartphone electronic components account for more than 80% of its total sales. In particular, this smartphone electronic component called "stiffener" is the main product (the highest selling product). What is a stiffener? It is mainly used to prevent foreign matters from entering smartphone camera modules. Also, it serves to block electromagnetic waves. This way, it improves smartphones’ overall durability. Other than stiffeners, it also produces other smartphone electronic components such as brackets and chassises. (Derkwoo's three main smartphone electronic components - Courtesy Derkwoo Electronics)It also develops and produces automotive electronic components. But these products are still several years away from becoming its main selling products. Nonetheless, the company is stressing that these automotive electronic components are its future and it aims to generate at least 50% of total sales from these automotive electronic components by 2020. Derkwoo's three main automotive component products are ABS motor, BMS and shield can, which currently account for less than 5% of total sales.(Derkwoo's three main automotive electronic components - Courtesy Derkwoo Electronics)Well, Derkwoo didn't actually start as a mobile device component manufacturer. When it was founded by a guy named "Lee Jae-min", the father of the current CEO named "Lee Jun-yong", its main selling products were TV components that were mainly supplied to LG Electronics Inc (066570 KS). In 2010, the founder's son took over the company from his father. He then started transforming the company into a little higher value-added company. That is, Lee Jun-yong started reducing the TV component business. Instead, he decided to enter the more competitive and also more rewarding smartphone component market. Lee Jun-yong, the founder's son, is smart and well-educated. He graduated from POSTECH (Korea's top-tier engineering school) and worked as a consultant at Ernst &amp; Young Korea before joining his father's company in 2010. Now, Derkwoo is making much more money in overseas (nearly 80%), and even Apple Inc (AAPL US) became its client. It now has three overseas production sites (China, Mexico and Poland).The company's OPM is hovering at around a whopping 20% in the past two years. This is indeed a remarkable feat for an electronic component maker. How could this be possible? Well, the company is saying its "press" technology is really something to brag about. It is directly related to superior quality of its component products. Frankly, I don't know whether this "press" technology can continue to become a moat for Derkwoo in the long run. But apparently, its clients (including Apple) seem to like it very much and are willing to pay higher prices. The company estimates that its stiffeners and brackets are currently taking up nearly half of Apple's total supplies.Alright, let's find out more about this IPO company.

Derkwoo Electronics IPO Part 1 - Schedule, Financials & Valuation

South Korea

INTOPS Co., Ltd. manufactures telecommunication equipment, plastic injection and mold, and computer peripherals.  The Company's products include assembly parts for cellular phones, printers, cordless and caller ID telephones, and various plastic parts.

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Intops Co Ltd (049070 KS)

Segyung Hitech IPO Valuation Analysis

We have a positive view on the Segyung Hitech IPO. We are including Segyung Hitech in our model portfolio. Our base case valuation of Segyung...

Douglas Kim

Derkwoo Electronics IPO Part 1 - Schedule, Financials & Valuation

Derkwoo Electronics (263600 KS), founded in 1992, is basically an electronics components manufacturing company. The company produces and sells...

Sanghyun Park

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