Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>Hyundai Motor Group has become the largest shareholder of KT Corp, as the National Pension Service has recently reduced its stake in KT from 8.53% previously to 7.51%. </li>
<li>Despite this recent change in the largest shareholder status of KT Corp, this requires the approval from the Korean Ministry of Science and ICT. </li>
<li>Although the Hyundai Motor Group (HMG) has become the largest owner in KT Corp, the most likely scenario is for HMG to remain a passive investor in KT.</li>
</ul>


Hyundai Motor Group has become the largest shareholder of KT Corp, as the National Pension Service has recently reduced its stake in KT from 8.53% previously to 7.51%. 
Despite this recent change in the largest shareholder status of KT Corp, this requires the approval from the Korean Ministry of Science and ICT. 
Although the Hyundai Motor Group (HMG) has become the largest owner in KT Corp, the most likely scenario is for HMG to remain a passive investor in KT.


Hyundai Motor Group Becomes the Largest Shareholder of KT Corp

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.

<ul>
<li>KT's foreign ownership declined since January, below 7.5% by last month. If it remains, the adjustment factor halves to 0.25, impacting KT's Global Index weight.</li>
<li>With the May review screening date estimated for April 17th, swift reversal of foreign inflows seems improbable. Thus, KT's adjustment factor dropping to 0.25 is likely.</li>
<li>This could lead to an outflow of 1.6M shares, approximately 3x ADTV. Given the prolonged price impact on telcos, exploring a long-short setup with SKT might be prudent.</li>
</ul>


KT's foreign ownership declined since January, below 7.5% by last month. If it remains, the adjustment factor halves to 0.25, impacting KT's Global Index weight.
With the May review screening date estimated for April 17th, swift reversal of foreign inflows seems improbable. Thus, KT's adjustment factor dropping to 0.25 is likely.
This could lead to an outflow of 1.6M shares, approximately 3x ADTV. Given the prolonged price impact on telcos, exploring a long-short setup with SKT might be prudent.


KT's Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow

Equity Bottom-Up

<ul>
<li>KT Corp (030200 KS)'s shares were up 4.1% today to 32,000 won driven by better than expected results in 2Q 2023 and the nomination of a new CEO. </li>
<li>KT has nominated Kim Young-Seop, the former CEO of LG CNS as the new CEO of the company.</li>
<li>KT Corp has attractive valuations. It is trading at only 2.6x EV/EBITDA, 6.7x P/E, and 0.5x P/B in 2023. These valuation multiples are much cheaper than SK Telecom.</li>
</ul>


KT Corp (030200 KS)'s shares were up 4.1% today to 32,000 won driven by better than expected results in 2Q 2023 and the nomination of a new CEO. 
KT has nominated Kim Young-Seop, the former CEO of LG CNS as the new CEO of the company.
KT Corp has attractive valuations. It is trading at only 2.6x EV/EBITDA, 6.7x P/E, and 0.5x P/B in 2023. These valuation multiples are much cheaper than SK Telecom.


KT Corp: A New CEO Nominated and Stronger Than Expected Results in 2Q 2023

Douglas Research Advisory

<ul>
<li>On 12 June, SK Telecom (017670 KS) confirmed that its affiliate Sapeon plans to merge with its competitor Rebellions by end of this year.</li>
<li>Sapeon and Rebellions' largest global competitor is Nvidia. A key aim of the merger is to challenge Nvidia and try to take away its global dominance in AI chips.</li>
<li>If the combined Sapeon and Rebellion can take away just 1% market share resulting in 1% of Nvidia's market cap, this would suggest valuation of US$31 billion.</li>
</ul>


On 12 June, SK Telecom (017670 KS) confirmed that its affiliate Sapeon plans to merge with its competitor Rebellions by end of this year.
Sapeon and Rebellions' largest global competitor is Nvidia. A key aim of the merger is to challenge Nvidia and try to take away its global dominance in AI chips.
If the combined Sapeon and Rebellion can take away just 1% market share resulting in 1% of Nvidia's market cap, this would suggest valuation of US$31 billion.


Proposed Merger Between Rebellions and Sapeon - To Challenge Nvidia

Cross Asset Strategy

<ul>
<li>FSC Chairman Kim Joo-hyun mentioned that too many companies in Korea are trading below book value and the FSC plans to implement changes to improve upon this issue. </li>
<li>According to Korea Exchange, 1,111 companies out of total listed in KOSPI and KOSDAQ in Korea (2,538) are trading at below 1x book value (PBR) (liquidation value). </li>
<li>According to the Capital Group, about 39% of companies in the TOPIX trade below book value, compared to just 5% for companies in the S&amp;P 500 Index. </li>
</ul>


FSC Chairman Kim Joo-hyun mentioned that too many companies in Korea are trading below book value and the FSC plans to implement changes to improve upon this issue. 
According to Korea Exchange, 1,111 companies out of total listed in KOSPI and KOSDAQ in Korea (2,538) are trading at below 1x book value (PBR) (liquidation value). 
According to the Capital Group, about 39% of companies in the TOPIX trade below book value, compared to just 5% for companies in the S&amp;P 500 Index. 


44% of Korean Stocks Are Trading Below Book Value - FSC Wants to Improve This (Following Japan)

South Korea

KT Corporation provides telecommunication services including local, long distance, and international calling, satellite communication, data transmission, and wireless telephone services in South Korea.  The Company also offers network portal and high-speed Internet access services using asymmetric digital subscriber lines (ADSLs).

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KT Corp (030200 KS)

Hyundai Motor Group Becomes the Largest Shareholder of KT Corp

On 9 May, KT Corp (030200 KS) announced that it will cancel 5.1 million treasury shares (about 2% of outstanding shares), representing...

Douglas Kim

KT's Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow

Screening base date is likely on April 17th. KT's FIF cut to 25% is certain. 3 additions might join the Global Index despite stricter extreme price...

Sanghyun Park

KT Corp: A New CEO Nominated and Stronger Than Expected Results in 2Q 2023

KT Corp (030200 KS)'s shares were up 4.1% today to 32,000 won driven by better than expected results in 2Q 2023 and the nomination of a new CEO.

Douglas Kim

Proposed Merger Between Rebellions and Sapeon - To Challenge Nvidia

On 12 June, SK Telecom confirmed that its affiliate Sapeon plans to merge with Rebellions by end of this year. A key aim of the merger is to take...

Douglas Kim

44% of Korean Stocks Are Trading Below Book Value - FSC Wants to Improve This (Following Japan)

A 44% of Korean stocks are trading below book value. FSC wants to improve this, following Japan's "name and shame" policy.

Douglas Kim

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