Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>Hankyung Business Daily reported today that KT Corp (030200 KS) is close to selling its 36.9% controlling stake in Kt Submarine (060370 KS) to LS Cable &amp; System.</li>
<li>Once the KT Submarine deal is completed, this could positively impact KT Corp's dividends.</li>
<li>KT Corp's selling of its controlling stake in KT Submarine would fit along its restructuring plans to sell off some businesses that are considered non-core.</li>
</ul>


Hankyung Business Daily reported today that KT Corp (030200 KS) is close to selling its 36.9% controlling stake in Kt Submarine (060370 KS) to LS Cable &amp; System.
Once the KT Submarine deal is completed, this could positively impact KT Corp's dividends.
KT Corp's selling of its controlling stake in KT Submarine would fit along its restructuring plans to sell off some businesses that are considered non-core.


KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

<div>
<p>On 26 November, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> officially announced it would be splitting itself into two - the core electronics, chemicals, and telecoms business will stay in LG Corp, with the remaining non-core holdings transferred to NewCo, a new holding company, and subsequently spin-off to LG Corp shareholders.</p>
<p><a href="https://www.smartkarma.com/profiles/douglas-kim" target="_blank" data-smartkarma-citation="accounts:342" rel="noopener">Douglas Kim</a> discussed this transaction beginning with <em><a href="https://skr.ma/BZgGp" target="_blank" rel="noopener">LG Group Announces the Formation of LG NewCo &amp; Split of 4 Companies from LG Corp</a></em>, and I added my thoughts in <em><a href="https://skr.ma/Tdpxs" target="_blank" rel="noopener">2021 High Conviction: LG Corp's Decade-Low Stub</a></em>.</p>
<p>The benefits of the demerger are projected to be two-fold. The NewCo is expected to improve the competitiveness and efficiency of the business (potentially re-rating the company); but also as an interim step to facilitate share swaps with the family with the two holding companies. This has been speculated since Koo Kwang-mo was inaugurated as chairman in 2018. NewCo's board of directors will be headed by Koo Bon-joon, the uncle of Kwang-Mo. </p>
<p>The remaining Holdco will focus on steady earnings from its core operations (electronics, chemicals, and telecom), and via new opportunities. LG provided further rationale for the spin-off in its 4Q20 results - that is attached at the bottom of this insight.</p>
<p>It was noted, however, that LG Corp would maintain 91.5% of the group's assets - ₩9,779.8bn - as at 3Q20. This raises the question: just how much value can be unlocked by via spinning off ~8%?</p>
<p>The NAV and implied stub <em>widened</em> after the demerger announcement, and following a tepid reversal, narrowed around the time <a href="https://www.smartkarma.com/entities/lg-electronics-inc" target="_blank" data-smartkarma-citation="entities:8814:1" rel="noopener">LG Electronics (066570 KS)</a> announced a US$1bn JV with Magna on the 22 December to make electric car gears.</p>
</div>
<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/369/original/image_5243749941614909471522.png?1614909471" class="editor-image img-responsive" data-smartkarma-image-id="192369"></figure>
<p style="text-align: left;">Source: my calcs, CapIQ</p>
</div>
<div>
<p>On the 15 December, US-headquartered Whitebox said:</p>
<blockquote>
<p>The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.</p>
<p>Despite clearly favorable alternatives, the board (of LG) has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.</p>
</blockquote>
</div>
<div>
<p>Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read.</p>
</div>
<p>More below the fold.</p>
<div>
<p></p>
</div>


On 26 November, LG Corp (003550 KS) officially announced it would be splitting itself into two - the core electronics, chemicals, and telecoms business will stay in LG Corp, with the remaining non-core holdings transferred to NewCo, a new holding company, and subsequently spin-off to LG Corp shareholders.
Douglas Kim discussed this transaction beginning with LG Group Announces the Formation of LG NewCo &amp; Split of 4 Companies from LG Corp, and I added my thoughts in 2021 High Conviction: LG Corp's Decade-Low Stub.
The benefits of the demerger are projected to be two-fold. The NewCo is expected to improve the competitiveness and efficiency of the business (potentially re-rating the company); but also as an interim step to facilitate share swaps with the family with the two holding companies. This has been speculated since Koo Kwang-mo was inaugurated as chairman in 2018. NewCo's board of directors will be headed by Koo Bon-joon, the uncle of Kwang-Mo. 
The remaining Holdco will focus on steady earnings from its core operations (electronics, chemicals, and telecom), and via new opportunities. LG provided further rationale for the spin-off in its 4Q20 results - that is attached at the bottom of this insight.
It was noted, however, that LG Corp would maintain 91.5% of the group's assets - ₩9,779.8bn - as at 3Q20. This raises the question: just how much value can be unlocked by via spinning off ~8%?
The NAV and implied stub widened after the demerger announcement, and following a tepid reversal, narrowed around the time LG Electronics (066570 KS) announced a US$1bn JV with Magna on the 22 December to make electric car gears.



Source: my calcs, CapIQ


On the 15 December, US-headquartered Whitebox said:

The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.
Despite clearly favorable alternatives, the board (of LG) has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.



Whitebox has now issued a 30-page PowerPoint detailing its objection to the demerger. It's worth a read.

More below the fold.




LG Corp (003550 KS): Whitebox States Its Case

Cross Asset Strategy

<div class="content-highlight">
<p>In this insight, we provide the details and controversies of the Korean New Deal Funds which were initially <a href="https://n.news.naver.com/article/005/0001358758" target="_blank" rel="noopener">announced</a> on September 3rd. The total amount of the Korean New Deal is expected to be nearly 170 trillion won over five years. The Korean New Deal funds will be divided into three major areas including <strong>Policy (정책)</strong>, <strong>Infrastructure (인프라)</strong>, and<strong> Private (민간)</strong>.</p>
<p>Of the 170 trillion won, nearly 100 trillion won will be provided by the government and 70 trillion won will be provided by the private financial institutions. Because of the huge size of these funds, NPS and other major pension funds and biggest financial institution companies in Korea are expected to participate in the Korean New Deal funds.</p>
</div><p><strong>A Bubble Forming in the Korean New Deal Funds Related Stocks? </strong>In our view, a most likely view is that there could be a bubble forming in the Korean New Deal Funds related stocks in the coming weeks. Many of these stocks such as LG Chem, Samsung SDI, Naver, Kakao, Douzone Bizon, and Samsung Biologics have already performed very well since their lows in March and they could run further in the weeks ahead. </p>


In this insight, we provide the details and controversies of the Korean New Deal Funds which were initially announced on September 3rd. The total amount of the Korean New Deal is expected to be nearly 170 trillion won over five years. The Korean New Deal funds will be divided into three major areas including Policy (정책), Infrastructure (인프라), and Private (민간).
Of the 170 trillion won, nearly 100 trillion won will be provided by the government and 70 trillion won will be provided by the private financial institutions. Because of the huge size of these funds, NPS and other major pension funds and biggest financial institution companies in Korea are expected to participate in the Korean New Deal funds.
A Bubble Forming in the Korean New Deal Funds Related Stocks? In our view, a most likely view is that there could be a bubble forming in the Korean New Deal Funds related stocks in the coming weeks. Many of these stocks such as LG Chem, Samsung SDI, Naver, Kakao, Douzone Bizon, and Samsung Biologics have already performed very well since their lows in March and they could run further in the weeks ahead. 

A Bubble Forming in the Korean New Deal Funds Related Stocks? Details & Controversies

Equity Capital Markets

<ul>
<li>
<strong>LS EV Korea is getting ready to complete its IPO in the Korean stock market in March. </strong><a href="https://www.smartkarma.com/entities/ls-ev-korea-ltd" target="_blank" data-smartkarma-citation="entities:28866:1" rel="noopener">LS EV Korea Ltd (1566799D KS)</a> makes automotive EV related parts including high voltage connectors, battery parts, wiring harness, power transmission devices, and other related products.The IPO price range is from 5,500 won to 6,100 won. The IPO base deal size is from 83 billion won ($69 million) to 92 billion won ($76 million).</li>
<li>
<strong>Concerns about LSCW Affiliate in China - </strong>Nearly two-thirds of the company's sales are generated by its LSCW affiliate in China. Given the massive supply disruption caused by the COVID-19 in China, it is highly likely that the sales and profits out of its Chinese operation in 2020 will fall far short of the management's internal targets as well as historical 2019 numbers.</li>
<li>
<strong>Concerns about financial investors selling</strong> - After the IPO sale, Paratus Investment and KDB Capital will hold a 17.3% stake in the company (7.2 million shares), of which 2.5 million shares can be sold right after the IPO. The remaining 4.7 million shares will have a 3 months lock-up. This remaining stake in the company by the financial investors post IPO will remain one of the key investment risks of the company. Paratus Investment and KDB Capital invested in LS EV Korea in 4Q 2017. </li>
</ul>



LS EV Korea is getting ready to complete its IPO in the Korean stock market in March. LS EV Korea Ltd (1566799D KS) makes automotive EV related parts including high voltage connectors, battery parts, wiring harness, power transmission devices, and other related products.The IPO price range is from 5,500 won to 6,100 won. The IPO base deal size is from 83 billion won ($69 million) to 92 billion won ($76 million).

Concerns about LSCW Affiliate in China - Nearly two-thirds of the company's sales are generated by its LSCW affiliate in China. Given the massive supply disruption caused by the COVID-19 in China, it is highly likely that the sales and profits out of its Chinese operation in 2020 will fall far short of the management's internal targets as well as historical 2019 numbers.

Concerns about financial investors selling - After the IPO sale, Paratus Investment and KDB Capital will hold a 17.3% stake in the company (7.2 million shares), of which 2.5 million shares can be sold right after the IPO. The remaining 4.7 million shares will have a 3 months lock-up. This remaining stake in the company by the financial investors post IPO will remain one of the key investment risks of the company. Paratus Investment and KDB Capital invested in LS EV Korea in 4Q 2017. 


South Korea

LS Corp is a holding company, which operated subsidiaries including LS Industrial Systems, LS Cable, LS-Nikko Copper and LS Mtron.

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LS Corp (006260 KS)

KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System

Hankyung Business Daily reported today that KT Corp (030200 KS) is close to selling its 36.9% controlling stake in Kt Submarine (060370 KS) to LS...

Douglas Kim

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

LG Corp (003550 KS): Whitebox States Its Case

A ~64% discount to NAV - or 66% if using Whitebox's calcs - is non-sensical, and provides a good risk-adjusted return. The downside appears limited...

David Blennerhassett

LS EV Korea IPO Preview

LS EV Korea is getting ready to complete its IPO in the Korean stock market in March. LS EV Korea Ltd (1566799D KS) makes automotive EV related...

Douglas Kim

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KT Corp: Close to Selling Its Subsidiary KT Submarine to LS Cable & System

Hankyung Business Daily reported today that KT Corp (030200 KS) is close to selling its 36.9% controlling stake in Kt Submarine (060370 KS) to LS...

Douglas Kim

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

LG Corp (003550 KS): Whitebox States Its Case

A ~64% discount to NAV - or 66% if using Whitebox's calcs - is non-sensical, and provides a good risk-adjusted return. The downside appears limited...

David Blennerhassett

A Bubble Forming in the Korean New Deal Funds Related Stocks? Details & Controversies

In this insight, we provide the details and controversies of the Korean New Deal Funds which were initially announced on September 3rd. The total...

Douglas Kim

LS EV Korea IPO Preview

LS EV Korea is getting ready to complete its IPO in the Korean stock market in March. LS EV Korea Ltd (1566799D KS) makes automotive EV related...

Douglas Kim