Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>Lee Kun-Hee's value of Samsung related shares is estimated to be <a href="https://newsis.com/view/?id=NISX20201025_0001209736&amp;cID=13001&amp;pID=13000" target="_blank" rel="noopener">18.2 trillion won</a> (US$16.2 billion) as of 23 October 2020. It is estimated that there will be about 10.6 trillion won in inheritance taxes associated with Lee Kun-Hee's holdings in public equities. This would represent 58.2% in the inheritance tax rate. </p><p>Samsung C&amp;T had a really good day today (up 13.5%). Our SoTP analysis of Samsung C&amp;T suggests that it remains highly undervalued right now. <strong>Our SoTP analysis suggests an implied price per share of 186,00 won, which is 57% higher than the current price of 118,000 won.</strong> Samsung C&amp;T's investment stakes in affiliates are worth 43 trillion won.</p>

Lee Kun-Hee's value of Samsung related shares is estimated to be 18.2 trillion won (US$16.2 billion) as of 23 October 2020. It is estimated that there will be about 10.6 trillion won in inheritance taxes associated with Lee Kun-Hee's holdings in public equities. This would represent 58.2% in the inheritance tax rate. Samsung C&amp;T had a really good day today (up 13.5%). Our SoTP analysis of Samsung C&amp;T suggests that it remains highly undervalued right now. Our SoTP analysis suggests an implied price per share of 186,00 won, which is 57% higher than the current price of 118,000 won. Samsung C&amp;T's investment stakes in affiliates are worth 43 trillion won.

Details on Inheritance Taxes & Impact on the Samsung Group Post Death of Chairman Lee

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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

<p>What's clear at this point is that the Lee family has to address immense inheritance tax (at least ₩9T).</p><p>Which family member gets how much is a secondary question. What's important now is the amount of the tax that the entire family has to bear.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Wealth owned by Lee Kun-hee (₩B)"}'>Lee Kun-hee's shareholding (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shareholding"}'>Shareholding</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Value"}'>60D avg. value</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung Electronics Co Ltd"}' data-sheets-formula='=googlefinance(R[0]C[3], "name")'>Samsung Electronics Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.04175582576286636}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Shareholding!R[7]C[2]">4.18%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15006.24664}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula='=googlefinance(R[0]C[1], "price")*googlefinance(R[0]C[1], "shares")*R[0]C[-1]/1000000000'>15,006.2</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung Life Insurance co., Ltd"}' data-sheets-formula='=googlefinance(R[0]C[3], "name")'>Samsung Life Insurance co., Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.2075959}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Shareholding!R[99]C[2]">20.76%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2619.860258}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula='=googlefinance(R[0]C[1], "price")*googlefinance(R[0]C[1], "shares")*R[0]C[-1]/1000000000'>2,619.9</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung C&amp;T Corp"}' data-sheets-formula='=googlefinance(R[0]C[3], "name")'>Samsung C&amp;T Corp</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.029032145887066426}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Shareholding!R[-19]C[2]">2.90%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":564.276232}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula='=googlefinance(R[0]C[1], "price")*googlefinance(R[0]C[1], "shares")*R[0]C[-1]/1000000000'>564.3</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total"}'><strong>Total</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":17626.106898}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=sum(R[-3]C[0]:R[-2]C[0])"><strong>17,626.1</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table><section class="figure"><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Wealth owned by Lee Kun-hee (₩B)"}'>Inheritance tax (₩B)</td></tr>
<tr>
<td><p>Total shareholding value</p></td>
<td style="text-align: right;">17,626.1</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Taxable after various deductibles (70%)"}'>Taxable after various deductibles (70%)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12432.1}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>12,432.1</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"20% extra charge (management premium)"}'>20% extra charge (management premium)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":14918.6}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>14,918.6</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Inheritance tax at a 60% tax rate"}'><strong>Inheritance tax at a 60% tax rate</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8951.1}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>8,951.1</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX FIND"}'>Source: KRX FIND</td></tr>
</tbody>
</table></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/167/324/original/2.png?1603665274" class="editor-image img-responsive" data-smartkarma-image-id="167324"></figure><div class="content-highlight"><p><strong>The first question that will likely hit the market must be how the family would approach this tax situation.</strong></p></div></section>

What's clear at this point is that the Lee family has to address immense inheritance tax (at least ₩9T).Which family member gets how much is a secondary question. What's important now is the amount of the tax that the entire family has to bear.







Lee Kun-hee's shareholding (₩B)
Shareholding
60D avg. value


Samsung Electronics Co Ltd
4.18%
15,006.2


Samsung Life Insurance co., Ltd
20.76%
2,619.9


Samsung C&amp;T Corp
2.90%
564.3


Total
-
17,626.1

Source: KRX FIND







Inheritance tax (₩B)

Total shareholding value
17,626.1


Taxable after various deductibles (70%)
12,432.1


20% extra charge (management premium)
14,918.6


Inheritance tax at a 60% tax rate
8,951.1

Source: KRX FIND

The first question that will likely hit the market must be how the family would approach this tax situation.

LJY's New Samsung May Begin with Sale of Financial Arm (Life)

<div class="content-highlight"><p><strong>Samsung Group Group Chairman Lee Kun-Hee (born in 1942) passed away on October 25th. This is a major event, which is likely to accelerate the reorganization of the entire Samsung Group, the biggest chaebol in Korea. </strong></p></div><p>A big problem among the chaebols is that the Korean government charges one of the highest inheritance taxes among OECD countries, ranging about 50-65%. Inheritance taxes for Lee Kun-Hee will likely be at the high end of this range. The government takes away so much of the hard-earned business ownership in the form of taxes that it is near-mindboggling. </p><div class="content-highlight"><p>Among the Samsung Group companies, we would focus on three major companies where there could be some major shakeups which include <strong>Samsung C&amp;T, Samsung Electronics,</strong> and<strong> Samsung SDS</strong>. Among these three companies, Samsung C&amp;T could see the nearest short-term pop in our view, as it is a central company to the reorganization of the entire Samsung Group. <strong> </strong></p></div>

Samsung Group Group Chairman Lee Kun-Hee (born in 1942) passed away on October 25th. This is a major event, which is likely to accelerate the reorganization of the entire Samsung Group, the biggest chaebol in Korea. A big problem among the chaebols is that the Korean government charges one of the highest inheritance taxes among OECD countries, ranging about 50-65%. Inheritance taxes for Lee Kun-Hee will likely be at the high end of this range. The government takes away so much of the hard-earned business ownership in the form of taxes that it is near-mindboggling. Among the Samsung Group companies, we would focus on three major companies where there could be some major shakeups which include Samsung C&amp;T, Samsung Electronics, and Samsung SDS. Among these three companies, Samsung C&amp;T could see the nearest short-term pop in our view, as it is a central company to the reorganization of the entire Samsung Group.  

Samsung Group Chairman Lee Kun-Hee Passes Away

<p>In this insight, we highlight <strong>seven major trading companies in Korea </strong>that could receive a greater positive boost from the global institutional investors who seek to find similar companies to the Japanese trading companies invested by Warren Buffett. The seven Korean trading companies mentioned in this insight have an average P/B multiple of 0.5x in 2020, which is 23% lower than the average P/B multiple of 0.7x for the five Japanese trading companies invested by Warren Buffett. These companies are as follows:</p><ul>
<li><strong>Samsung C&amp;T</strong></li>
<li><strong>GS Corp</strong></li>
<li><strong>Hanwha Corp</strong></li>
<li><strong>POSCO International</strong></li>
<li><strong>SK Networks</strong></li>
<li><strong>LG International</strong></li>
<li><strong>Hyundai Corp</strong></li>
</ul>

In this insight, we highlight seven major trading companies in Korea that could receive a greater positive boost from the global institutional investors who seek to find similar companies to the Japanese trading companies invested by Warren Buffett. The seven Korean trading companies mentioned in this insight have an average P/B multiple of 0.5x in 2020, which is 23% lower than the average P/B multiple of 0.7x for the five Japanese trading companies invested by Warren Buffett. These companies are as follows:
Samsung C&amp;T
GS Corp
Hanwha Corp
POSCO International
SK Networks
LG International
Hyundai Corp


Buffett's Investments in Japanese Trading Companies - Positive Boost to Korean Trading Companies?

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

<p>The key seems what happens to the value of Celltrion Holdings and in fact, the merger might not include Celltrion Inc.   The consensus belief is <a href="https://www.smartkarma.com/entities/celltrion-healthcare" target="_blank" data-smartkarma-citation="entities:23641:1" rel="noopener">Celltrion Healthcare (091990 KS)</a> and <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> and <a href="https://www.smartkarma.com/entities/celltrion-pharm-inc" target="_blank" data-smartkarma-citation="entities:992:1" rel="noopener">Celltrion Pharm (068760 KS)</a> merge.  Might want to remember what happened with <a href="https://www.smartkarma.com/entities/samsung-c-t-corporation" target="_blank" data-smartkarma-citation="entities:481:1" rel="noopener">Samsung C&amp;T (028260 KS)</a> and Everland to see the blueprint.   I expect a <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> stock split and <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> and <a href="https://www.smartkarma.com/entities/celltrion-pharm-inc" target="_blank" data-smartkarma-citation="entities:992:1" rel="noopener">Celltrion Pharm (068760 KS)</a> to merge first. </p>

The key seems what happens to the value of Celltrion Holdings and in fact, the merger might not include Celltrion Inc.   The consensus belief is Celltrion Healthcare (091990 KS) and Celltrion Inc (068270 KS) and Celltrion Pharm (068760 KS) merge.  Might want to remember what happened with Samsung C&amp;T (028260 KS) and Everland to see the blueprint.   I expect a Celltrion Inc (068270 KS) stock split and Celltrion Inc (068270 KS) and Celltrion Pharm (068760 KS) to merge first. 

South Korea

Samsung C&T Corporation conducts diversified business support services and resort operation activities. The Company offers a range of services in areas including clothing retail, construction, energy, real estate, food service, and resort accommodations. Samsung C&T also operates a resort with amusement rides, a zoo, water park, golf clubs, and restaurants.

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Samsung C&T (028260 KS)

Details on Inheritance Taxes & Impact on the Samsung Group Post Death of Chairman Lee

Our SoTP analysis of Samsung C&T suggests that it remains highly undervalued right now with an implied price per share of 186,00 won, which is 57%...

Douglas Kim

LJY's New Samsung May Begin with Sale of Financial Arm (Life)

LJY's new Samsung may begin by selling the financial arm. The family needs to liquidate the Life shareholding for inheritance tax, but also...

Sanghyun Park

Samsung Group Chairman Lee Kun-Hee Passes Away

Samsung Group Group Chairman Lee Kun-Hee (born in 1942) passed away on October 25th. This is a major event, which is likely to accelerate the...

Douglas Kim

Buffett's Investments in Japanese Trading Companies - Positive Boost to Korean Trading Companies?

This is a follow up to Mio Kato's insight, A Quick Look at the Buffet Trade and the Most Obvious Follow-Ons. For many decades, Warren Buffett chose...

Douglas Kim

How Might a Celltrion Merger Look?

The key seems what happens to the value of Celltrion Holdings and in fact, the merger might not include Celltrion Inc. The consensus belief is...

Ken S. Kim

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