Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

<div class="content-highlight">
On 28 May, Korea's National Pension Fund (NPS) announced its new <a href="https://news.mt.co.kr/mtview.php?no=2021052820172973220" target="_blank" rel="noopener">5 year plan</a> to reduce the asset allocation of Korean equities to 14.5% of total assets at the end of 2026, down from the current target of 16.8% of total assets at the end of 2021. NPS now is targeting overseas equity asset allocation targets to increase from 25.1% at the end of 2021 to 35.5% at the end of 2026.
NPS is targeting equity, fixed income and alternative assets to account for 50%, 35%, and 15% of total assets by the end of 2026. NPS has set an annual expected return of 5.1% for its total invested assets from 2021 to 2026.
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On 28 May, Korea's National Pension Fund (NPS) announced its new 5 year plan to reduce the asset allocation of Korean equities to 14.5% of total assets at the end of 2026, down from the current target of 16.8% of total assets at the end of 2021. NPS now is targeting overseas equity asset allocation targets to increase from 25.1% at the end of 2021 to 35.5% at the end of 2026.
NPS is targeting equity, fixed income and alternative assets to account for 50%, 35%, and 15% of total assets by the end of 2026. NPS has set an annual expected return of 5.1% for its total invested assets from 2021 to 2026.


NPS Announces A Reduction in Asset Allocation in Korean Equities to 14.5% of Assets by 2026

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.

Event-Driven

The Korea Fair Trade Commission (KFTC) annually designates local conglomerates having an aggregate asset value of more than ₩5T as a Business Group Subject to Disclosure. These are the largest industrial conglomerates designated as a Business Group Subject to Disclosure as of the last yearend.









Rank
Conglomerate
Aggregate asset value
Number of subsidiaries
Holdco type


1
Samsung
₩424.9T
59
De-facto operating holdco


2
Hyundai Motor
₩234.7T
54
-


3
SK
₩225.5T
125
Legitimate operating holdco


4
LG
₩137.0T
70
Legitimate pure holdco


5
Lotte
₩121.5T
86
Legitimate pure holdco


6
POSCO
₩80.3T
35
-


7
Hanwha
₩71.7T
86
De-facto pure holdco


8
GS
₩66.8T
69
Legitimate pure holdco


9
Hyundai Heavy Industries
₩62.9T
30
Legitimate pure holdco


10
Shinsegae
₩44.1T
41
-


11
KT
₩36.3T
44
-


12
CJ
₩34.5T
77
Legitimate pure holdco


13
Hanjin
₩33.6T
31
Legitimate pure holdco


14
Doosan
₩29.3T
25
De facto pure holdco


15
LS
₩23.7T
54
Legitimate operating holdco


16
Booyoung
₩23.3T
23
-


17
DL
₩18.7T
32
Legitimate operating holdco

Source: Kore Fair Trade Commission

Of these 17 largest industrial conglomerates having an aggregate asset value of more than ₩20T, 6 business groups are suitable for pair trading with a synthetic subsidiary.
Samsung Group
SK Group
LG Group
Lotte Group
Hanwha Group
CJ Group
Hyundai Motor Group is a circular shareholding structure, not suitable for pair trading. POSCO, Shinsegae, KT, LS, and DL have substantial operating operations outweighing their respective listed subsidiaries. GS and Hyundai Heavy Industries have a significant presence from the unlisted companies: GS Caltex and Hyundai Oilbank. Hanjin and Doosan are more of single-subsidiary holding companies. Lastly, Booyoung is a privately-held company.Discount to NAV Samsung C&amp;T has the highest discount to the NAV at 62.77%, followed by SK Inc with 52.14%. On the other hand, CJ Corp has the lowest discount at 34.19%. Hanwha Corp also has a lower discount than the others at 38.87%.











NAV
LG Corp
Samsung C&amp;T Corp
SK Inc
Lotte Corp
Hanwha Corp
CJ Corp


Value of listed holdings
₩41,080.4B
₩52,346.7B
₩24,237.4B
₩5,377.5B
₩4,501.4B
₩5,038.1B


- % of Holdco market cap
188.20%
201.51%
128.30%
139.29%
195.29%
158.42%


Value of unlisted holdings
₩2,631.7B
₩2,528.3B
₩9,890.5B
₩1,147.7B
₩1,657.0B
₩311.7B


Stub value
-₩21,883.7B
-₩28,897.7B
-₩15,236.2B
-₩2,664.6B
-₩3,853.5B
-₩2,169.5B


Stub value per share
-₩126,820
-₩154,626
-₩216,545
-₩25,399
-₩51,408
-₩74,357


Value of operating assets
₩0.0B
₩6,100.3B
₩2,235.2B
₩0.0B
₩0.0B
₩0.0B


GAV
₩43,712.1B
₩60,975.2B
₩36,363.1B
₩6,525.2B
₩6,158.4B
₩5,349.8B


GAV per share
₩253,320
₩373,019
₩695,187
₩92,157
₩89,623
₩197,713


Discount to GAV (excl. treasury shares)
50.06%
62.74%
61.38%
60.07%
65.69%
44.87%


Holdco net cash/debt (de-consolidated)
₩1,941.8B
₩268.6B
-₩6,879.4B
-₩1,764.4B
-₩2,330.8B
-₩357.6B


Value of pref shares
₩329.8B
₩219.7B
₩140.4B
₩63.2B
₩371.0B
₩510.3B


NAV
₩45,324.1B
₩61,024.1B
₩29,343.3B
₩4,697.6B
₩3,456.7B
₩4,481.9B


NAV per share (excl. treasury shares)
₩262,662
₩373,318
₩560,983
₩66,346
₩50,304
₩165,638


Discount to NAV
51.84%
62.77%
52.14%
44.53%
38.87%
34.19%

Source: KRX &amp; DART

Synthetic subsidiary weightThe number of subsidiaries in a synthetic varies from 2 to 4, representing 67.91% to 130.22% of the NAV. LG Corp has 4, the most, having a synthetic weight of 87.87% of the NAV. SK Inc has 3 subsidiaries in its synthetic, representing 67.91% of the NAV. 









Holdco pair
Number of subsidiaries in a synthetic
Synthetic subsidiary weight in NAV
Synthetic subsidiary weight in GAV


LG Corp
4
87.87%
91.11%


Samsung C&amp;T Corp
2
76.04%
76.10%


SK Inc
3
67.91%
54.80%


Lotte Corp
2
80.47%
57.93%


Hanwha Corp
3
130.22%
73.09%


CJ Corp
2
99.77%
83.58%

Source: KRX

Sigma on a 20-day moving averageWhen I'm writing this post (2 PM in Korea local time today), SK Inc and Hanwha Corp are in a diversion below -1.0σ on a 20-day moving average relative to their respective synthetic subsidiary. In contrast, CJ Corp is in a 2.0σ diversion, just the opposite way.











Sigma (σ) on a 20-day moving average
Today
T-1
T-2
T-3
T-4


LG Corp
0.87
1.02
1.26
1.39
1.56


Samsung C&amp;T Corp
-0.47
-0.55
0.30
-2.25
-2.53


SK Inc
-1.41
-1.64
-1.67
-1.74
-1.81


Lotte Corp
0.86
1.44
1.91
1.97
2.64


Hanwha Corp
-1.16
-0.77
-0.96
0.44
1.35


CJ Corp
1.92
1.03
0.54
0.82
1.83

Source: KRX



Korea Top Conglomerates Synthetic Pair Trading

Equity Bottom-Up

Chosun Ilbo, Korea's most influential newspaper with the largest circulation, wrote a report this morning about Samsung Biologics cutting a contract manufacturing deal with Moderna for COVID-19 vaccines.It is right in the front headline of Chosun Ilbo this morning. Chosun isn't usually speculative on headline news of this magnitude.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/206/095/original/Screen+Shot+2021-05-13+at+8.16.03+PM.png?1620953230" class="editor-image img-responsive" data-smartkarma-image-id="206095"></figure></section><div class="content-caption">(Courtesy Chosun Ilbo)</div>Samsung Biologics doesn't deny the news report in a regulatory filing. It means the deal itself seems true. The filing rule requires Biologics to provide an update within a month. But from my experience, we will likely hear an acknowledgment and possibly detailed progress much earlier.<a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210514000064&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener">Here is the link to Samsung Biologics' regulatory filing about this news report.</a>

Chosun Ilbo, Korea's most influential newspaper with the largest circulation, wrote a report this morning about Samsung Biologics cutting a contract manufacturing deal with Moderna for COVID-19 vaccines.It is right in the front headline of Chosun Ilbo this morning. Chosun isn't usually speculative on headline news of this magnitude.(Courtesy Chosun Ilbo)Samsung Biologics doesn't deny the news report in a regulatory filing. It means the deal itself seems true. The filing rule requires Biologics to provide an update within a month. But from my experience, we will likely hear an acknowledgment and possibly detailed progress much earlier.Here is the link to Samsung Biologics' regulatory filing about this news report.

Samsung Biologics Contract Manufacturing Deal with Moderna for COVID-19 Vaccines: Key Takeaways

Hankyung, one of Korea's two most well-established economic news outlets, put out an exclusive report very early morning before the market opened that Samsung Biologics would begin to produce Pfizer's COVID-19 vaccines starting August.<a href="https://n.news.naver.com/article/015/0004544831" target="_blank" rel="noopener">Here is the link to the news report by Hankyung.</a>Then, a bit later, another prestigious newspaper, Chosun Ilbo, published a similar story saying that it had quoted an industry expert familiar with the inside of Samsung Biologics.<a href="https://biz.chosun.com/it-science/bio-science/2021/05/12/KDFVFJQLYJCNLAPQL6RUAX6YBQ/" target="_blank" rel="noopener">Here is the link to the news report by Chosun Ilbo.</a>But Samsung Biologics quickly denied the news report in an official filing before the market opened. It stated in a filing that the news report about Samsung Biologics planning to produce Pfizer COVID-19 vaccines is not true.<a href="https://engkind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptNo=20210512000039&amp;docno=&amp;formProcsCd=070&amp;language=english" target="_blank" rel="noopener">Here is the link to the filing by Samsung Biologics.</a><hr><h2>Clarifications about statements in a filing about a market rumor</h2>When we have this kind of market rumor, a company typically gives one of two statement types in a filing.<ol>
<li>
No comment to make at this time: It is generally considered an acknowledgment. If this statement is given in a filing, a company will have to update the situation within one month in another filing.
</li>
<li>
Not true at this time: It is generally considered a denial. If this statement is given in a filing, a company can not reverse it within three months. If a company gives a modified filing within three months, it will face a stiff penalty.</li>
</ol><hr>Samsung Biologics' filing was the second type. So, it was a clear denial.So, it has two possibilities:<ol>
<li>The Pfizer deal must not have materialized yet, and it will take at least three months.</li>
<li>Or, it is not true at all.</li>
</ol>Nonetheless, Samsung Biologics' share price still ended up with a 4.77% gain.Why is that? It is mainly because the local market still believes that there is some substantial CMO deal talking going on with clients other than Pfizer.It is rare for a well-established newspaper like Hankyung, the newspaper initially reported the Pfizer deal news, to put out an exclusive report like this one without any substance. Hankyung must have heard something. Just, it might have gotten the client name wrong. That is what the local street seems to believe.In fact, some names are being tossed around as potential CMO deal clients, including Moderna.<a href="http://www.financialreview.co.kr/news/articleView.html?idxno=20317" target="_blank" rel="noopener">Here is the news link of a local news outlet speculating Moderna being Samsung Biologics' new CMO client. </a>

Hankyung, one of Korea's two most well-established economic news outlets, put out an exclusive report very early morning before the market opened that Samsung Biologics would begin to produce Pfizer's COVID-19 vaccines starting August.Here is the link to the news report by Hankyung.Then, a bit later, another prestigious newspaper, Chosun Ilbo, published a similar story saying that it had quoted an industry expert familiar with the inside of Samsung Biologics.Here is the link to the news report by Chosun Ilbo.But Samsung Biologics quickly denied the news report in an official filing before the market opened. It stated in a filing that the news report about Samsung Biologics planning to produce Pfizer COVID-19 vaccines is not true.Here is the link to the filing by Samsung Biologics.Clarifications about statements in a filing about a market rumorWhen we have this kind of market rumor, a company typically gives one of two statement types in a filing.

No comment to make at this time: It is generally considered an acknowledgment. If this statement is given in a filing, a company will have to update the situation within one month in another filing.


Not true at this time: It is generally considered a denial. If this statement is given in a filing, a company can not reverse it within three months. If a company gives a modified filing within three months, it will face a stiff penalty.
Samsung Biologics' filing was the second type. So, it was a clear denial.So, it has two possibilities:
The Pfizer deal must not have materialized yet, and it will take at least three months.
Or, it is not true at all.
Nonetheless, Samsung Biologics' share price still ended up with a 4.77% gain.Why is that? It is mainly because the local market still believes that there is some substantial CMO deal talking going on with clients other than Pfizer.It is rare for a well-established newspaper like Hankyung, the newspaper initially reported the Pfizer deal news, to put out an exclusive report like this one without any substance. Hankyung must have heard something. Just, it might have gotten the client name wrong. That is what the local street seems to believe.In fact, some names are being tossed around as potential CMO deal clients, including Moderna.Here is the news link of a local news outlet speculating Moderna being Samsung Biologics' new CMO client. 

Samsung Biologics CMO Deal Noise & Samsung C&T Synthetic Subsidiary Stub Trade

<div class="content-highlight">In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</div>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. <div class="content-highlight">
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
</div>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos.

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Samsung C&T (028260 KS)

NPS Announces A Reduction in Asset Allocation in Korean Equities to 14.5% of Assets by 2026

On 28 May, NPS announced its new 5 year plan to reduce the asset allocation of Korean equities to 14.5% of total assets at the end of 2026, down...

Douglas Kim

Korea Top Conglomerates Synthetic Pair Trading

This post explores pair trading opportunities on Korea's top conglomerates using their major subsidiaries as a synthetic target for a hedge.

Sanghyun Park

Samsung Biologics Contract Manufacturing Deal with Moderna for COVID-19 Vaccines: Key Takeaways

This post summarizes key takeaways on this morning's news report about Samsung Biologics cutting a manufacturing deal with Moderna for COVID-19...

Sanghyun Park

Samsung Biologics CMO Deal Noise & Samsung C&T Synthetic Subsidiary Stub Trade

This post investigates what has happened to Samsung Biologics with the CMO deal rumor yesterday and discusses Samsung C&T synthetic subsidiary stub...

Sanghyun Park

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

Douglas Kim

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