Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a> is the second-largest Dynamic Random-Access Memory (DRAM) semiconductor Integrated Device Manufacturer (IDM) in the world and is set to become a major player in the global NAND industry following the acquisition of <a href="https://www.smartkarma.com/entities/intel-corp" target="_blank" data-smartkarma-citation="entities:16764:1" rel="noopener">Intel Corp (INTC US)</a>’s NAND business. </p><p>Based on the compelling demand outlook for the industry, the significant increase in spot memory prices this year, and the expected revenue uplift in 2022 from the closure of the Intel NAND acquisition there looks to be room for an upside surprise to current earnings expectations which could sustain the earnings upgrade cycle, for a stock that is trading on valuation multiples that are below historical average levels as well as that of global peers. </p><p>This insight is also a natural follow up from an idea generated through our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index: <a href="https://www.smartkarma.com/insights/screening-for-gems-july-2021" target="_blank" data-smartkarma-citation="insights:53931" rel="noopener">Screening for GEMs: July 2021</a>.</p>

SK Hynix (000660 KS) is the second-largest Dynamic Random-Access Memory (DRAM) semiconductor Integrated Device Manufacturer (IDM) in the world and is set to become a major player in the global NAND industry following the acquisition of Intel Corp (INTC US)’s NAND business. Based on the compelling demand outlook for the industry, the significant increase in spot memory prices this year, and the expected revenue uplift in 2022 from the closure of the Intel NAND acquisition there looks to be room for an upside surprise to current earnings expectations which could sustain the earnings upgrade cycle, for a stock that is trading on valuation multiples that are below historical average levels as well as that of global peers. This insight is also a natural follow up from an idea generated through our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index: Screening for GEMs: July 2021.

SK Hynix: Leading DRAM IDM, Trading at Discount Multiples, in a Strong Demand Environment

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>This insight provides major highlights of a new book called <em><strong>'A New Path for ESG with the NPS,' </strong></em>written by Kim Yong-Jin (CEO of NPS). This book was recently published in May 2021. Given that this book was written by the head of NPS (National Pension Service of Korea) which has such an immense influence in the Korean financial markets, this book is worth the read. This book is not yet available in English.</p><p>In Part I of this insight, we focus on the following six major themes regarding ESG (with emphasis on Korea):</p><p style="padding-left: 25px;"><strong>1) ESG's Impact on Korean Stock Market &amp; Indices</strong></p><p style="padding-left: 25px;"><strong>2) Beginnings &amp; Reporting Standards of the ESG Movement</strong></p><p style="padding-left: 25px;"><strong>3) Key Korean Companies Highlighted for Their ESG Improvements</strong></p><p style="padding-left: 25px;"><strong>4) Growth of the ESG Bond Market</strong></p><p style="padding-left: 25px;"><strong>5) Impact of ESG on ETFs</strong></p><p style="padding-left: 25px;"><strong>6) Stakeholder Capitalism vs. Maximizing Shareholder Value</strong></p>

This insight provides major highlights of a new book called 'A New Path for ESG with the NPS,' written by Kim Yong-Jin (CEO of NPS). This book was recently published in May 2021. Given that this book was written by the head of NPS (National Pension Service of Korea) which has such an immense influence in the Korean financial markets, this book is worth the read. This book is not yet available in English.In Part I of this insight, we focus on the following six major themes regarding ESG (with emphasis on Korea):1) ESG's Impact on Korean Stock Market &amp; Indices2) Beginnings &amp; Reporting Standards of the ESG Movement3) Key Korean Companies Highlighted for Their ESG Improvements4) Growth of the ESG Bond Market5) Impact of ESG on ETFs6) Stakeholder Capitalism vs. Maximizing Shareholder Value

A New Path for ESG with the NPS (Major Highlights of a New Book) - Part I

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

<p>On October 28, 2019, Kakao and SK Telecom exchanged shares worth ₩300B to establish a partnership. In addition, the two companies promised close cooperation in the four areas through this stake swap.</p><table class="table table-striped"><tbody>
<tr>
<td style="width: 33.3333%;">Stock swap detail</td>
<td style="text-align: center; width: 33.3333%;">SK Telecom</td>
<td style="text-align: center; width: 33.3333%;">Kakao</td>
</tr>
<tr>
<td style="width: 33.3333%;">Number of shares exchanged</td>
<td style="text-align: center; width: 33.3333%;">1,266,620 shares</td>
<td style="text-align: center; width: 33.3333%;">
<p>2,177,401 shares</p>
<p>(before the 1 for 5 stock split)</p>
</td>
</tr>
<tr>
<td style="width: 33.3333%;">As a % of the total shares</td>
<td style="text-align: center; width: 33.3333%;">1.6%</td>
<td style="text-align: center; width: 33.3333%;">2.5%</td>
</tr>
<tr><td colspan="3" style="width: 33.3333%;">Source: DART</td></tr>
</tbody></table><p>SK Telecom recorded a jackpot return due to a surge in the stock price of Kakao. As a result, the value of the stake in Kakao held by SK Telecom has increased from ₩300B in the initial stage to ₩1.69T now.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock exchange detail"}'>Stock exchange detail</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Telecom Co Ltd"}'>SK Telecom Co Ltd</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Kakao Corp"}'>Kakao Corp</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price on October 28, 2019"}'>Price on October 28, 2019</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":237000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩237,000</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":28000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩28,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":324500}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩324,500</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":155500}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>₩155,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Price gain"}'>- Price gain</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":0.3691983122362869}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>36.92%</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":4.553571428571429}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>455.36%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current stake value"}'><strong>Current stake value</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":411.01819}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩411.0B</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":1692.9292775}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩1,692.9B</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/258/original/Screen+Shot+2021-06-25+at+12.18.29+AM.png?1624595549" class="editor-image img-responsive" data-smartkarma-image-id="215258"></figure></section><p>The two companies planned to strengthen business cooperation. However, for SK Telecom, the result came from an unexpected place.</p><p>As SK Telecom is not a financial investor, it says that it has no immediate plans for Kakao equity valuation gains. Nevertheless, it is questionable how long the company will hold stakes in other companies worth close to SK Telecom's one-year operating profit.</p><p><strong>So, the local market is paying attention to the possibility of SK Telecom ending its business cooperation relationship with Kakao and selling its stake, as in the case of Netmarble, which invested in NCsoft in the past.</strong></p>

On October 28, 2019, Kakao and SK Telecom exchanged shares worth ₩300B to establish a partnership. In addition, the two companies promised close cooperation in the four areas through this stake swap.

Stock swap detail
SK Telecom
Kakao


Number of shares exchanged
1,266,620 shares

2,177,401 shares
(before the 1 for 5 stock split)



As a % of the total shares
1.6%
2.5%

Source: DART
SK Telecom recorded a jackpot return due to a surge in the stock price of Kakao. As a result, the value of the stake in Kakao held by SK Telecom has increased from ₩300B in the initial stage to ₩1.69T now.







Stock exchange detail
SK Telecom Co Ltd
Kakao Corp


Price on October 28, 2019
₩237,000
₩28,000


Current price
₩324,500
₩155,500


- Price gain
36.92%
455.36%


Current stake value
₩411.0B
₩1,692.9B

Source: KRX

The two companies planned to strengthen business cooperation. However, for SK Telecom, the result came from an unexpected place.As SK Telecom is not a financial investor, it says that it has no immediate plans for Kakao equity valuation gains. Nevertheless, it is questionable how long the company will hold stakes in other companies worth close to SK Telecom's one-year operating profit.So, the local market is paying attention to the possibility of SK Telecom ending its business cooperation relationship with Kakao and selling its stake, as in the case of Netmarble, which invested in NCsoft in the past.

Kakao Block Deal Risk, Potentially Initiated by SK Telecom

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<p>With Value funds making gains on Growth funds this year, where are EM Value managers positioned?</p><p><strong>Country: </strong></p><p>U/W China &amp; HK and India, O/W South Korea and Mexico.  Note also the overweight in Turkey, with 71% of the Value funds in our analysis positioned overweight versus the iShares MSCI Emerging Markets ETF.</p><p><strong>Sector:</strong></p><p>U/W Consumer Discretionary, Communication Services and Health Care.  O/W  Materials, Industrials and Financials.</p><p>Read on for further data and analysis on Industry and Stock positioning.</p><p><em>Analysis taken from our Emerging Markets Research, covering 242 active GEM funds with combined AUM of $500bn</em></p>

With Value funds making gains on Growth funds this year, where are EM Value managers positioned?Country: U/W China &amp; HK and India, O/W South Korea and Mexico.  Note also the overweight in Turkey, with 71% of the Value funds in our analysis positioned overweight versus the iShares MSCI Emerging Markets ETF.Sector:U/W Consumer Discretionary, Communication Services and Health Care.  O/W  Materials, Industrials and Financials.Read on for further data and analysis on Industry and Stock positioning.Analysis taken from our Emerging Markets Research, covering 242 active GEM funds with combined AUM of $500bn

<p>There seems to be confusion about the financial statements disclosed by SK Telecom through public disclosure.</p><hr><h2>Spinoff ratio</h2><p>First, the spinoff ratio is calculated as the equity ratio of the split-based financial statements.</p><ul>
<li>Post-spinoff SKT (the surviving company)'s spinoff ratio comes at <strong>₩10,441.3B / (₩10,441.3B + ₩6,829.9B)</strong>.</li>
<li>Similarly, SKT Investment (the new company)'s spinoff ratio is obtained by dividing <strong>₩6,829.9B by (₩10,441.3B + ₩6,829.9B)</strong>.</li>
</ul><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Financials"}'>Financials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Surviving"}'>Surviving</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"New"}'>New</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SKT</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SKT Investment"}'>SKT Investment</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total equity"}'><strong>Total equity</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10441.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩10,441.3B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6829.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩6,829.9B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spinoff ratio"}'><strong>Spinoff ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6073625}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>60.74%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3926375}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'><strong>39.26%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><h2>De-consolidated sales of each spinoff company</h2><p>Now, what's confusing many investors is the FY2020 de-consolidated sales.</p><p>The company specified <strong>₩11.75T for post-spinoff SKT's FY2020 de-consolidated sales and ₩0.17T for SKT Investment in the regulatory filing</strong>.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Financials"}'>Financials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Surviving"}'>Surviving</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"New"}'>New</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SKT</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SKT Investment"}'>SKT Investment</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"FY2020 de-consolidated sales"}'><strong>FY2020 de-consolidated sales</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩11,746.6B"}'><strong>₩11,746.6B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩173.2B"}'><strong>₩173.2B</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Consolidated sales for the fiscal year 2020 were ₩18.62T. If the de-consolidated sales of the spin-off companies are simply added up, we will see a difference of ₩6.7T.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Consolidated financials"}'>Consolidated financials for FY2020</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Sales"}'><strong>Sales</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩18,624.7B"}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩18,624.7B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Operating profit"}'> - Operating profit</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩1,349.3B"}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩1,349.3B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NP to controlling stake"}'> - NP to the controlling stake</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1504.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'>₩1,504.4B</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: SK Telecom"}'>Source: SK Telecom</td></tr>
</tbody>
</table><h2>IFRS treatment &amp; consolidated sales breakdown</h2><p>I guess this is where the confusion comes from. For this, we need to know how the IFRS treats consolidated and de-consolidated sales.</p><p>In IFRS accounting standards, consolidated sales include sales of subsidiaries. In the case of affiliated companies, only gains and losses are accounted for as equity method gains and losses. Here are the general rules of determining whether a subsidiary or an affiliate.</p><ul>
<li>+50% stake: subsidiary</li>
<li>+30% stake AND the largest shareholder: subsidiary</li>
<li>20~50% stake: affiliate</li>
</ul><p><strong>Here is the FY2020 consolidated sales breakdown of pre-spinoff SKT. We have a de-consolidated sales of ₩11.75T, supposedly from SKT's MNO business. We then have an additional ₩6.88T sales from the subsidiaries. The affiliates, including SK Hynix, are reflected in the equity method income.</strong></p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Pre-spinoff SKT consolidated sales breakdown for FY2020"}'>Pre-spinoff SKT consolidated sales breakdown for FY2020</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telecom"}'>SK Telecom</td>
<td data-sheets-value='{"1":2,"2":"De-consolidated sales"}'>De-consolidated sales</td>
<td data-sheets-value='{"1":3,"3":11746.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-24]C[-4]"><strong>₩11,746.6B</strong></td>
</tr>
<tr><td colspan="3"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Broadband"}'>SK Broadband</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td rowspan="15" data-sheets-value='{"1":3,"3":6878.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-13]C[-4]-R[-1]C[0]"><div><strong>₩6,878.1B</strong></div></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telink"}'>SK Telink</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PS&amp;Marketing"}'>PS&amp;Marketing</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Service Top"}'>Service Top</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Service Ace"}'>Service Ace</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK O&amp;S"}'>SK O&amp;S</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ADT Caps"}'>ADT Caps</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"11st Street"}'>11st Street</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T Map Mobility"}'>T Map Mobility</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"One Store"}'>One Store</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dream Us Company"}'>Dream Us Company</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Planet"}'>SK Planet</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Incross"}'>Incross</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telecom TMT Investment"}'>SK Telecom TMT Investment</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ID Quantique"}'>ID Quantique</td>
<td data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr><td colspan="3"><div></div></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Hynix"}'>SK Hynix</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
<td rowspan="6" data-sheets-value='{"1":2,"2":"Equity method income"}'><div><strong>Equity method income</strong></div></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Contents Wavve"}'>Contents Wavve</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"F&amp;U Credit Info"}'>F&amp;U Credit Info</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"FSK L&amp;S"}'>FSK L&amp;S</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Nano N Tech"}'>Nano N Tech</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Telecom CST1"}'>SK Telecom CST1</td>
<td data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: SK Telecom &amp; FnGuide"}'>Source: SK Telecom &amp; FnGuide</td></tr>
</tbody>
</table><h2>Post-spinoff consolidated sales</h2><p>Now, below are the post-spinoff consolidated sales of each spinoff company.</p><ul>
<li>Post-spinoff SKT: <strong>₩11.75T + the sum of its post-spinoff subsidiaries</strong>
</li>
<li>SKT Investment: <strong>₩0.17T + the sum of its post-spinoff subsidiaries</strong>
</li>
</ul><p>The sum of both companies' consolidated sales (not de-consolidated sales) should be equal to <strong>₩18.62T</strong>, the consolidated sales of pre-spinoff SKT.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td colspan="2" style="width: 352.94px;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SKT</td>
<td colspan="2" style="width: 352.074px;" data-sheets-value='{"1":2,"2":"SK Investment"}'>SKT Investment</td>
</tr>
<tr>
<td style="width: 170px;"><strong> - Deconsolidated</strong></td>
<td style="width: 161.946px;"><strong>₩11,746.6B</strong></td>
<td style="width: 169.588px;"><strong> - Deconsolidated</strong></td>
<td style="width: 161.491px;"><strong>₩173.2B</strong></td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"SK Broadband"}'>SK Broadband</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"ADT Caps"}'>ADT Caps</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"SK Telink"}'>SK Telink</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"11st Street"}'>11st Street</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"PS&amp;Marketing"}'>PS&amp;Marketing</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"T Map Mobility"}'>T Map Mobility</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"Service Top"}'>Service Top</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"One Store"}'>One Store</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"Service Ace"}'>Service Ace</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Dream Us Company"}'>Dream Us Company</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"SK O&amp;S"}'>SK O&amp;S</td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"SK Planet"}'>SK Planet</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;" data-sheets-value='{"1":2,"2":"F&amp;U Credit Info"}'><strong> - Consolidated</strong></td>
<td style="width: 161.946px;" data-sheets-value='{"1":2,"2":"Affiliate"}'><strong>Sum of subsidiaries</strong></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Incross"}'>Incross</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;">F&amp;U Credit Info</td>
<td style="width: 161.946px;">Affiliate</td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"ID Quantique"}'>ID Quantique</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Subsidiary"}'>Subsidiary</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;"><strong> - Consolidated</strong></td>
<td style="width: 161.491px;"><strong>Sum of subsidiaries</strong></td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"SK Hynix"}'>SK Hynix</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Contents Wavve"}'>Contents Wavve</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"FSK L&amp;S"}'>FSK L&amp;S</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"Nano N Tech"}'>Nano N Tech</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr>
<td style="width: 170px;"></td>
<td style="width: 161.946px;"></td>
<td style="width: 169.588px;" data-sheets-value='{"1":2,"2":"SK Telecom CST1"}'>SK Telecom CST1</td>
<td style="width: 161.491px;" data-sheets-value='{"1":2,"2":"Affiliate"}'>Affiliate</td>
</tr>
<tr><td colspan="4" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Source: SK Telecom &amp; FnGuide"}'>Source: SK Telecom &amp; FnGuide</td></tr>
</tbody>
</table><p>SKT Investment is a pure holding company having zero operating operation. How come does it have ₩0.17T worth of de-consolidated sales?</p><p>SKT explains this in the filing. As stated below, SKT Investment now recognizes dividend income, which was previously recognized as non-operating income before the spinoff, as sales in its de-consolidated (separate) financial statements.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/260/original/Screen+Shot+2021-06-15+at+5.24.49+PM.png?1623793227" class="editor-image img-responsive" data-smartkarma-image-id="213260"></figure></section><p>So, the sum of both companies' consolidated sales would be a little more than <strong>₩18.62T</strong>, by a difference of ₩0.17T.</p><div class="content-highlight"><p><strong>My estimation is post-spinoff SKT will be around ₩16T (mainly due to the presence of SK Broadband), and SKT Investment's consolidated sales for FY2020 should be slightly less than ₩3T.</strong></p></div>

There seems to be confusion about the financial statements disclosed by SK Telecom through public disclosure.Spinoff ratioFirst, the spinoff ratio is calculated as the equity ratio of the split-based financial statements.
Post-spinoff SKT (the surviving company)'s spinoff ratio comes at ₩10,441.3B / (₩10,441.3B + ₩6,829.9B).
Similarly, SKT Investment (the new company)'s spinoff ratio is obtained by dividing ₩6,829.9B by (₩10,441.3B + ₩6,829.9B).








Financials
Surviving
New


Name
Post-spinoff SKT
SKT Investment


Total equity
₩10,441.3B
₩6,829.9B


Spinoff ratio
60.74%
39.26%

Source: DART

De-consolidated sales of each spinoff companyNow, what's confusing many investors is the FY2020 de-consolidated sales.The company specified ₩11.75T for post-spinoff SKT's FY2020 de-consolidated sales and ₩0.17T for SKT Investment in the regulatory filing.







Financials
Surviving
New


Name
Post-spinoff SKT
SKT Investment


FY2020 de-consolidated sales
₩11,746.6B
₩173.2B

Source: DART

Consolidated sales for the fiscal year 2020 were ₩18.62T. If the de-consolidated sales of the spin-off companies are simply added up, we will see a difference of ₩6.7T.





Consolidated financials for FY2020

Sales
₩18,624.7B


 - Operating profit
₩1,349.3B


 - NP to the controlling stake
₩1,504.4B

Source: SK Telecom

IFRS treatment &amp; consolidated sales breakdownI guess this is where the confusion comes from. For this, we need to know how the IFRS treats consolidated and de-consolidated sales.In IFRS accounting standards, consolidated sales include sales of subsidiaries. In the case of affiliated companies, only gains and losses are accounted for as equity method gains and losses. Here are the general rules of determining whether a subsidiary or an affiliate.
+50% stake: subsidiary
+30% stake AND the largest shareholder: subsidiary
20~50% stake: affiliate
Here is the FY2020 consolidated sales breakdown of pre-spinoff SKT. We have a de-consolidated sales of ₩11.75T, supposedly from SKT's MNO business. We then have an additional ₩6.88T sales from the subsidiaries. The affiliates, including SK Hynix, are reflected in the equity method income.






Pre-spinoff SKT consolidated sales breakdown for FY2020

SK Telecom
De-consolidated sales
₩11,746.6B



SK Broadband
Subsidiary
₩6,878.1B


SK Telink
Subsidiary


PS&amp;Marketing
Subsidiary


Service Top
Subsidiary


Service Ace
Subsidiary


SK O&amp;S
Subsidiary


ADT Caps
Subsidiary


11st Street
Subsidiary


T Map Mobility
Subsidiary


One Store
Subsidiary


Dream Us Company
Subsidiary


SK Planet
Subsidiary


Incross
Subsidiary


SK Telecom TMT Investment
Subsidiary


ID Quantique
Subsidiary



SK Hynix
Affiliate
Equity method income


Contents Wavve
Affiliate


F&amp;U Credit Info
Affiliate


FSK L&amp;S
Affiliate


Nano N Tech
Affiliate


SK Telecom CST1
Affiliate

Source: SK Telecom &amp; FnGuide

Post-spinoff consolidated salesNow, below are the post-spinoff consolidated sales of each spinoff company.
Post-spinoff SKT: ₩11.75T + the sum of its post-spinoff subsidiaries

SKT Investment: ₩0.17T + the sum of its post-spinoff subsidiaries

The sum of both companies' consolidated sales (not de-consolidated sales) should be equal to ₩18.62T, the consolidated sales of pre-spinoff SKT.








Post-spinoff SKT
SKT Investment


 - Deconsolidated
₩11,746.6B
 - Deconsolidated
₩173.2B


SK Broadband
Subsidiary
ADT Caps
Subsidiary


SK Telink
Subsidiary
11st Street
Subsidiary


PS&amp;Marketing
Subsidiary
T Map Mobility
Subsidiary


Service Top
Subsidiary
One Store
Subsidiary


Service Ace
Subsidiary
Dream Us Company
Subsidiary


SK O&amp;S
Subsidiary
SK Planet
Subsidiary


 - Consolidated
Sum of subsidiaries
Incross
Subsidiary


F&amp;U Credit Info
Affiliate
ID Quantique
Subsidiary




 - Consolidated
Sum of subsidiaries




SK Hynix
Affiliate




Contents Wavve
Affiliate




FSK L&amp;S
Affiliate




Nano N Tech
Affiliate




SK Telecom CST1
Affiliate

Source: SK Telecom &amp; FnGuide

SKT Investment is a pure holding company having zero operating operation. How come does it have ₩0.17T worth of de-consolidated sales?SKT explains this in the filing. As stated below, SKT Investment now recognizes dividend income, which was previously recognized as non-operating income before the spinoff, as sales in its de-consolidated (separate) financial statements.So, the sum of both companies' consolidated sales would be a little more than ₩18.62T, by a difference of ₩0.17T.My estimation is post-spinoff SKT will be around ₩16T (mainly due to the presence of SK Broadband), and SKT Investment's consolidated sales for FY2020 should be slightly less than ₩3T.

SK Telecom Spinoff Financials Confusions & Explanations

South Korea

SK Telecom Co., Ltd. is a Korean mobile and telecommunications operator. The Company provides cellular voice, wireless data, and wireless internet services. SK Telecom also offers fixed line services and platform services.

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