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

<ul>
<li>FnGuide Battery Index overlaps with the rebalancing of the KRX K-New Deal. K-New Deal is March 11. As for FnGuide Battery, it will be three trading days on March 14-16.</li>
<li>Among the top-cap stocks, Samsung SDI will be the biggest beneficiary, and we need to consider a setup that utilizes Samsung SDI as a long/short partner for LG Chem.</li>
<li>LG Chem's staying significant distorts mid-caps' index weight in KRX Battery. The extent of passive outflows would be pretty substantial. So, outright short these mid-caps should deserve our attention.</li>
</ul>


FnGuide Battery Index overlaps with the rebalancing of the KRX K-New Deal. K-New Deal is March 11. As for FnGuide Battery, it will be three trading days on March 14-16.
Among the top-cap stocks, Samsung SDI will be the biggest beneficiary, and we need to consider a setup that utilizes Samsung SDI as a long/short partner for LG Chem.
LG Chem's staying significant distorts mid-caps' index weight in KRX Battery. The extent of passive outflows would be pretty substantial. So, outright short these mid-caps should deserve our attention.


FnGuide & KRX K-New Deal Batteries: Combined Passive Flows Preview on March 10-15

<ul>
<li>For this March rebalancing, the screening base date is January 28, which is the last trading day of January. So, <strong>the 3-month rebalancing review period is now done</strong>.</li>
<li>Other than <strong>LG Energy (+₩146,2B)</strong>, we should pay the most attention to <strong>AfreecaTV (+1.70x)</strong>,<strong> Chunbo (+0.36x)</strong>,<strong> Douzone Bizon (-4.82x)</strong>, and <strong>SoulBrain (-0.99x</strong>).</li>
<li>In addition, large-cap stocks such as <strong>SKIET (+0.25x)</strong>,<strong> Ecopro BM (+0.10x)</strong>,<strong> LG Chem (-0.62x)</strong>, and <strong>Posco Chemical (-0.30x)</strong> will likely draw much attention.</li>
</ul>


For this March rebalancing, the screening base date is January 28, which is the last trading day of January. So, the 3-month rebalancing review period is now done.
Other than LG Energy (+₩146,2B), we should pay the most attention to AfreecaTV (+1.70x), Chunbo (+0.36x), Douzone Bizon (-4.82x), and SoulBrain (-0.99x).
In addition, large-cap stocks such as SKIET (+0.25x), Ecopro BM (+0.10x), LG Chem (-0.62x), and Posco Chemical (-0.30x) will likely draw much attention.


KRX K-New Deal Index Screening Period Ended: Rebalancing Changes & Passive Impacts Update

<ul>
<li>
<strong>The rebalancing cycle of the KODEX Secondary Battery ETF was changed from semi-annual to quarterly.</strong> Also, the rebalancing trading takes place for three trading days instead of one trading day.</li>
<li>
<strong>This passive impact will be different from the previous rebalancing.</strong> LG Energy and SK Innovation will likely experience a significant passive outflow. Then, most small-cap constituents will receive an inflow. </li>
<li>
<strong>Among the top weighting stocks, Samsung SDI and SKIET deserve attention</strong>. Sangsin Energy, E&amp;D, and TSI will face exclusion, while C&amp;I, Sang-A Frontec, and Enchem will likely join the ETF.</li>
</ul>



The rebalancing cycle of the KODEX Secondary Battery ETF was changed from semi-annual to quarterly. Also, the rebalancing trading takes place for three trading days instead of one trading day.

This passive impact will be different from the previous rebalancing. LG Energy and SK Innovation will likely experience a significant passive outflow. Then, most small-cap constituents will receive an inflow. 

Among the top weighting stocks, Samsung SDI and SKIET deserve attention. Sangsin Energy, E&amp;D, and TSI will face exclusion, while C&amp;I, Sang-A Frontec, and Enchem will likely join the ETF.


KODEX Battery ETF Rebalancing Cycle Changed to Quarterly: Preview for March Rebalancing

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight">
<p>In this insight, we provide an updated NAV valuation analysis of <a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Inc (034730 KS)</a>. Our updated base case valuation of SK Inc is 381,838 won per share, representing 45.5% higher than current share price.</p>
<p>In the next 12 months, we believe there is likely to be a greater emphasis on three of the unlisted companies of SK Inc including<strong> SK E&amp;S, SK Pharmteco, and SK Siltron</strong> which will increasingly be considered as potential IPO candidates.</p>
</div><ul>
<li>
<strong>SK E&amp;S</strong> is a private company that is 90% owned by <a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Inc (034730 KS)</a>. In early September, SK E&amp;S provided a detailed plan to aggressively expand its hydrogen, LNG, and renewable operations by 2025.</li>
<li>
<a href="https://www.ezyeconomy.com/news/articleView.html?idxno=111825" target="_blank" rel="noopener">SK Pharmteco's</a> sales increased form 110 billion won in 2017 to 710 billion won in 2020. As of July 2021, the local media mentioned that the value of SK Pharmteco could be nearly 2 trillion won but this valuation could rise to nearly 10 trillion in two to three years if the company continues to make strong progress in the CMO sector.</li>
<li>
<a href="https://www.businesspost.co.kr/BP?command=article_view&amp;num=251332" target="_blank" rel="noopener"><strong>SK Siltron</strong></a> is another private company owned SK Inc that is seriously being considered for an IPO. In September 2021, the local media mentioned that SK Siltron could be valued at about 4 to 5 trillion won. </li>
</ul>


In this insight, we provide an updated NAV valuation analysis of SK Inc (034730 KS). Our updated base case valuation of SK Inc is 381,838 won per share, representing 45.5% higher than current share price.
In the next 12 months, we believe there is likely to be a greater emphasis on three of the unlisted companies of SK Inc including SK E&amp;S, SK Pharmteco, and SK Siltron which will increasingly be considered as potential IPO candidates.


SK E&amp;S is a private company that is 90% owned by SK Inc (034730 KS). In early September, SK E&amp;S provided a detailed plan to aggressively expand its hydrogen, LNG, and renewable operations by 2025.

SK Pharmteco's sales increased form 110 billion won in 2017 to 710 billion won in 2020. As of July 2021, the local media mentioned that the value of SK Pharmteco could be nearly 2 trillion won but this valuation could rise to nearly 10 trillion in two to three years if the company continues to make strong progress in the CMO sector.

SK Siltron is another private company owned SK Inc that is seriously being considered for an IPO. In September 2021, the local media mentioned that SK Siltron could be valued at about 4 to 5 trillion won. 


SK Inc - SoTP Valuation Analysis and 3 Key Catalysts (SK E&S, SK Pharmteco, & SK Siltron)

<p>SKC is up close to 8% this morning. Today's share price rise is believed to be due to the ambitious plan to transform itself into a mobility material business by investing ₩5T by 2025. Through this, SKC plans to achieve a market cap of ₩30T by 2025.</p><p>Specifically, SKC announced plans to start various secondary battery material businesses, such as silicon anode materials and high nickel cathode materials, in addition to the expansion of its copper foil business.</p><div class="content-highlight"><p><strong>SKC has set a goal to increase the mobility material unit EBITDA from the current ₩380B to ₩2.5T by 2025, accounting for 80% of the total EBITDA.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/008/original/1.png?1632706939" class="editor-image img-responsive" data-smartkarma-image-id="232008"></figure></section><div class="content-caption">(Source: SKC)</div><p>There seems to be no disagreement as to the fact that these are new businesses that are essential for SKC's growth.</p><div class="content-highlight"><p><strong>However, what the market is really interested in is how SKC will raise this ₩5T.</strong></p></div><p>What SKC says on the surface is that it plans to secure it through strategic financing with financial partners, internal cash and asset optimization, etc. Well, isn't this wording too vague?</p><p>However, SKC presented three fairly specific guidelines along with such vague wording.</p><ol>
<li><strong>Debt ratio: 150~200%</strong></li>
<li><strong>Net Debt-to-EBITDA ratio: less than 4x</strong></li>
<li><strong>Protection of stakeholder interests (well, I do not fully understand what this means.)</strong></li>
</ol><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/009/original/2.png?1632707692" class="editor-image img-responsive" data-smartkarma-image-id="232009"></figure></section><div class="content-caption">(Source: SKC)</div><p>First, the current level meets the guideline of less than 200%. As of the first half of this year, SKC's debt-to-equity ratio was 182%. It is worse than the 130% debt ratio maintained before 2019, but considering the current cash flow level, it is difficult to see it as dangerous.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/010/original/3.png?1632708315" class="editor-image img-responsive" data-smartkarma-image-id="232010"></figure></section><div class="content-caption">(Source: FnGuide)</div><p>ND/EBITDA stood at 5.6x at the end of last year. However, by the end of this year, this ratio is expected to drop to less than 4x. It is because SKC's EBITDA is growing at a reasonably rapid pace. EBITDA increased from ₩300B in 2017 to ₩380B last year and is expected to reach more than ₩600B this year.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Consolidated"}'>Consolidated</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43070}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2017</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43435}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2018</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43800}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2019</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44166}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2020</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44348}' data-sheets-numberformat='{"1":5,"2":"yyyy/mm","3":1}'>2021E (annualized based on 1H21)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Net-debt"}'>Net-debt</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1238.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,238.4B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1295.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,295.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1595.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,595.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2149.7}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩2,149.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2410.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩2,410.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EBITDA"}'>EBITDA</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":298.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩298.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":328}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩328.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":283.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩283.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":386.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩386.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":638.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩638.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ND/EBITDA"}'><strong>ND/EBITDA</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.154310634015431}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>4.15x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.949085365853658}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>3.95x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.63617096432356}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>5.64x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.560527677185721}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>5.56x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.772855353788353}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>3.77x</strong></td>
</tr>
<tr><td colspan="6" rowspan="1" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: FnGuide</td></tr>
</tbody>
</table>

SKC is up close to 8% this morning. Today's share price rise is believed to be due to the ambitious plan to transform itself into a mobility material business by investing ₩5T by 2025. Through this, SKC plans to achieve a market cap of ₩30T by 2025.Specifically, SKC announced plans to start various secondary battery material businesses, such as silicon anode materials and high nickel cathode materials, in addition to the expansion of its copper foil business.SKC has set a goal to increase the mobility material unit EBITDA from the current ₩380B to ₩2.5T by 2025, accounting for 80% of the total EBITDA.(Source: SKC)There seems to be no disagreement as to the fact that these are new businesses that are essential for SKC's growth.However, what the market is really interested in is how SKC will raise this ₩5T.What SKC says on the surface is that it plans to secure it through strategic financing with financial partners, internal cash and asset optimization, etc. Well, isn't this wording too vague?However, SKC presented three fairly specific guidelines along with such vague wording.
Debt ratio: 150~200%
Net Debt-to-EBITDA ratio: less than 4x
Protection of stakeholder interests (well, I do not fully understand what this means.)
(Source: SKC)First, the current level meets the guideline of less than 200%. As of the first half of this year, SKC's debt-to-equity ratio was 182%. It is worse than the 130% debt ratio maintained before 2019, but considering the current cash flow level, it is difficult to see it as dangerous.(Source: FnGuide)ND/EBITDA stood at 5.6x at the end of last year. However, by the end of this year, this ratio is expected to drop to less than 4x. It is because SKC's EBITDA is growing at a reasonably rapid pace. EBITDA increased from ₩300B in 2017 to ₩380B last year and is expected to reach more than ₩600B this year.










Consolidated
2017
2018
2019
2020
2021E (annualized based on 1H21)


Net-debt
₩1,238.4B
₩1,295.3B
₩1,595.6B
₩2,149.7B
₩2,410.1B


EBITDA
₩298.1B
₩328.0B
₩283.1B
₩386.6B
₩638.8B


ND/EBITDA
4.15x
3.95x
5.64x
5.56x
3.77x

Source: FnGuide



SKC Is up 8% Today on a ₩30T Target Value by 2025, but How to Raise a ₩5T Investment?

South Korea

SKC Co., Ltd. manufactures a variety of films, including polyester films, silicon coated films, and inkjet films.  The Company also produces chemical products, such as propylene oxide, propylene glycol, and styrene monomer. In addition, SKC provides materials for photovoltaic.

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SKC Co Ltd (011790 KS)

FnGuide & KRX K-New Deal Batteries: Combined Passive Flows Preview on March 10-15

This post estimates the combined passive flows of Korea's local battery stocks from the rebalancings of the FnGuide Battery Index and the KRX K-New...

Sanghyun Park

KRX K-New Deal Index Screening Period Ended: Rebalancing Changes & Passive Impacts Update

The KRX K-New Deal Index's screening period ended last Friday. This post updates the screening results and passive impacts.

Sanghyun Park

KODEX Battery ETF Rebalancing Cycle Changed to Quarterly: Preview for March Rebalancing

The rebalancing cycle of the KODEX Secondary Battery ETF was changed from semi-annual to quarterly. This post previews the upcoming rebalancing...

Sanghyun Park

SK Inc - SoTP Valuation Analysis and 3 Key Catalysts (SK E&S, SK Pharmteco, & SK Siltron)

In this insight, we provide an updated NAV valuation analysis of SK Inc. Our updated base case valuation of SK Inc is 381,838 won per share,...

Douglas Kim

SKC Is up 8% Today on a ₩30T Target Value by 2025, but How to Raise a ₩5T Investment?

This post discusses SKC's 8% price overshooting today and why we may have to consider a short trading approach on SKC with the possibility of a...

Sanghyun Park

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