Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/hancom-inc" target="_blank" data-smartkarma-citation="entities:13366:1" rel="noopener">Hancom Inc (030520 KS)</a> ("Hancom") is the second company we introduce in our series "Korea Small Cap Gem". The company is best known for its Korean office software program which has survived more than 30 years against the mighty Microsoft office. In Korea, Hancom has maintained a nearly 30% share in the office software market with Microsoft having 70% market share for nearly 30 years. In 1Q 2020, the masks &amp; protection equipment business generated 26.6 billion won in sales. The company has benefited greatly from selling more face masks due to COVID-19. Hancom Lifecare generated 20.2 billion won in sales (up 161% YoY) and 6.3 billion won in operating profit (up 1,498% YoY) in 1Q 2020, driven by the strong sales of KF94 face masks. One of the big concerns investors have had on this company in the past few years is why the company decided to enter the personal protection equipment (PPE) sector with a big acquisition in 2017. Now this investment has become a big homerun and it is likely that as the company's ROE and operating margins improve again, many investors may attach higher valuation multiples on the company. So Hancom is well poised to benefit from a combination of higher multiples and increasing profits. If we assume EBIT of 50 billion won and 9x EV/EBIT multiple, this would suggest EV of 450 billion won, which would imply a market cap of 467 billion won (50%+ upside from current levels; price - 12,300 won as of 22 May 2020).

Hancom Inc (030520 KS) ("Hancom") is the second company we introduce in our series "Korea Small Cap Gem". The company is best known for its Korean office software program which has survived more than 30 years against the mighty Microsoft office. In Korea, Hancom has maintained a nearly 30% share in the office software market with Microsoft having 70% market share for nearly 30 years. In 1Q 2020, the masks &amp; protection equipment business generated 26.6 billion won in sales. The company has benefited greatly from selling more face masks due to COVID-19. Hancom Lifecare generated 20.2 billion won in sales (up 161% YoY) and 6.3 billion won in operating profit (up 1,498% YoY) in 1Q 2020, driven by the strong sales of KF94 face masks. One of the big concerns investors have had on this company in the past few years is why the company decided to enter the personal protection equipment (PPE) sector with a big acquisition in 2017. Now this investment has become a big homerun and it is likely that as the company's ROE and operating margins improve again, many investors may attach higher valuation multiples on the company. So Hancom is well poised to benefit from a combination of higher multiples and increasing profits. If we assume EBIT of 50 billion won and 9x EV/EBIT multiple, this would suggest EV of 450 billion won, which would imply a market cap of 467 billion won (50%+ upside from current levels; price - 12,300 won as of 22 May 2020).

South Korea

Hancom Secure Inc. markets data security related products, such as network equipment, servers and fire wall. The Company also develops and markets security solutions such as public key infrastructure (PKI) solutions for electronic commerce transactions, security and certification solutions, and secure e-mail.

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Hancom With Inc (054920 KS)

Korea Small Cap Gem #2: Hancom Inc

Hancom Inc (030520 KS) ("Hancom") is the second company we introduce in our series "Korea Small Cap Gem". The company is best known for its Korean...

Douglas Kim

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